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EX-31.1 - MedClean Technologies, Inc.v176213_ex31-1.htm
EX-31.2 - MedClean Technologies, Inc.v176213_ex31-2.htm
EX-32.1 - MedClean Technologies, Inc.v176213_ex32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 


FORM 10-K
 

 
MARK ONE:

x
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

o
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-3125

MEDCLEAN TECHNOLOGIES, INC.
(formerly known as ADUROMED INDUSTRIES, INC.)
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
21-0661726
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
3 Trowbridge Drive, Bethel, Connecticut
 
06801
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone number, including area code
 
(203) 798 1080
 
Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par value $0.0001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o  No x

 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definition 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
 
x Smaller reporting company
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
The aggregate market value of registrant’s voting and non-voting common equity held by non-affiliates (as defined by Rule 12b-2 of the Exchange Act) computed by reference to the average bid and asked price of such common equity on February 26, 2010 was $12,258,301.

 
 

 

As of February 28, 2010 the issuer has one class of common equity, and the number of shares outstanding of such common equity is 686,376,388.
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

Statements contained in this Annual Report on Form 10-K which are not historical facts are forward-looking statements within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934, as amended. A forward-looking statement may contain words such as “anticipate that,” “believes,” “continue to,” “estimates,” “expects to,” “hopes,” “intends,” “plans,” “to be,” “will be,” “will continue to be,” or similar words. These forward-looking statements include the statements in this Report regarding: our expected financial position and operating results; our business strategy; future developments in our markets and the markets in which we expect to compete; our future ability to fund our operations; our development of new products and relationships; our ability to increase our customer base; the impact of entering new markets; our future cost of revenue, gross margins and net losses; our future restructuring, research and development, sales and marketing, general and administrative, and depreciation and amortization expenses; our future interest expenses; the value of our goodwill and other intangible assets; our future capital expenditures and capital requirements; our financing plans; the outcome of any contingencies and the anticipated impact of changes in applicable accounting rules.
 
The accuracy of these forward-looking statements may be impacted by a number of business risks and uncertainties that could cause actual results to differ materially from those projected or anticipated. These risks include the risks described in “Item 1A — Risk Factors” below. We do not undertake any obligation to update this forward-looking information, except as required under applicable law.

 
2

 

TABLE OF CONTENTS
 
PART I
 
4
 
Item 1.
Business
4
 
Item1A.
Risk Factors
12
 
Item1B.
Unresolved Staff Comments
15
 
Item 2.
Properties
15
 
Item 3.
Legal  Proceedings
16
 
Item 4.
Submission of Matters to a Vote of Security Holders
16
       
PART II
 
16
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
16
 
Item 6.
Selected Financial Data
16
 
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
 
Item7A.
Quantitative and Qualitative Disclosures about Market Risk
22
 
Item 8.
Financial Statements and Supplementary Data
23
 
Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
24
 
Item9A.
Controls and Procedures
24
 
Item9B.
Other Information
24
   
PART III
 
 
Item10.
Directors, Executive Officers and Corporate Governance
25
 
Item11.
Executive Compensation
27
 
Item12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
31
 
Item13.
Certain Relationships and Related Transactions and Director Independence
33
       
PART IV
   
 
Item14.
Principal Accountant Fees and Services
33
 
Item15.
Exhibits, Financial Statement Schedules
34
   
SIGNATURES
37
EX-31.1
 
EX-31.2
 
EX-32.1
 
EX-32.2
 
 
 
3

 
 
PART I

Item 1.  Business.
 
Background

BUSINESS DEVELOPMENT

Effective January 2, 2009, the issuer (“MCLN” or “Company”) changed its corporate name from Aduromed Industries, Inc. (“AII”) to MedClean Technologies, Inc. Also effective January 2, 2009, the Company merged its former wholly-owned subsidiary, Aduromed Corporation (“Aduromed”), 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.
 
·
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.

 
4

 

 
·
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 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. In order to facilitate the terms of the MRA, effective August 4, 2008, the number of authorized common stock of the Company was increased from 200,000,000 to 1,400,000,000 and a Certificate of Amendment to the Company’s Certificate of Incorporation evidencing such increase was filed with the Secretary of State of the State Delaware on August 4, 2008.

On 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 have a five year term and, along with the 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”), had 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.

Effective September 26, 2007, the number of authorized shares of common stock of the Company, par value $0.0001, was increased from 130,000,000 to 200,000,000 and the number of authorized shares of preferred stock of the Company, par value $0.0001, was increased from 40,000,000 to 60,000,000 and a Certificate of Amendment to the Company’s Certificate of Incorporation evidencing such increases was filed with the Secretary of State of the State of Delaware on September 26, 2007.

On 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 had an original issue discount of 10%, bore interest at 12% per annum and had a maturity of six months. These loans were secured by the assets of the Company and were guaranteed by Aduromed. In connection with the loan, the investors also received the Loan Warrants. The net proceeds of the loan was approximately $1,036,470 after discounts, placement fees and expenses.

