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EX-31.1 - MedClean Technologies, Inc.v201862_ex31-1.htm
EX-32.1 - MedClean Technologies, Inc.v201862_ex32-1.htm
EX-32.2 - MedClean Technologies, Inc.v201862_ex32-2.htm
EX-31.2 - MedClean Technologies, Inc.v201862_ex31-2.htm
UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: September 30, 2010
 
or

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

For the transition period from                 to

Commission File Number: 000-03125

MEDCLEAN TECHNOLOGIES, INC.
(Exact Name of registrant as specified in its charter)

Delaware
21-0661726
(State or other Jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)

3 Trowbridge Drive
Bethel, Connecticut 06801
(Address of principal executive offices)

(203) 798-1080
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

¨
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 ¨   No x

As of November 12, 2010, there were 809,743,450 shares outstanding of the registrant’s common stock. 
 


TABLE OF CONTENTS

 
Page
PART I—FINANCIAL INFORMATION
   
Item 1. Financial Statements
3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 4
   
Item 3. Quantitative and Qualitative disclosures about Market Risk
7
   
Item 4. Controls and Procedures
7
   
PART II—OTHER INFORMATION
   
Item 1. Legal Proceedings
9
   
Item1A. Risk Factors
9
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
9
   
Item 3. Defaults Upon Senior Securities
9
   
Item 4. (Removed and Reserved)
9
   
Item 5. Other Information
9
   
Item 6. Exhibits
9
   
Signatures
10
 
2

 
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
PAGE
   
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009
F-1
   
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
F-2
   
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
F-3
   
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
F-4

3

 

 
MEDCLEAN TECHNOLOGIES, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
   
(unaudited)
       
ASSETS
           
Current assets
           
Cash
  $ 112,529     $ 534,425  
Accounts receivable, net of $24,693 allowance
    493,506       144,117  
Revenues in excess of billings
    7,679       7,679  
Inventory
    793,145       815,634  
Prepaid expenses
    81,478       32,646  
  Total current assets:
    1,488,337       1,534,501  
                 
Property, plant and equipment, net
    146,841       212,801  
                 
Other assets:
               
  Deposits
    32,808       32,808  
                 
Total assets
  $ 1,667,986       1,780,110  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
               
Current liabilities
               
Accounts payable and accrued liabilities
  $ 560,037     $ 253,742  
Payroll liabilities
    396,336       401,408  
Deferred revenue
    82,814       236,500  
Billings in excess of revenue
    805,041       657,673  
Notes payable
    223,422       214,647  
  Total current liabilities:
    2,067,650       1,763,970  
                 
Long term debt:
               
Convertible notes, net of debt discount of $309,373
    190,627       -  
  Total liabilities
    2,258,277       1,763,970  
                 
Stockholders' (deficit) 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; 764,496,874 and 675,478,445 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively
    76,450       67,548  
Additional paid in capital
    28,219,888       25,411,906  
Accumulated deficit
    (28,886,629 )     (25,463,314 )
  Total stockholders' (deficit) equity:
    (590,291 )     16,140  
                 
Total liabilities and stockholders' (deficit) equity
  $ 1,667,986     $ 1,780,110  
 
See the accompanying notes to these unaudited condensed consolidated financial statements
 
F-1

 
MEDCLEAN TECHNOLOGIES, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues
                       
  Contract revenue earned
  $ -     $ 1,229,361     $ -     $ 1,229,361  
  Sales and service revenues
    306,825       326,931       707,450       1,099,113  
Total revenues
    306,825       1,556,292       707,450       2,328,474  
                                 
Cost of sales
    53,084       642,043       290,211       1,141,080  
                                 
Gross profit
    253,741       914,249       417,239       1,187,394  
                                 
Operating expenses
                               
  Salaries and wages
    550,832       250,768       2,313,563       3,314,347  
  General and administrative expenses
    398,943       299,811       1,407,286       1,121,347  
  Depreciation
    22,523       20,998       67,453       65,157  
Total operating expenses
    972,298       571,577       3,788,302       4,500,851  
                                 
