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, 2012
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) |
57 S Commerce Way
Suite 310
Bethlehem, Pennsylvania 18017
(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 x
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 14, 2012, there were 2,313,883,921 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. | 8 |
Item 1A. Risk Factors. | 8 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 8 |
Item 3. Defaults Upon Senior Securities. | 8 |
Item 4. Mining Safety Disclosures. | 8 |
Item 5. Other Information. | 8 |
Item 6. Exhibits. | 9 |
Signatures | 10 |
2 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
PAGE | |
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 2012 (UNAUDITED) AND DECEMBER 31, 2011 | F-1 |
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 | F-2 |
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 | F-3 |
NOTES TO UNAUDITED FINANCIAL STATEMENTS | F-4 |
3 |
MEDCLEAN TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 5,273 | $ | 26,009 | ||||
Accounts receivable, net of $24,098 allowance | 150,601 | 170,585 | ||||||
Revenues in excess of billings | 7,679 | 7,679 | ||||||
Inventory | 226,525 | 243,685 | ||||||
Prepaid expenses | 23,908 | 26,627 | ||||||
Total current assets: | 413,986 | 474,585 | ||||||
Property, plant and equipment, net | 10,475 | 15,951 | ||||||
Other assets: | ||||||||
Long term inventory | 158,993 | 158,993 | ||||||
Deposits | 9,488 | 6,368 | ||||||
Total assets | $ | 592,942 | $ | 655,897 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 461,805 | $ | 432,000 | ||||
Payroll liabilities | 368,239 | 48,157 | ||||||
Accrued liabilities, related party | 533,742 | 517,342 | ||||||
Deferred revenue | 530,404 | 505,189 | ||||||
Billings in excess of revenue | 51,332 | 51,332 | ||||||
Notes payable | 246,822 | 238,047 | ||||||
Total current liabilities: | 2,192,344 | 1,792,067 | ||||||
Long term debt: | ||||||||
Derivative liability | 54,195 | 127,021 | ||||||
Convertible notes, net of debt discount of $69,337 and $207,791 | 80,413 | 54,009 | ||||||
Total liabilities | 2,326,952 | 1,973,097 | ||||||
Stockholders' deficit | ||||||||
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; 2,313,883,921 and 1,640,311,420 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively | 231,388 | 164,031 | ||||||
Additional paid in capital | 33,012,095 | 32,775,738 | ||||||
Accumulated deficit | (34,977,493 | ) | (34,256,969 | ) | ||||
Total stockholders' deficit: | (1,734,010 | ) | (1,317,200 | ) | ||||
Total liabilities and stockholders' deficit | $ | 592,942 | $ | 655,897 |
See the accompanying notes to these unaudited condensed financial statements
F-1 |
MEDCLEAN TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
Revenues | ||||||||||||||||
Contract revenue earned | $ | - | $ | 445,200 | $ | - | $ | 895,200 | ||||||||
Sales and service revenues | 204,871 | 157,746 | 448,006 | 491,927 | ||||||||||||
Total revenues | 204,871 | 602,946 | 448,006 | 1,387,127 | ||||||||||||
Cost of sales | ||||||||||||||||
Contract cost of sales | - | 288,757 | - | 528,584 | ||||||||||||
Sales and service cost of sales | 55,742 | 66,138 | 171,262 | 280,445 | ||||||||||||
Total cost of sales | 55,742 | 354,895 | 171,262 | 809,029 | ||||||||||||
Gross profit | 149,129 | 248,051 | 276,744 | 578,098 | ||||||||||||
Operating expenses | ||||||||||||||||
Salaries and wages | 154,544 | 541,505 | 457,243 | 1,666,936 | ||||||||||||
General and administrative expenses | 104,377 | 240,918 | 346,869 | 1,112,422 | ||||||||||||
Depreciation | 1,608 | 12,737 | 4,838 | 51,990 | ||||||||||||
Total operating expenses | 260,529 | 795,160 | 808,950 | 2,831,348 | ||||||||||||
Loss from operations | (111,400 | ) | (547,109 | ) | (532,206 | ) | (2,253,250 | ) | ||||||||
Other income and expenses | ||||||||||||||||
Interest and other income | - | 21 | 35 | 278 | ||||||||||||
Gain (loss) on change in fair value of derivatives | 53,077 | 79,963 | (24,724 | ) | (126,787 | ) | ||||||||||
Loss on disposal of property and equipment | - | - | - | (55,122 | ) | |||||||||||
Interest expense | (27,496 | ) | (181,621 | ) | (163,629 | ) | (1,260,818 | ) | ||||||||
Net Loss before income taxes | (85,819 | ) | (648,746 | ) | (720,524 | ) | (3,695,699 | ) | ||||||||
Provision for income taxes (benefit) | - | - | - | - | ||||||||||||
Net Loss | $ | (85,819 | ) | $ | (648,746 | ) | $ | (720,524 | ) | $ | (3,695,699 | ) | ||||
Loss per common share, basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average common shares outstanding, basic and diluted | 2,313,883,921 | 1,456,444,013 | 2,111,056,219 | 1,304,851,973 |
See the accompanying notes to these unaudited condensed financial statements
F-2 |
MEDCLEAN TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30, | ||||||||
2012 | 2011 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (720,524 | ) | $ | (3,695,699 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation | 5,476 | 55,326 | ||||||
Amortization of debt discount | 138,454 | 937,333 | ||||||
Loss on disposal of property and equipment | - | 55,122 | ||||||