Effective April 16, 2007, the number of authorized common stock of the Company was increased from 100,000,000 to 130,000,000 and a Certificate of Amendment to the Company’s Certificate of Incorporation evidencing such increase was filed with the Secretary of State of the State of Delaware on April 16, 2007.
 
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 MCLN. Aduromed was the Company’s sole operating entity before it merged with and into the Company effective January 2, 2009.

 
5

 

Pursuant to the terms of the Merger, each holder of a share of Aduromed's common stock (par value $0.01 per share) became entitled to 1.795 shares of the Company’s Common Stock, and each holder of Aduromed's series A preferred stock (par value $0.01 per shares) became entitled to 1.795 shares of the Company’s Series A Preferred Stock. In addition, warrants previously issued to the Preferred Holders entitling them to purchase a total of 3,489,527 shares of Aduromed common stock at $0.68 per share were converted into Company warrants ("Series A Investor Warrants") to purchase 6,263,700 shares of Company Common Stock at $0.37883 per share. In addition, all warrants issued by Aduromed then outstanding ("Aduromed Warrants") were converted into warrants issued by the Company to purchase Company Common Stock at a conversion rate of 1.795 shares of such Common Stock for each share covered by the Aduromed Warrants with an exercise price per share reduced by a corresponding factor of 1.795.

Also pursuant to the terms of the Merger, the Company agreed to assume the obligations of Aduromed under the securities purchase agreement, dated as of September 30, 2005, between the Preferred Holders and Aduromed as amended by the Amended and Restated Securities Purchase Agreement dated as of January 23, 2006; and, pursuant thereto, on January 23, 2006 the Company issued 15,780,160 shares of its Series B Preferred Stock and 15,780,160 warrants ("Series B Investor Warrants"), each to purchase 15,780,160 shares of Company Common Stock at $0.31754 and $0.37883 per share, respectively, to the Preferred Holders in consideration for their investing an additional $5,010,970 in the Company. (The Series A Investor Warrants and the Series B Investor Warrants are hereinafter referred to collectively, as the "Investor Warrants".)
 
In order to facilitate the Merger, on December 12, 2005 the Company filed a Certificate of Amendment to its Certificate of Incorporation providing for an increase in the number of its authorized shares of stock from 12,000,000 to 140,000,000, of which 100,000,000 are shares of Common Stock and 40,000,000 are shares of Preferred Stock, each with a par value of $0.0001 per share. Also on December 12, 2005, the Company effected a 1:5 reverse split of its common stock. On January 23, 2006, Certificates of Designations were filed with the Delaware Secretary of State creating, out of the authorized preferred stock, 6,263,702 shares of a new Series A Preferred Stock and 15,780,160 shares of a new Series B Preferred Stock.

During the three years prior to the consummation of the Merger, MCLN had no material assets.

Prior to the Merger, the Company had been inactive since 1993. On October 18, 2005 three investors who held a controlling interest in the Company sold their interest to Halter Capital Corporation a Texas corporation (“HCC”), in a cash transaction valued at $198,199.47.

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.

On September 23, 2005, Aduromed filed its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State by which it authorized 50,000,000 shares of common stock (par value $0.01 per share) and 20,000,000 shares of preferred stock (par value $0.01 per share); and on October 3, 2005, it filed a Certificate of Designations of Series A Preferred Stock with the Delaware Secretary of State. On October 5, 2005 it issued 3,489,527 shares of its series A preferred stock and warrants covering 3,489,527 shares of its common stock to the Preferred Holders in consideration for their investment in the company of $1,989,030.

Neither Aduromed nor its predecessor has ever been the subject of any bankruptcy, receivership or similar proceeding.

Other than the aforementioned events the Company has not been a party to any material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.

BUSINESS OF THE COMPANY

General.
 
MCLN 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.

 
6

 

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.

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 40/45/53’ 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.

 
7

 

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 MCLN’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, MCLN’s “traditional” custom installed technology, is still available for those prospective clients who wish not to choose 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 4200
MC 4300
Up to 300,000 lbs.
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 4200 (2 cart)
MC 4300 (3 cart)
Up to 300,000 lbs.
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 custom manufactured 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.

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.

 
8

 
 
The Company traditionally addressed the LQG segment – Very Large Hospitals >400 beds.  The Company’s new container/mobile system configurations coupled with the new MC 4200 configuration will address opportunities in the lower end of the LQG market segment (100 – 250 beds).  Additionally, the Company is considering product line extensions through technology licensing and/or reseller agreements to provide its field sales force and agent network with a solution to penetrate this target rich environment.

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 Appliance or for licensing and/or resale of an existing validated technology.

The current US medical waste market is estimated to be $2.0 billion (3.1 billion pounds) annually.  Another estimated $2.0 billion dollars exists in confidential document destruction annually as well in this market.

The Company’s current and pending installations, both domestically and internationally, total 35 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.
 
·
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 MedClean’s 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.