(Loss) income from operations
    (718,557 )     342,672       (3,371,063 )     (3,313,457 )
                                 
Other income and expenses
                               
  Interest and other income
    41       -       345       944  
  Interest expense
    (35,165 )     (3,366 )     (52,597 )     (900,066 )
                                 
Net (Loss) Income before income taxes
    (753,682 )     339,306       (3,423,315 )     (4,212,579 )
                                 
Provision for income taxes (benefit)
    -       -       -       -  
                                 
Net (Loss) Income
  $ (753,682 )   $ 339,306     $ (3,423,315 )   $ (4,212,579 )
                                 
(Loss) income per common share, basic
  $ (0.00 )   $ 0.00     $ (0.00 )   $ (0.01 )
                                 
(Loss) income per common share, basic
  $ (0.00 )   $ 0.00     $ (0.00 )   $ (0.01 )
                                 
Weighted average common shares outstanding, basic
    727,746,491       561,542,968       705,264,662       561,542,968  
                                 
Weighted average common shares outstanding, fully diluted
    727,746,491       561,542,968       705,264,662       561,542,968  
 
 
See the accompanying notes to these unaudited condensed consolidated financial statements
F-2

 
MEDCLEAN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
   
Nine months ended September 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net loss
  $ (3,423,315 )   $ (4,212,579 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation
    71,529       65,157  
Amortization of debt discount
    43,822       -  
Fair value of common stock, options and warrants issued for services rendered
    1,943,064       3,313,579  
(Increase) decrease in:
               
Accounts receivable
    (349,389 )     (89,525 )
Inventory
    22,489       47,813  
Prepaid expenses
    (48,832 )     (17,792 )
Increase (decrease) in:
               
Accounts payable
    315,070       (549,604 )
Payroll liabilities
    (5,072 )     -  
Deferred revenue
    (153,686 )     93,957  
Billings in excess of revenue
    147,368       (1,966 )
Deposits payable
    -       (298,908 )
Net cash used in operating activities
    (1,436,952 )     (1,649,868 )
                 
Cash flows from investing activities:
               
Purchase of equipment
    (5,569 )     (23,308 )
Net cash used in investing activities
    (5,569 )     (23,308 )
                 
Cash flows from financing activities:
               
Proceeds from issuance of put agreements
    300,000       -  
Proceeds from exercise of warrants
    220,625       -  
Proceeds from issuance of convertible notes
    500,000       -  
Net cash provided by financing activities
    1,020,625       -  
                 
(Decrease) increase in cash and cash equivalents
    (421,896 )     (1,673,176 )
                 
Cash and cash equivalents, beginning of period
    534,425       1,922,401  
                 
Cash and cash equivalents, end of period
  $ 112,529     $ 249,225  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 1,198     $ 1,324  
Taxes
  $ -     $ -  
 
 
See the accompanying notes to these condensed consolidated financial statements
F-3

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying financial statements is as follows:

General

The accompanying unaudited condensed consolidated financial statements of MedClean Technologies, Inc. and subsidiaries, (“MedClean” or the “Company” or “MCLN”), have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Accordingly, the results from operations for the nine-month period ended September 30, 2010, are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated December 31, 2009 financial statements and footnotes thereto included in the Company's Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 3, 2010.

The consolidated financial statements as December 31, 2009 have been derived from the audited consolidated financial statements at that date but do not include all disclosures required by the accounting principles generally accepted in the United States of America.

Business and Basis of Presentation

On January 2, 2009, the Company merged its wholly owned subsidiary, Aduromed Corporation into Aduromed Industries Inc. and changed its corporate name from Aduromed Industries, Inc. to MedClean Technologies, Inc.

MedClean is in the business of providing solutions for managing medical waste on site including designing; selling, installing and servicing on site (i.e. “in-situ”) turnkey systems to treat regulated medical waste. The Company provides these systems to hospitals and other medical facilities as efficient, safe, cost effective and legally compliant solutions to incineration, off site hauling of untreated waste and other alternative treatment technologies and methodologies. The MedClean Series System is offered in three configurations: Containerized System, Mobile System and the Fixed System (our traditional fixed installation).