Fair value of common stock, options and warrants issued for services rendered | 8,914 | 1,069,477 | ||||||
Non cash interest expense relating to convertible debt | - | 314,709 | ||||||
Loss on change in fair value of derivative liability | 24,724 | 126,787 | ||||||
(Increase) decrease in: | ||||||||
Accounts receivable | 19,984 | 65,032 | ||||||
Inventory | 17,160 | 136,933 | ||||||
Prepaid expenses and other | (401 | ) | (8,513 | ) | ||||
Increase (decrease) in: | ||||||||
Accounts payable | 54,980 | 9,398 | ||||||
Payroll liabilities | 320,082 | (18,759 | ) | |||||
Deferred revenue | 25,215 | 41,447 | ||||||
Net cash used in operating activities | (105,936 | ) | (911,407 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of equipment | - | (9,694 | ) | |||||
Net cash used in investing activities | - | (9,694 | ) | |||||
Cash flows from financing activities: | ||||||||
Payments of related party loans | - | (154,459 | ) | |||||
Proceeds from exercise of options | 200 | 200 | ||||||
Proceeds from issuance of put agreements | 85,000 | 140,829 | ||||||
Proceeds from issuance of convertible notes | - | 855,000 | ||||||
Net cash provided by financing activities | 85,200 | 841,570 | ||||||
(Decrease) increase in cash and cash equivalents | (20,736 | ) | (79,531 | ) | ||||
Cash and cash equivalents, beginning of period | 26,009 | 182,046 | ||||||
Cash and cash equivalents, end of period | $ | 5,273 | $ | 102,515 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for: | ||||||||
Interest | $ | - | $ | 1,198 | ||||
Taxes | $ | - | $ | - | ||||
Non cash financing activities: | ||||||||
Common stock issued in settlement of convertible notes | $ | 209,600 | $ | 1,602,226 |
See the accompanying notes to these unaudited condensed financial statements
F-3 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
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 financial statements of MedClean Technologies, Inc. (“MedClean,” 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, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012. The unaudited condensed financial statements should be read in conjunction with the December 31, 2011, financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 15, 2012.
The financial statements as of December 31, 2011, have been derived from the audited 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
The Company was originally incorporated in the State of Delaware under the name General Devices, Inc. Effective January 23, 2006, the Company merged (the “Merger”) with Aduromed Industries, Inc. (“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 the Company. Effective January 30, 2007, the Company changed its corporate name from General Devices, Inc. to Aduromed Industries, Inc.
Effective January 2, 2009, the Company changed its corporate name from Aduromed 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).
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 $24,098 and $24,098 as of September 30, 2012 and December 31, 2011.
F-4 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Revenue recognition
The Company’s revenue recognition policy is in accordance with the requirements of Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, (“SAB 104”), ASC Topic 605, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) and other applicable revenue recognition guidance and interpretations. System revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured.
Deferred Revenues consist of cash received in advance for goods to be delivered at a future date. The Company records the payments received from customers as a liability until the products are delivered. Sales are recorded when the products are delivered.
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, 2012 and December 31, 2011, the Company had $530,404 and $505,189, respectively, in deferred revenue from system installs and maintenance agreements.
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.
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 to the current year’s presentation. These reclassifications had no effect on reported income or losses.
F-5 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
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.
Dependence on principal customer
For 2012 and going forward, the Company does not anticipate that the loss of any one customer will have a significant adverse impact on the Company’s business.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2012 and December 31, 2011. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
As described in Note 8, items recorded or measured at fair value on a recurring basis in the accompanying financial statements consisted of the debt derivative liabilities.
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.
As more fully described in Note 11 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 17,500,000 and 22,916,666 shares of the Company’s common stock par value 0.0001 (“Common Stock”) during the nine-month period ended September 30, 2012 and 2011, respectively, to employees and directors of the Company.