 
9

 

 
·
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 Company’s 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.
 
 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.

 
10

 

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, and Red Bag Solutions, 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 specifically configured equipment components of the systems are generally supplied by the following principal suppliers:

·
Autoclave:
 
SteelCraft Industries Limited
·
Shredder:
 
Weima America Corporation
·
Aluminum QuietCarts®: 
 
Specialty Metal Products, Inc.
·
Cart liners: 
 
MPF, Inc.
 
 
11

 
 
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 year, 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 is a member of MedAssets, MedAssets provides services to improve healthcare providers’ operating margins and cash flow delivering the potential to increase a typical health systems’ net patient revenue by 1-3% and decrease supply expense by 3-10%.  There are no contracted volume minimums or maximums as part of the MedAssets relationship. The Company continues to have informal relationships with several other key market players.  These relationships change from time to time.

Employees

As of February 17, 2010 the Company had 5 full time employees, two full time consultants and three contracted sales agents.  The company utilizes third party contractors (7 to 10 different organizations) for certain service engagements as well as for sales lead generation (up to 12 to 14 external sales representatives).  We believe through our formal and informal agreements the Company is well positioned to manage future business requirements.

Item 1A.  Risk Factors.

Business Risks

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 $(5,368,515), or $(0.01) per share, for the fiscal year ended December 31, 2009, compared to a net loss of $(7,829,999), or $(0.03) per share, for the fiscal year ended December 31, 2008. The Company might not achieve the level of revenues needed to be profitable in the future or, if profitability is achieved, might not sustain such profitability.

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. 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.

 
12

 
 
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 Quiet Cart®. 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. That same patent application also aims to protect the sterilization protocol/process applied to the medical waste.  The Company believes the sterilization protocol provides a competitive advantage in the form of efficacious waste treatment within an efficient process cycle time.  Other than these patent filings, the Company does not have nor does it intend to apply for patent protection with respect to the  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 develop new products that will realize broad market acceptance.

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.

 
13

 

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.

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.  In the last 52 week period, the Common Stock traded on the OTC Bulletin Board from a high closing price of $0.076 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.

 
14

 

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 February 19, 2010, the closing price for our Common Stock was $0.0205 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.

Item 1B.  Unresolved Staff Comments.
 
Not applicable.

Item 2.  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.

 
15

 

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.  On October 31, 2009, the Company terminated this lease.

Item 3.  Legal Proceedings.
 
None.
 
Item 4.  Submission of Matters to a Vote of Security Holders.
 
Not applicable.

PART II
 
Item 5.  Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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
   
0.009
     
0.002
 
September 30
   
0.002
     
0.001
 
December 31
   
0.044
     
0.001
 
                 
2008
               
March 31
 
$
0.25
   
$
0.09
 
June 30
   
0.10
     
0.03
 
September 30
   
0.22
     
0.04
 
December 31
   
0.25
     
0.02
 
 
As of February 22, 2010 the Company had 1,378 stockholders of record.

Recent Issuances Involving Unregistered Securities

During 2009, we issued 93,260,439 shares of common stock were issued as a result of warrant and option conversions.

In December 2009, we issued an aggregate of 20,621,282 shares of its common stock for services rendered.

Item 6.  Selected Financial Data.
 
Not applicable.
 
16

 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

The Company is including the following cautionary statement in this Annual  Report on Form 10-K for any forward-looking statements made by, or on behalf of, the Company including its former wholly-owned subsidiary Aduromed Corporation. 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 and continuing good relations with MedAssets . We are also subject to numerous Risk Factors relating to manufacturing, regulatory, financial resources and personnel as described in this Annual Report. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

Results of Operations

Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Net Revenue

Total revenue for 2009 was $2,547,006 compared with $2,098,067 for 2008. Of the revenue increase of $448,939 or 21.4%, $507,935 was attributable to an increase of revenues derived from sales of our MedClean system, which was partially offset by a $58,996 decrease for the sale of consumables, component parts and service contracts. Contract backlog as of December 31, 2009 was $657,673.

Revenues from our MedClean system for 2009 were $1,245,411 compared to $737,476 in 2008, an increase of $507,935. The increased revenue was attributable to new contracts in 2008 executed in 2009 and our ability to accelerate system installations into the second half of 2009 on existing contracts in backlog.

Revenues derived from the sale of consumables, component parts and service contracts decreased to $1,301,595 compared to $1,360,591 in the prior year. The revenue was attributable to orders for goods and services from a consistent 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, clients are invoiced on contract signing, delivery of components, and completion of installation and start-up.
 
Revenues derived from the sale of units may continue to fluctuate dramatically from period to period due to several factors including; the length of the sales cycle with any given customer, current and future market conditions with regard to financing programs available to customers, and our ability to focus and execute new acquisition options.  The Company expects to add rental and per pound usage acquisition options to our currently available one-time purchase and leasing programs.  These new programs will be focused on generating recurring revenue in an effort to add predictability to our future revenue generation.