Accounts Receivable

The Company assesses the realization of its receivables by performing ongoing credit evaluations of its customers’ financial condition. Through these evaluations, the Company may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The Company’s reserve requirements are based on the best facts available to the Company and are reevaluated and adjusted as additional information is received. The Company’s reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but not limited to, current economic trends, historical payment and bad debt write-off experience. Allowance for doubtful accounts for accounts and notes receivable was $24,693 and $15,589 as of September 30, 2010 and December 31, 2009, respectfully.

F-4


MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue recognition

The Company recognizes revenues upon completion of the system installation and customer acceptance.  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.

The Company provides a one year warranty on the systems it installs. The Company also obtains a one year warranty on the system components from the component manufacturer, thereby mitigating potential warranty costs. Accordingly, the Company has accrued no reserve for warranty. On the installed base after the warranty term has expired, the Company offers a maintenance agreement of one or more years to the customer. The Customer is billed for, and pays for the maintenance agreement in advance. Revenues from such maintenance agreements are recognized ratably over the lives of the maintenance agreements, with the excess of the amount collected over the amount recognized as deferred revenue. At September 30, 2010 and December 31, 2009 the Company had $82,814 and $236,500 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 September 30, 2010 and December 31, 2009, the Company has cash balances on deposit in one account with a financial institution in excess of the federally insured limits.

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.

F-5

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassification

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

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 2010 and going forward, the Company does not anticipate that the loss of any one customer will have a significant adverse impact on our business.

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 10 for further discussion regarding fair valuation.

Stock based compensation

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.  

F-6

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

As more fully described in Note 9 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 22,500,000 and 471,000,000 shares of common stock during the nine-month period ended September 30, 2010 and 2009, 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.

Inventory

The Company maintains an inventory, which consists primarily of component parts, spare parts and disposable goods.  The average cost method is utilized in valuing the inventory, and is stated at the lower of cost or market.  The following table summarizes these assets as of September 30, 2010 and December 31, 2009:

   
September 30,
2010
   
December 31,
2009
 
Component & spare parts
  $ 756,444     $ 767,325  
Consumables
    36,701       30,980  
Advance payments
 
   
      17,329  
Total inventory
  $ 793,145     $ 815,634  

Property, plant and equipment

The Company has property, plant and equipment that consist of automobiles, computers and related accessories, and office furniture.  The depreciation is calculated using the straight line method over the life of the property.  All property has a useful life of 3 to 10 years.  The following table summarizes these assets as of September 30, 2010 and December 31, 2009:

  
 
September 30, 
2010
   
December 31,
2009
 
Office Furniture
  $ 170,095     $ 164,525  
Computers and Accessories
    208,801       208,801  
Leasehold Improvements
    135,380       135,380  
Total property, plant and equipment     514,276       508,706  
Accumulated Depreciation
    367,435       295,905  
    $ 146,841     $ 212,801  

During the three and nine-month periods ended September 30, 2010, depreciation expense charged to operations was $23,827 and $71,529, respectively, of which $1,304 and $4,076 was included as part of cost of goods sold, respectively.
 
F-7


MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (loss) per common share

The net earnings (loss) per common share are computed by dividing the net loss for the period by the weighted average number of shares outstanding for the period. Shares issued upon conversion of convertible debt, outstanding warrants and options for the nine-month  periods ending September 30, 2010 and 2009 amounting to 887,342,295 and 619,096,836 respectively were not included in the calculation for net loss per common share because it would be antidilutive or exceeded the average market price of the Company’s common stock for period.