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, 2012 and December 31, 2011:
September 30, 2012 | December 31, 2011 | |||||||
Component & spare parts | $ | 361,474 | $ | 323,224 | ||||
Consumables | 7,367 | 70,477 | ||||||
Advance payments | 16,677 | 8,977 | ||||||
Total inventory | 385,518 | 402,678 | ||||||
Less current portion | 226,525 | 243,685 | ||||||
Inventory, long term portion | $ | 158,993 | $ | 158,993 |
F-6 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Property, plant and equipment
The Company has property, plant and equipment that consist of 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, 2012 and December 31, 2011:
September 30, 2012 | December 31, 2011 | |||||||
Office Furniture | $ | 15,783 | $ | 15,783 | ||||
Computers and Accessories | 13,307 | 13,307 | ||||||
Leasehold Improvements | 9,425 | 9,425 | ||||||
38,515 | 38,515 | |||||||
Accumulated Depreciation | 28,040 | 22,564 | ||||||
$ | 10,475 | $ | 15,951 |
During the three and nine-month periods ended September 30, 2012, depreciation expense charged to operations was $1,736 and $5,476, respectively, of which $127 and $637 was included as part of cost of goods sold, respectively.
During the three and nine-month periods ended September 30, 2011, depreciation expense charged to operations was $13,509 and $55,326, respectively, of which $772 and $3,337 was included as part of cost of goods sold, respectively.
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 three and nine month period ended September 30, 2012 amounting to 1,069,642,857 were not included in the calculation for net loss per common share because their effects would be anti-dilutive.
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, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
NUMERATOR FOR BASIC AND DILUTED EPS (LPS) | ||||||||||||||||
Net loss per statement of operations | $ | (720,524 | ) | $ | (3,695,699 | ) | $ | (85,819 | ) | $ | (648,746 | ) | ||||
DENOMINATOR FOR BASIC AND DILUTED EPS (LPS) | ||||||||||||||||
Weighted average shares of Common Stock outstanding | 2,111,056,219 | 1,304,851,973 | 2,313,883,921 | 1,456,444,013 | ||||||||||||
Basic and diluted EPS (LPS) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) |
F-7 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Recent Accounting Pronouncements
There were various updates recently issued by the Financial Accounting Standards Board, 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.
NOTE 2 - GOING CONCERN MATTERS
The accompanying 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 and a working capital deficit, which raises substantial doubt about its ability to continue as a going concern. The 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 $5,273 at September 30, 2012, 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. However, we continue to incur significant operating losses that 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 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 – BACKLOG AND CONTRACTS IN PROCESS
Backlog at September 30, 2012, was $1,047,100, compared to $1,047,100 at December 31, 2011. Once work commences, revenue is recognized upon delivery of the system or completion of the work. Prior to 2009, revenue was recognized on a percentage of completion basis. The Company has one remaining contract in which revenue will be recognized in this manner. The outstanding backlog value of the percentage of completion contracts is $151,255. The following table summarizes the percentage of completion of the Company's outstanding contracts:
Contract | Revenue | Amounts | Revenues in | Billings in excess | ||||||||||||||||||
Amount | Recognized | Backlog | Billed | excess of Billings | of Revenues | |||||||||||||||||
Outstanding contracts at September 30, 2012: | ||||||||||||||||||||||
$ | 315,194 | $ | 163,939 | $ | 151,255 | $ | 215,271 | $ | 7,679 | $ | 51,332 | |||||||||||
Outstanding contracts at December 31, 2011 | ||||||||||||||||||||||
$ | 315,194 | $ | 163,939 | $ | 151,255 | $ | 215,271 | $ | 7,679 | $ | 51,332 |
NOTE 4 – SHORT TERM NOTE PAYABLE
The Company’s outstanding unsecured note bears a 12% interest rate and matured on December 15, 2003. Both parties have entered a verbal agreement to extend the maturity date on this note indefinitely. No accrued interest has been paid on this note to date. As of September 30, 2012 and December 31, 2011, the balance due was $246,822 and $238,047, respectively.
F-8 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
NOTE 5 – LINE OF CREDIT
On August 5, 2010, the Company and Southridge Partners II, LP (“Southridge”) entered into an Equity Credit Agreement (the “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 Agreement. For each share of our Common Stock purchased under the Agreement, Southridge will pay ninety-five percent (95%) of the average of the lowest closing bid price of our Common Stock reported by Bloomberg, LP in any two trading days, consecutive or inconsecutive, of the five consecutive 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 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. The registration statement relating to the requested bond of the Company's Common Stock pursuant to the Agreement was declared effective on May 19, 2011 (File No. 333-174136).
During the nine months ended September 30, 2012, the Company “put” 135,522,058 shares of Common Stock to Southridge for a total of $85,000.