Gross Profit
 
The gross profit for 2009 was $1,281,442 (50.3% of total revenue) compared with a gross profit in 2008 of $389,819 (18.6% of total revenue).
 
17

 
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 18.6% to 50.3%, or a 170% increase.  In addition, our total gross profit increased due to our increase in revenue from the comparable period, last year. By carefully managing the business we have been able to ensure that we are invoicing for all services performed and therefore, have been able to increase our total gross profit and revenue as compared to the prior year.

The components of costs of revenues for products include direct materials, depreciation, shipping and rigging costs and contract labor primarily used to install, repair and maintain our equipment.
 
Operating Expenses
 
Total operating expenses for 2009 was $6,637,130 compared with $5,076,944 for 2008, an increase of $1,560,186 or 30.7%. 

In 2009, we incurred a $3,264,179 non cash charge to operations for the fair value of vesting options and warrants as compared to $1,938,118 in 2008 and $619,389 in 2009 for stock based compensation as compared to $817,250 in 2008; a net increase of $1,128,200 with other operating costs increasing by $431,986.

In the second half of 2009, we reduced our operating expenses significantly as compared to the first half of 2009 through cost cutting measures.  Please note our discussion under Net Loss below.
 
Interest (Income) Expense
 
Interest and other income for 2009 was $1,047 compared with $49,585 of interest and other income in 2008 on reduced cash balances available for investment.  The Company invests its excess cash in a money market account.  In 2008, the Company recognized a one-time gain of $32,775.
 
Interest expense and amortization for 2009 was $13,024 compared with $3,192,459 in 2008. Interest expense in 2008 was associated with the bridge loan and other interest bearing notes of $106,250. Reduced borrowings accounted for the interest in 2009. Additionally, in 2008 we recognized non-cash amortization expense for warrants issued amounting to $3,086,209 issued as a result of the MRA.

Net loss
 
Net loss for 2009 was $(5,368,515) compared to a net loss in 2008 of $(7,829,999).

   
For the 6th month period
   
For the 6th month period
       
   
ending 06/30/2009
   
ending 12/31/2009
   
YTD
 
                   
Total Revenues
  $ 772,183     $ 1,774,823     $ 2,547,006  
                         
Cost of Sales
  $ 507,657     $ 757,907     $ 1,265,564  
                         
Gross Profit
  $ 264,526     $ 1,016,916     $ 1,281,442  
      34 %     57 %     50 %
                         
Total Operating Expense
  $ 4,810,621     $ 1,826,509     $ 6,637,130  
                         
Income (loss) from operations
  $ (4,546,095 )   $ (809,593 )   $ (5,355,688 )
                         
Total Other income and expense
  $ 5,790     $ 7,038     $ 12,827  
                         
Net income (loss)
  $ (4,551,885 )   $ (816,631 )   $ (5,368,515 )
 
18

 
During 2009 the company took measures to reduce non-essential operating expenses through staff reduction and outsourcing certain business functions.  The net effect of the expense reduction programs and business restructuring began to take effect in the second half of 2009.  Results of  operations for the second half of 2009, net of  one-time severance fees ($200,151), stock based consulting fees not related to operations of ($619,389) and legal/professional fees  not related to operations $(33,240) resulted in  net income of $36,149, after consideration of one-time, non recurring costs.
 
Financial Condition

Liquidity and Capital Resources 

The Company’s cash on hand and working capital as of December 31, 2009 and 2008 are as follows:
 
   
2009
   
2008
 
Cash on hand
 
$
534,425
   
$
1,922,401
 
Working capital (deficit)
 
$
(229,469)
   
$
626,293
 
 
During 2009, the Company purchased $25,449 in fixed assets. The Company anticipates purchasing approximately $20,000 in additional fixed assets in 2010.

Net cash used in operating activities totaled $1,914,551 in 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 December 31, 2009 was $144,117 net of an allowance of $15,589.  The $32,167 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 2009, the Company decreased its inventory on hand by $70,717 to $815,634.  The accounts payable and accrued liabilities balance as of December 31, 2009 was $253,742.

In November and December 2009, we received $597,480 in gross proceeds for the exercise of 95,676,105 warrants and options to purchase our common stock.

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.
 
19

 
Critical Accounting Policies
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. A summary of the critical accounting policies and the judgments that we make in the application of those policies is presented in Note 1 to our consolidated financial statements.

Our consolidated financial statements are based on the selection of accounting policies and the application of accounting estimates, some of which require management to make significant assumptions. Actual results could differ materially from the estimated amounts. The following accounting policy is critical to understanding and evaluating our reported financial results:
 
Accounting for Stock-Based Compensation
 
We account for our stock options and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Therefore, our results include non-cash compensation expense as a result of the issuance of stock options and warrants and we expect to record additional non-cash compensation expense in the future.