The numerator and denominator used in the basic and diluted earnings (loss) per share of common stock computations are presented in the following table:

   
Nine months ended September 30,
    Three months ended September 30,  
   
2010
   
2009
   
2010
   
2009
 
NUMERATOR FOR BASIC AND DILUTED EPS (LPS)
                       
Net loss (income) per statement of operations
  $ (3,423,315 )   $ (4,212,579 )   $ (753,681 )   $ (339,306 )
                                 
DENOMINATOR FOR BASIC AND DILUTED EPS (LPS)
                               
Weighted average shares of common stock outstanding-Basic
    705,264,662       561,542,968       727,746,491       561,542,968  
                                 
Basic EPS (LPS)
  $ (0.01 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
Weighted average shares of common stock outstanding-Fully diluted
 
705,264,662
   
561,542,968
   
727,746,491
      561,542,968  
Fully diluted EPS (LPS)
  $
(0.01
)   $
(0.00
)   $
(0.00
)   $ (0.00 )

Recent Accounting Pronouncements
 
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying amount reported in the consolidated condensed balance sheets for accounts receivables, accounts payable and accrued expenses and put liability approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported in the accompanying condensed consolidated balance sheets for line of credit approximates fair value because the actual interest rates do not significantly differ from current rates offered for instruments with similar characteristics.
 
We use fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. Cash, short term investment, warrants and reset derivatives are recorded at fair value on a recurring basis. In accordance with Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), we group our assets at fair value in three levels, based on the markets in which the assets are traded and the reliability of the assumptions used to determine fair value.

F-8

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In May 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-19 (ASU 2010-19), Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates. The amendments in this Update are effective as of the announcement date of March 18, 2010.  The Company does not expect the provisions of ASU 2010-19 to have a material effect on the financial position, results of operations or cash flows of the Company.

In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-17 (ASU 2010-17), Revenue Recognition-Milestone Method (Topic 605): Milestone Method of Revenue Recognition.  The amendments in this Update are effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted.  If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption.  The Company does not expect the provisions of ASU 2010-17 to have a material effect on the financial position, results of operations or cash flows of the Company.

In March 2010, the FASB issued new accounting guidance, under ASC Topic 605 on Revenue Recognition.  This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved.  Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement.  To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement.  No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement.  The standard is effective for interim and annual periods beginning on or after June 15, 2010.  The Company is currently evaluating the impact the adoption of this guidance will have on its financial statements.

In February 2010, the FASB issued ASU No. 2010-09, which updates the guidance in ASC 855, Subsequent Events, such that companies that file with the SEC will no longer be required to indicate the date through which they have analyzed subsequent events. This updated guidance became effective immediately upon issuance and was adopted as of the first quarter of 2010.

In January 2010 the FASB issued Update No. 2010-06 Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements (“2010-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements, and disclosures regarding purchases, sales, issuances and settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also calls for further disaggregation of all assets and liabilities based on line items shown in the statement of financial position. This amendment is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company is currently evaluating whether adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's consolidated financial position, results of operations or cash flows.

F-9

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

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 $112,529 at September 30, 2010 which it intends to utilize for working capital purposes and to continue developing its business. To supplement its cash resources, the Company has secured alternative financing arrangements with two investment entities. While the acquisition of cash through these programs is related to company performance, we believe we will have access to the necessary funds for us to execute our business plan.  However, we continue to incur significant operating losses which will result in the reduction of our cash position.  We cannot assure that we will be able to continue to obtain funding through the alternative financing arrangements 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 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 – CONTRACTS IN PROCESS

The Company entered into construction type contracts to furnish and install its systems in hospitals. There were five outstanding contracts at September 30, 2010 and four outstanding contracts at December 31, 2009.  The following table summarizes these outstanding contracts:
 
Contract
   
Revenue
   
Amounts
   
Revenues in
   
Billings in excess
 
Amount
   
Recognized
   
Billed
   
excess of Billings
   
of Revenues
 
Outstanding contracts at September 30, 2010:
             
$ 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  
  750,000       -       375,000       -       375,000  
  445,200       -       -       -       -  
$ 3,041,416       1,142,507 (1)   $ 1,939,869     $ 7,679     $ 805,041 (2)
                                     
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     $ 1,792,501     $ 7,679     $ 657,673  
 
(1)   Revenue recognized in prior years on outstanding contracts.
(2)   Deferred revenues to be recognized based upon our Revenue Recognition policy.
F-10

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010


NOTE 4 – NOTES PAYABLE-SHORT TERM

The Company’s outstanding unsecured note bears a 12% interest rate and matured on December 15, 2003. Both parties have entered a verbal agreement to extend the maturity date on this note indefinitely. No accrued interest has been paid on this note to date. As of September 30, 2010 and December 31, 2009 the balance due was $214,647 and $214,647 respectively.  

NOTE 5 – LINE OF CREDIT

On August 5, 2010, the Company and Southridge Partners II, LP (“Southridge”) entered into an Equity Credit Agreement (the “Equity Credit Agreement”). Pursuant to the Agreement, Southridge has agreed to provide the Company with up to $15,000,000 of funding during the 36-month period following the date a registration statement of the Company’s common stock is declared effective by the SEC (the “Equity Line”).  During this 36-month period, commencing on the date on which the SEC first declares effective our registration statement, the Company may request a draw down under the Equity Line by which the Company would sell shares of its common stock to Southridge, which is obligated to purchase the shares under the Equity Line Agreement. For each share of our common stock purchased under the Equity Credit Agreement, Southridge will pay ninety-five percent (95%) of the average of two lowest closing bid price of any two applicable trading days, consecutive or inconsecutive, during the five (5) trading day period (the “Valuation Period”) commencing the date a put notice (the “Put Notice”) is delivered to Southridge in a manner provided by the Equity Credit Agreement.  Subject to certain limitations and floor price reductions, the Company may, at its sole discretion, issue a Put Notice to Southridge and Southridge will then be irrevocably bound to acquire such shares.

During the nine months ended September 30, 2010, the Company “put” 32,145,841 shares of common stock for $300,000.

NOTE 6 – CONVERTIBLE NOTES

On April 1, 2010, the Company issued a $600,000 Convertible Promissory Note that matures March 31, 2013 in exchange for a promissory note receivable. The Promissory Note bears a onetime interest charge at a rate of 6% per annum and will be convertible into Company’s common stock at any time at a conversion rate of the highest of a) 70% of the lowest closing price in the 20 trading days previous to the conversion or b) par value of the Company’s common stock.

For presentation purposes, the Company offset the unpaid promissory note receivable against the carrying value of the Convertible Promissory Note.

In accordance with Accounting Standards Codification subtopic 470-20, Debt With Conversions and Other Options (“ASC 470-20”), the Company recognized an embedded beneficial conversion feature present in the reporting carrying value of the Convertible Promissory Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $303,195 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note. The debt discount attributed to the beneficial conversion feature is charged operations as interest expense ratably over the term of the note.
 
For the nine months ended September 30, 2010, the Company amortized the debt discount and charged $39,529 to interest expense.
 
F-11


MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 6 – CONVERTIBLE NOTES (continued)
 
As of September 30, 2010, $450,000 has been has been received on the related note receivable.

On June 14, 2010, the Company issued a $600,000 Convertible Promissory Note that matures June 13, 2013 in exchange for a promissory note receivable. The Promissory Note bears a onetime interest charge at a rate of 6% per annum and will be convertible into Company’s common stock at any time at a conversion rate of the highest of a) 70% of the lowest closing price in the 20 trading days previous to the conversion or b) par value of the Company’s common stock.

For presentation purposes, the Company offset the unpaid promissory note receivable against the carrying value of the Convertible Promissory Note.

In accordance with Accounting Standards Codification subtopic 470-20, Debt With Conversions and Other Options (“ASC 470-20”), the Company recognized an embedded beneficial conversion feature present in the reporting carrying value of the Convertible Promissory Note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $50,000 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the Convertible Note. The debt discount attributed to the beneficial conversion feature is charged to operations as interest expense ratably over the term of the note.
 
For the nine months ended September 30, 2010, the Company amortized the debt discount and charged $4,292 to interest expense.
 