Revenue recognition

Prior to 2009 we 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 the contracts were long term in nature and management considered total cost to be the best available measure of progress on the contracts. Beginning in 2009, we changed its product mix to short term contracts subject to customer acceptance upon completion.  Therefore, we recognize revenues upon completion of the system installation.  Clients will be invoiced upon the following milestones, contract signing, delivery of components, and the completion and acceptance 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 mobile unit will be recognized as we ship units. We provide a one year warranty on the systems installs. We also obtain a one year warranty on the system components from the component manufacturer, thereby mitigating potential warranty costs. Accordingly, we have 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, 2009 and 2008 we had $236,500 and $136,691 in deferred revenue from maintenance agreements.

Revenues from the sale of 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 mobile unit will be recognized ratably over the life of the rental contract.
 
20

 
Recent accounting pronouncements
  
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.

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. Adoption of ASU 2010-02 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. Adoption of ASU 2010-01 did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
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 September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. Adoption of ASU 2010-12 did not have a material impact on the Company’s consolidated results of operations or financial condition.

Inflation
 
Our opinion is that inflation has not had, and is not expected to have, a material effect on our operation.

Climate Change
 
Our opinion is that neither climate change, nor governmental regulations related to climate change, have had, or are expected to have, any material effect on our operations.
 
21

 
Off-Balance Sheet Arrangements
 
We do not have any off-balance sheet arrangements.
 
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.
 
Not Applicable.
 
22


ITEM 8- FINANCIAL STATEMENTS

MEDCLEAN TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

INDEX
 
Page
 
       
Report of Independent Registered Public Accounting Firm
    F-1  
         
Consolidated Balance Sheets as of December 31, 2009 and 2008
    F-2  
         
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
    F-3  
         
Consolidated Statements of Stockholders’ Equity (Deficit) for the two years ended December 31, 2009
    F-4  
         
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
    F-5  
         
Notes to the Consolidated Financial Statements
    F-6  
 
23

 
 
 
 
 
 
 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors and Audit Committee
Medclean Technologies, Inc.
Bethel, Connecticut
 
We have audited the consolidated balance sheets of Medclean Technologies, Inc. (the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009 and 2008. 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. as of December 31, 2009 and 2008, and the results of its consolidated operations and its consolidated cash flows for the years ended December 31, 2009 and 2008, 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 2 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 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Child, Van Wagoner & Bradshaw, PLLC
Salt Lake City, Utah
February 23, 2010
 
 
F-1

 
 
MEDCLEAN TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
 
   
2009
   
2008
 
             
ASSETS
           
Current assets
           
Cash
  $ 534,425     $ 1,922,401  
Accounts receivable, net of $15,589 and $23,081 allowance, respectively)
    144,117       176,284  
Revenues in excess of billings
    7,679       7,679  
Inventory
    815,634       886,351  
Prepaid expenses
    32,646       24,925  
Total current assets:
    1,534,501       3,017,640  
                 
Property, plant and equipment, net
    212,801       285,304  
                 
Other assets
               
Deposits
    32,808       38,260  
                 
Total assets
  $ 1,780,110       3,341,204  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities
               
Accounts payable and accrued liabilities
  $ 253,742     $ 653,785  
Payroll liabilities
    401,408       390,857  
Deferred revenue
    236,500       136,691  
Customer deposits
    -       386,428  
Billings in excess of revenue
    657,673       620,639  
Notes payable
    214,647       202,947  
Total current liabilities:
    1,763,970       2,391,347  
                 
Commitments and contingencies
               
                 
Stockholders' equity
               
Preferred stock, $0.0001 par value, 60,000,000 shares authorized, none issued outstanding
               
Common stock, $0.0001 par value; 3,500,000,000 shares authorized; 675,478,445 and 561,542,968 shares issued and outstanding as of December 31, 2009 and 2008, respectively
    67,548       56,154  
Additional paid in capital
    25,411,906       20,988,502  
Accumulated deficit
    (25,463,314 )     (20,094,799 )
Total stockholders' equity:
    16,140       949,857  
                 
Total liabilities and stockholders' equity
  $ 1,780,110     $ 3,341,204  

See the accompanying notes to the consolidated financial statements

 
F-2

 

MEDCLEAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009 AND 2008

   
2009
   
2008
 
Revenues
           
Contract revenues earned
  $ 1,245,411     $ 737,476  
Sales and service revenues
    1,301,595       1,360,591  
Total revenues
    2,547,006       2,098,067  
                 
Cost of sales
    1,265,564       1,708,248  
                 
Gross profit
    1,281,442       389,819  
                 
Operating expenses
               
Salaries and wages
    4,499,228       2,158,797  
General and administrative expenses
    2,058,834       2,846,712  
Depreciation
    79,068       71,435  
Total operating expenses
    6,637,130       5,076,944  
                 
Income (loss) from operations
    (5,355,688 )     (4,687,125 )
                 
Other income and expenses
               
Loss on sale of equipment
    (850 )     -  
Interest and other income
    1,047       49,585  
Interest expense
    (13,024 )     (3,192,459 )
                 