As of September 30, 2010, $50,000 has been received on the related note receivable.
NOTE 7 – CAPITAL STOCK

The Company is authorized to issue 3,500,000,000 shares of common stock, with a $0.0001 par value per share as of April 22, 2009 as approved by the majority of the Company stockholders. Prior to the April 22, 2009 share increase, the Company was authorized to issue 1,400,000,000 shares of common stock with a $0.0001 par value per share. In addition, the Company is authorized to issue 60,000,000 shares of preferred stock with a $0.0001 par value per share.

As of September 30, 2010 and December 31, 2009, the Company has 764,496,874 and 675,478,445 shares of common stock and no preferred stock issued and outstanding, respectively.
 
During the nine month period ended September 30, 2010, the Company issued an aggregate of 16,000,000 shares of its common stock in exchange for services rendered.  The valuations of common stock issued for services were based on the value of the services rendered, which did not differ materially from the fair value of the common stock during the period the services were rendered.
 
F-12


MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 8 – WARRANTS AND OPTIONS

Warrants
 
The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock at September 30, 2010: 

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       28,000,000       2.83     $ 0.0040       28,000,000     $ 0.0040  
  0.0075       69,530,571       2.84       0.0075       69,530,571       0.0075  
  0.0250       28,000,000       2.84       0.0250       28,000,000       0.0250  
  0.0900       600,000       2.46       0.0900       600,000       0.0900  
  0.2400       100,000       1.74       0.2400       100,000       0.2400  
  0.3788       2,204,386       0.31       0.3788       2,204,386       0.3788  
Total         
      128,434,957       2.77     $ 0.0172       128,434,957     $ 0.0172  

Transactions involving the Company’s warrant issuance are summarized as follows: 

   
Number of
Shares
   
Weighted
Average
Price Per
Share
 
Outstanding at December 31, 2008
    414,576,110     $ 0.0265  
Granted
    167,419,113          
Exercised
    (90,260,439 )        
Canceled or expired
    (334,838,226 )        
Outstanding at December 31, 2009
    156,896,558       0.0212  
Granted
    -          
Exercised
    (27,025,601 )     (0.0064 )
Canceled or expired
    (1,436,000 )     (0.08 )
Outstanding at September 30, 2010
    128,434,957     $ 0.0172  
 
During the nine month period ended September 30, 2010, the Company issued an aggregate of 26,181,935 shares of common stock in exchange for the exercise of 27,025,601 warrants.  The exercise prices ranged from $0.004 to $0.0075 resulting in proceeds of $122,377. 5,433,966 warrants were exercised on a cashless basis.

F-13

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 8 – WARRANTS AND OPTIONS (continued)

Stock options

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and directors of the Company at September 30, 2010:

     
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       528,547,634       3.63     $ 0.00400       513,926,867     $ 0.00400  
  0.00844       80,883,534       5.11     $ 0.00844       26,961,178       0.00844  
  0.02800       22,500,000       4.29       0.02800       22,500,000       0.028  
Total
      631,931,168       384     $ 0.00539       563,388,045     $ 0.00513  
 
  Transactions involving stock options issued to employees are summarized as follows:
 
  
       
Weighted
Average
 
  
 
Number of
   
Price
 
  
 
Shares
   
Per Share
 
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  
Granted
    22,500,000       0.028  
Exercised
    (14,690,650 )     (0.004 )
Canceled or expired
    (605,000 )     (0.004 )
Outstanding at September 30, 2010:
    631,931,168     $ 0.00539  

On January 14, 2010, the Company granted options to purchase 22,500,000 shares of the Company’s common stock to directors. The option grants as approved by the Compensation Committee were fully vested when issued and the exercise price is $0.028 per share for five 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:

Expected life (years)
    5  
Expected volatility
    363.22 %
Risk-free interest rate
    2.51 %
Dividend yield
    %
 
The aggregate fair value of vesting options of $1,715,425 was charged to current period operations for the nine months ended September 30, 2010.

F-14

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 9 — FAIR VALUE

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.
 
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed is determined based on the lowest level input that is significant to the fair value measurement.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of September 30, 2010:

   
September 30, 2010
 
  
 
Carrying
       
Financial instruments
 
Amount
   
Fair Value
 
Cash and cash equivalents
  $ 112,529     $ 215,559  
Accounts payable and accrued liabilities
    (559,814 )     (472,044 )
    $ 447,285     $ 256,485  
 
For cash and cash equivalents, accounts receivable, and accounts payable, the carrying amount approximates fair value because of the relative short maturity of those instruments.

The Company adopted the provisions of ASC 825-10 prospectively effective as of the beginning of Fiscal 2008.  For financial assets and liabilities included within the scope of ASC 825-10, the Company was required to adopt the provisions of ASC 825-10 prospectively as of the beginning of Fiscal 2009.  The adoption of ASC 825-10 did not have a material impact on our consolidated financial position or results of operations.

F-15

 
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010

NOTE 10 – SUBSEQUENT EVENTS

Subsequent events have been evaluated through the date that the financial statements were issued and determined no reported event occurred.
 
F-16

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

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the SEC contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
 
4

 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  The following discussion should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this report.

Results of Operations

Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009

Net Revenue

Total revenue for the quarter ended September 30, 2010 was $306,825 compared with $1,556,292 for the same period in 2009, a decrease of $1,249,467 or 80.1%.

Revenues derived from the sale of consumables, component parts, service billings and amortization of maintenance contracts decreased by $20,106 or 6.1% in the current quarter to $306,825. We did not have recognizable contract revenues during the quarter ended September 30, 2010.  In 2009, we completed a contract totaling $1,229,361.  The decrease in service billings was a result of fewer service calls required due to equipment failure.  Service billings will continue to fluctuate period to period based upon equipment failure, whether through operator error or wear and tear, and pre-scheduled service activities such as equipment relocation.  Service revenue attributable to contract revenues is recognized at the time of performance and not at the time of contract execution.
 
Gross Profit
 
The gross profit for the three months ended September 30, 2010, was $253,741 (82.8% of total revenue) compared with a gross profit of $914,249 (58.7% of total revenue) for the same three month period of 2009.

In this period, our gross profit margins increased from 58.7% to 82.7%, or a 40.9% increase.   By carefully managing the business we have been able to ensure that we are invoicing for all services performed and therefore, we have been able to increase our gross profit percentage from the comparable period, last 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 the three months ended September 30, 2010, was $972,298 compared with $571,577 for the same three month period in 2009, an increase of $400,720. In the three months ended September 30, 2010, we recognized non-cash equity based compensation to service providers and employees of $336,926 as compared to $35,424 recorded as equity based compensation for the three months ended September 30, 2010. 
 
Interest and Other Income

Interest and other income for the three month period ended September 30, 2010, was $41 compared to $-0- for the same period in 2009. 
Interest expense

Interest expense and amortization for the three month period ended September 30, 2010, was $35,165 compared with $3,366 in the same three month period of 2009. During the three months ended September 30, 2010, we recognized non-cash amortization expense amounting to $29,675, compared to $-0- in the same three month period of 2009.  
 
5

 
Net Income (loss)
 
Net loss for the three month period ended September 30, 2010, was $753,681, compared to a profit of $339,306 for the same period in 2009.

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

Net Revenue

Total revenue for the nine months ended September 30, 2010 was $707,450 compared with $2,328,474 for the same period in 2009, a decrease of $1,621,024 or 69.6%.

Revenues derived from the sale of consumables, component parts, service billings and amortization of maintenance contracts decreased by $391,663 or 35.6% in the first nine month period to $707,450.  We did not have recognizable contract revenues during the quarter ended September 30, 2010.  In 2009, we completed contracts totaling $1,229,361.  

Gross Profit
 
The gross profit for the nine months ended September 30, 2010, was $417,239 (59.0% of total revenue) compared with a gross profit of $1,187,394 (51.0% of total revenue) for the same nine month period of 2009.

In this period, our gross profit margins increased from 51.0% to 59.0%, or a 15.7% increase.   By carefully managing the business we have been able to ensure that we are invoicing for all services performed and therefore, we have been able to increase our gross profit percentage from the comparable period, last 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 the nine months ended September 30, 2010, was $3,788,302 compared with $4,500,851 for the same three month period in 2009, a decrease of $712,549. In the nine months ended September 30, 2009, we recognized non-cash equity based compensation to service providers and employees of $3,313,579 as compared to $1,715,415 recorded as equity based compensation for the nine months ended September 30, 2010. 
 