Net Income (loss) before income taxes
    (5,368,515 )     (7,829,999 )
                 
Provision for income taxes (benefit)
    -       -  
                 
Net income (loss)
  $ (5,368,515 )   $ (7,829,999 )
                 
Income (loss) per common share, basic and fully diluted
  $ (0.01 )   $ (0.03 )
                 
Weighted average common shares outstanding, basic and fully diluted
    569,491,872       237,941,766  

See the accompanying notes to the consolidated financial statements

 
F-3

 

MEDCLEAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 2009

   
Preferred Stock
   
Common Stock
   
Additional
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Paid in Capital
   
Deficit
   
Total
 
Balance, December 31, 2007
    22,043,862     $ 2,204       21,665,306     $ 2,167     $ 9,363,671     $ (12,054,800 )   $ (2,686,758 )
Sale of common stock
    -       -       303,297,456       30,330       4,915,670       -       4,946,000  
Cost of insurance
    -       -       -       -       (85,500 )     -       (85,500 )
Common stock issued in conversion of preferred stock and accrued dividends
    (22,043,862 )     (2,204 )     35,343,118       3,534       1,072,683       -       1,074,013  
Common stock issued in exchange for note payable
    -       -       93,750,000       9,375       2,375,358       -       2,384,733  
Common stock issued for services rendered
    -       -       525,000       52       120,698       -       120,750  
Common stock issued for services rendered
    -       -       4,500,000       450       674,550       -       675,000  
Common stock issued for services rendered
    -       -       111,446       11       18,489       -       18,500  
Common stock issued for services rendered
    -       -       24,590       2       2,998       -       3,000  
Common stock issued in exchange for restructuring of warrants
    -       -       78,246,052       7,825       (7,825 )     -       -  
Fair value of warrants and vested options issued for services rendered
    -       -       -       -       1,938,118       -       1,938,118  
Common stock issued in exchange for liquidated damages
    -       -       24,080,000       2,408       599,592       -       602,000  
Preferred stock dividend
    -       -       -       -       -       (210,000 )     (210,000 )
Net loss
    -       -       -       -       -       (7,829,999 )     (7,829,999 )
Balance, December 31, 2008
    -       -       561,542,968       56,154       20,988,502       (20,094,799 )     949,857  
Fair value of warrants and vested options issued for services rendered
    -       -       -       -       3,264,179       -       3,264,179  
Common stock issued in exchange for exercise of options and warrants
    -       -       93,314,195       9,332       588,148       -       597,480  
Common stock issued in connection with the sale of equity instruments
    -       -       20,621,282       2,062       617,327       -       619,389  
Fees paid in connection with the sale of equity instruments
    -       -       -       -       (46,250 )     -       (46,250 )
Net loss
    -       -       -       -       -       (5,368,515 )     (5,368,515 )
Balance, December 31, 2009
    -     $ -       675,478,445     $ 67,548     $ 25,411,906     $ (25,463,314 )   $ 16,140  

See the accompanying notes to the consolidated financial statements

 
F-4

 

MEDCLEAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009 AND 2008

   
2009
   
2008
 
Cash flows from operating activities:
           
Net loss
  $ (5,368,515 )   $ (7,829,999 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation
    96,308       86,272  
Fair value of common stock, options and warrants issued for services rendered
    3,264,179       1,938,118  
Common stock issued for debt financing costs
    -       1,130,841  
Common stock issued for services rendered and interest
    619,389       817,250  
Bad debt write-off
    -       23,081  
Loss on disposal of fixed assets
    850       25,139  
(Increase) decrease in:
               
Accounts receivable
    32,167       540,475  
Revenues in excess of billings
            (7,679 )
Inventory
    70,717       14,587  
Prepaid expenses
    (7,721 )     30,425  
Long term deposits
    5,452       (20,272 )
Increase (decrease) in:
               
Accounts payable
    (388,343 )     166,292  
Payroll liabilities
    10,551       360,948  
Deferred revenue
    99,809       (108,700 )
Customer deposits
    (386,428 )     -  
Billings in excess of revenue
    37,034       (600,699 )
Deposits payable
    -       386,428  
Net cash used in operating activities
    (1,914,551 )     (3,047,493 )
                 
Cash flows from investing activities:
               
Proceeds from sale of equipment
    794       -  
Purchase of equipment
    (25,449 )     (45,536 )
Net cash used in investing activities
    (24,655 )     (45,536 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of warrants
    597,480       -  
Proceeds from issuance of notes payable
    -       650,000  
Repayments of notes payable
    -       (707,285 )
Proceeds from sale of common stock
    -       4,946,000  
Cost of issuance of stock
    (46,250 )     (85,500 )
Net cash provided by financing activities
    551,230       4,803,215  
                 
(Decrease) increase in cash and cash equivalents
    (1,387,976 )     1,710,186  
                 
Cash and cash equivalents, beginning of period
    1,922,401       212,215  
                 
Cash and cash equivalents, end of period
  $ 534,425     $ 1,922,401  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 1,324     $ 94,547  
Taxes
  $ -     $ -  
                 
Supplemental disclosures of non-cash investing and financing activities:
               
Common stock issued in exchange for notes payable
  $ -     $ 2,384,733  
Common stock issued in exchange for preferred stock
  $ -     $ 1,076,217  
Common stock issued in settlement of preferred stock dividends
  $ -     $ 210,000  
Common stock issued in settlement of liquidated damages
  $ -     $ 602,000  
Retirement of Preferred stock
  $ -     $ 2,204  
Common stock issued in restructure
  $ -     $ 7,825  
Common stock issued for services rendered
  $ -     $ -  

See the accompanying notes to the consolidated financial statements
F-5

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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:

Basis and business presentation

The accompanying 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

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.

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.

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).

All significant intercompany balances and transactions have been eliminated in consolidation.

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.

Reclassification

Certain reclassifications have been made to prior periods’ data to conform with the current year’s presentation. These reclassifications had no effect on reported income or losses.

 
F-6

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 the contracts were long term in nature and management considered total cost to be the best available measure of progress on the contracts. Beginning in 2009 the Company changed its product mix to short term contracts subject to customer acceptance upon completion.  Therefore, the Company recognizes revenues upon completion of the system installation.  Clients will be invoiced upon the following milestones, contract signing, delivery of components, and the completion and acceptance 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 mobile unit will be 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 December 31, 2009 and 2008 the Company had $236,500 and $136,691 in deferred revenue from maintenance agreements.

Revenues from the sale of 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 mobile unit will be recognized ratably over the life of the rental contract.

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, 2009, the Company has cash balances on deposit in one account with a financial institution in excess of the federally insured limits.

 
F-7

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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.
 
Control by principal stockholders 

The directors, executive officers, participants 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

For 2009 and going forward, the Company does not anticipate that the loss of any one customer will have a significant adverse impact on our business.

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 December 31, 2009 and 2008, respectively.

Fair Values

In the first quarter of fiscal year 2008, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”).  ASC 820-10 defines fair value, establishes a framework for measuring fair value, and enhances fair value measurement disclosure. ASC 820-10 delays, until the first quarter of fiscal year 2009, the effective date for ASC 820-10 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of ASC 820-10 did not have a material impact on the Company’s financial position or operations. Refer to Footnote 11 for further discussion regarding fair valuation.

 
F-8

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 10 years.

Long-Lived Assets

The Company has adopted ASC 360-10. ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

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.

Income Taxes

The Company has adopted ASC subtopic 740-10, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.

Comprehensive Income

The Company does not have any items of comprehensive income in any of the periods presented.

Net Loss per Share

The Company has adopted ASC subtopic 260-10, which specifies the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per share because they are either anti-dilutive, or their effect is not material.

 
F-9

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Stock based compensation

Effective for the year beginning January 1, 2006, the Company has adopted ASC subtopic 718-10, which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro-forma disclosure is no longer an alternative. This statement does not change the accounting guidance for share based payment transactions with parties other than employees provided in ASC 718-10.  The

As more fully described in Note 7 below, the Company granted equity based compensation over the years to employees of the Company under its equity plans.  The Company granted non-qualified stock options to purchase 551,883,534 and 71,634,000 shares of common stock during the year ended December 31, 2009 and 2008, respectively, to employees and directors of the Company.

Fair Value of Financial Instruments

ASC subtopic 825-10 requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments.

Recent accounting pronouncements

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.

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. Adoption of ASU 2010-02 did not have a material impact on the Company’s consolidated results of operations or financial condition.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. Adoption of ASU 2010-01 did not have a material impact on the Company’s consolidated results of operations or financial condition.

 
F-10

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent accounting pronouncements (continued)
 
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. Adoption of ASU 2010-12 did not have a material impact on the Company’s consolidated results of operations or financial condition.

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 $534,425 at December 31, 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 3 - INVENTORIES

The following table summarizes these assets as of December 31, 2009 and December 31, 2008:

   
2009
   
2008
 
Component & spare parts
  $
767,325
    $
754,476
 
Consumables
   
30,980
     
21,234
 
Advance payments
   
17,329
     
110,641
 
Total inventory
  $
815,634
    $
886,351
 
 
 
F-11

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at December 31, 2009and 2008 are as follows:

   
2009
   
2008
 
Office Furniture
  $
164,525
    $
164,525
 
Computers and Accessories
   
208,881
     
206,091
 
Leasehold Improvements
   
135,380
     
117,997
 
     
508,706
     
488,613
 
Accumulated Depreciation
   
295,905
     
203,309
 
    $
212,801
    $
285,304
 

The Company uses the straight line method of depreciation over 3 to 10 years. During the years ended December 31, 2009 and 2008, depreciation expense charged to operations was $96,308 and $86,272, respectively, of which $17,240 and $14,837 was included as part of cost of sales, respectively.