Interest and Other Income

Interest and other income for the nine month period ended September 30, 2010, was $345 compared to $944 for the same period in 2009.

 
Interest expense

Interest expense and amortization for the nine month period ended September 30, 2010, was $52,597 compared with $900,066 in the same nine month period of 2009. During the nine months ended September 30, 2009, we recognized non-cash amortization expense amounting to $889,967, compared to $43,822 in the same three month period of 2010.  
 
Net Income (loss)
 
Net loss for the nine month period ended September 30, 2010, was $3,423,315, compared to $4,212,579 for the same period in 2009.

6

 
Liquidity and Capital Resources

The Company’s cash on hand and working capital as of September 30, 2010, and December 31, 2009, are as follows:
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
             
Cash on hand
  $ 112,529     $ 534,425  
                 
Working capital (deficit)
  $ (579,313 )   $ (229,469 )
 
The Company purchased $5,569 in new fixed assets during the nine month period ended September 30, 2010. Under current conditions, the Company anticipates purchasing approximately $5,000 in additional fixed assets in 2010. Net cash used in operating activities totaled $1,436,952 for the nine months ended September 30, 2010.

Our accounts receivable balance may have dramatic swings from one period to another depending upon the timing and the amount of milestone billings included in the balance at the end of any accounting period. There are three milestone billings representing a percentage of the contract value for each installment and our payment terms are “upon receipt.” Receivable balances are typically paid within 15 days of the invoice date. Billings for maintenance contracts and consumables are due within 45 days and are more numerous but much smaller in value than milestone billings. We review our outstanding receivable balances on a regular basis to ensure that the allowance for bad debt is adequate.   Due to the varying nature in the timing and amounts of the receivable balances as noted above, the change in the allowance for doubtful account will not necessarily correlate with the increase or decrease in the accounts receivable balance. The accounts receivable balance as of September 30, 2010, was $493,506 net of an allowance of $24,693, an increase of $349,389 from year ended December 31, 2009.  

Our inventory balance may have dramatic swings from one period to another depending upon the expected installation date of our MedClean systems and our accounts payable balances can have similar swings depending on payment terms and any volume purchases or discounts we may take advantage of from time to time. During the nine months ended September 30, 2010, the Company decreased its inventory on hand by $22,489 to $793,145.

During the nine months ended September 30, 2010, we issued an aggregate of $1,200,000 in exchange for notes receivable, of which, we have collected a total of $500,000 to assist us in meeting our cash needs.  In addition, we received $300,000 from our equity line of credit whereby we issued an aggregate of 32,145,841 shares of our common stock as part of the put agreement.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations.  Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties.  Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control.  Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the Company's internal control over financial reporting as of September 30, 2010. In making this assessment, our Chief Executive Officer and Chief Financial Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework.  Based on this evaluation, Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2010, our internal control over financial reporting was effective.
 
(b) Changes in Internal Control over Financial Reporting.  There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
 
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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC on March 3, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

There were no unregistered sales of the Company’s equity securities during the quarter ended September 30, 2010 that were not otherwise disclosed on a Form 8-K.

Item 3. Defaults upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default not cured within 30 days, with respect to any indebtedness of the Company.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit
No.
 
Description
     
31.1*
 
Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
31.2*
 
Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
32.1*
 
Certification by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*
 
Certification by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith
 
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SIGNATURES

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

 
MEDCLEAN TECHNOLOGIES, INC.
   
Date: November 15, 2010
By:
/s/ David Laky
 
Name: David Laky
 
Title: Chief Executive Officer and Principal Executive
Officer
   
Date: November 15, 2010
By:
/s/ Cheryl K. Sadowski
 
Name: Cheryl K. Sadowski
 
Title: Chief Financial Officer and Principal Accounting
Officer
 
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