NOTE 4 – CONTRACTS IN PROCESS

The Company recognizes revenue upon completion of the contract.  Prior to 2009, revenue was recognized as a percentage of completion.  The following table summarizes outstanding long term contracts and recognized revenue at December 31, 2009 and 2008:

The Company entered into construction type contracts to furnish and install its systems in hospitals. There were five outstanding contracts at December 31, 2009 and 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 December 31, 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
 
 
78,000
     
-
     
39,000
             
39,000
 
$
2,207,164
     
1,142,507
(1)   $
1,792,501
    $
7,679
    $
657,673
 
                                     
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
 

(1)
Revenue recognized in prior years on outstanding contracts.

 
F-12

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 5 – 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 December 31, 2009 and 2008 the balance due was $214,647 and $202,947 respectively.  

NOTE 6 – 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.

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.

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.

As of December 31, 2009 and 2008, there was no preferred stock outstanding.

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,  the Company increased its authorized common shares to 1.4 billion shares and:

NOTE 6 – CAPITAL STOCK (continued)

 
·
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.

 
F-13

 
 
 
·
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.

During 2008, 36,885,757 shares of common stock were issued as a result of warrant conversions.

During 2009, 93,314,195 shares of common stock were issued as a result of warrant and option conversions.

In December 2009, the Company issued an aggregate of 20,621,282 shares of its common stock in connection for services rendered.  The shares were valued at approximately $0.03 for a total value of $619,389.
 
As of December 31, 2009 and 2008, the Company had 675,478,445 and 561,542,968 shares of common stock issued and outstanding.

NOTE 7 – 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 December 31, 2009:
  
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009

NOTE 7 – WARRANTS AND OPTIONS (continued)
 
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
   
33,433,966
     
3.58
   
$
0.0040
     
33,433,966
   
$
0.0040
 
 
0.0075
   
91,122,206
     
3.59
     
0.0075
     
91,122,206
     
0.0075
 
 
0.0250
   
28,000,000
     
3.59
     
0.0250
     
28,000,000
     
0.0250
 
 
0.0900
   
600,000
     
3.21
     
0.0900
     
600,000
     
0.0900
 
 
0.2400
   
100,000
     
2.49
     
0.2400
     
100,000
     
0.2400
 
 
0.3788
   
2,204,386
     
1.06
     
0.3788
     
2,204,386
     
0.3788
 
 
0.5571
   
1,436,000
     
0.58
     
0.5571
     
1,436,000
     
0.5571
 
 
Total
   
156,896,558
     
3.52
   
$
0.0156
     
156,896,558
   
$
0.0212
 
 
 
F-14

 

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
   
(90,260,439
)
   
(0.0068
)
Canceled or expired
   
(334,838,226
)
       
Outstanding at December 31, 2009
   
156,896,558
   
$
0.0212
 
 
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 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.

In December 2009, the Company issued an aggregate of 87,898,529 shares of common stock in exchange for the exercise of 90,260,439 warrants.  The exercise prices ranged from $0.004 to $0.0075 resulting in proceeds of $597,480. 13,066,034 warrants were issued cashlessly.

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 December 31, 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
  
$
0.00400
   
543,843,284
 
4.38
 
$
0.00400
 
524,923,286
 
$
0.00400
 
 
.00844
   
80,883,534
 
5.86
 
$
0.00844
 
26,961,177
   
0.00844
 
Total    
624,726,818
 
4.57
 
0.0046
 
551,884,463
 
0.00422
 
 
 
F-15

 
 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
 
NOTE 7 – 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:
   
11,298,024
   
$
0.098
 
Granted
   
71,634,000
   
$
   
Exercised
   
         
Canceled or expired
   
(4,573,074
)
       
Outstanding at December 31, 2008:
   
78,358,950
   
$
0.072
 
Granted
   
551,883,534
     
0.00467
 
Exercised
   
-
     
-
 
Canceled or expired
   
(5,515,666
       
Outstanding at December 31, 2009:
   
624,726,818
   
$
0.004
 

On May 1, 2009, the Company granted options to purchase 471,000,000 shares of the Company’s common stock in consideration of employees accepting  no and or reduced cash 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 year ended December 31, 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.

On November 11, 2009, the Company granted an aggregate of 80,883,534 employee options vesting over three years with an exercise price of $0.00844 to purchase the Company’s common stock over five to seven years.

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:
 
F-16

 
Expected life (years)
   
5 to 7
 
Expected volatility
   
437.29
%
Risk-free interest rate
   
2.31 to 3.01
%
Dividend yield
   
%

During the year ended December 31, 2009 and 2008, the stock compensation expenses were $3,264,179 and $1,348,308, respectively.

In December 2009, the Company issued an aggregate of 5,415,666 shares of common stock for the exercise of options exercised with an exercise price of $0.004 per share.

NOTE 8 – COMMITMENTS AND CONTINGENCIES

Operating leases

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:

  2010
 
$
31,211
 
2011
   
11,870
 
2012
   
-
 
2013