NOTE 6 – CONVERTIBLE NOTES
On October 7, 2010, the Company issued a $600,000 Convertible Promissory Note (“Convertible Note 1”) that matures October 6, 2013, in exchange for a promissory note receivable. Convertible Note 1 bears a onetime interest charge at a rate of 6% per annum and will be convertible into Common Stock at any time at a conversion rate equal to the higher of (a) 70% of the lowest closing price during the 20 trading days previous to the conversion or (b) par value of the Common Stock.
For presentation purposes, the Company offset the unpaid promissory note receivable against the carrying value of the Convertible Note 1.
The Company analyzed the conversion feature in accordance with Accounting Standards Codification subtopic 815-15 (“ASC 815-15”), Embedded Derivatives, and 815-40, Contracts in Entity’s Own Equity (“ASC 815-40’), and determined that upon issuance of Convertible Note 1, based on the terms of the underlying conversion feature, the Company could be required to issue shares in excess of the authorized share limit and therefore the embedded derivative must be bifurcated from the host contract and measured at fair value the extent that the conversion option would be classified as a liability as a standalone instrument. The Company had more than one contract that could be subject to this treatment and could result in partial reclassification out of equity, and the Company chose the method of reclassification of contracts with the earliest inception date first.
The Company received aggregate net proceeds of $318,000 from October 14, 2010 through September 30, 2012, under the promissory notes receivable underlying Convertible Note 1. The derivative conversion feature underlying the advances under Convertible Note 1 was bifurcated and recorded at fair value of $412,721 with a discount against the principal of the related convertible notes and the remainder to interest expense. The debt discount attributed to this derivative conversion feature is being charged to income as interest expense ratably over the term of the notes.
For the three and nine months ended September 30, 2012, the Company amortized and wrote off the debt discount noted above and charged $14,469 and $130,497 to interest expense, respectively.
F-9 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
On April 8, 2011, the Company issued a $600,000 Convertible Promissory Note (“Convertible Note 2”) that matures October 8, 2014, in exchange for a promissory note receivable. Convertible Note 2 was issued under the same terms as the Convertible Note 1 above.
The Company received aggregate net proceeds of $25,000 from May 31, 2011 through September 30, 2012, under the promissory notes receivable underlying Convertible Note 2). The derivative conversion feature underlying these advances under Convertible Note 2 was bifurcated and recorded at fair value of $25,000 with a discount against the principal of the related Convertible Notes.
For the three and nine months ended September 30, 2012, the Company amortized the debt discount noted above and charged $2,671 and $7,956 to interest expense, respectively.
The liability for these derivative conversion features was re-measured at fair value upon each reporting period. The changes in fair value resulted in a gain (loss) of $53,077 and $(24,724) for the three and nine months ended September 30, 2012, respectively; and a gain (loss) of $79,963 and $(126,787) for the three and nine months ended September 30, 2011, respectively. The ending value as of September 30, 2012 was $54,195.
During the nine months ended September 30, 2012, the Company issued an aggregate of 538,000,000 shares of its Common Stock in payment of $112,050 towards the note.
NOTE 7 – DERIVATIVE LIABILITY
During 2010, in connection with the issuance of convertible notes, the Company has the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date. If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.
The fair value of the derivative at September 30, 2012 was determined using the Black Sholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 427.37%; risk free rate: 0.33%; and expected life: 1.75 years.
Based upon ASC 840-15-25 (EITF Issue 00-19, paragraph 11) the Company has adopted a sequencing approach regarding the application of ASC 815-40 to its outstanding convertible notes. Pursuant to the sequencing approach, the Company evaluates its contracts based upon earliest issuance date.
At September 30, 2012, the derivative liability valued at $54,195, the Company believes an event under the contract that would create an obligation to settle in cash or other current assets is remote and has classified the obligation as a long term liability.
NOTE 8 – CAPITAL STOCK
The Company is authorized to issue 3,500,000,000 shares of common stock, par value $0.0001 per share (“Common Stock”). In addition, the Company is authorized to issue 60,000,000 shares of preferred stock, par value $0.0001 per share (“Preferred Stock”).
As of September 30, 2012 and December 31, 2011, the Company had 2,313,883,921 and 1,640,311,420 shares of Common Stock issued and outstanding, respectively, and no shares of Preferred Stock issued and outstanding, respectively.
F-10 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
NOTE 9 – WARRANTS AND OPTIONS
Warrants
The following table summarizes the changes in warrants outstanding and related prices for the shares of Common Stock at September 30, 2012:
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 | 16,000,000 | 0.83 | $ | 0.0040 | 16,000,000 | $ | 0.0040 | ||||||||||||||
0.0041 | 2,000,000 | 1.61 | 0.0041 | 2,000,000 | 0.0041 | |||||||||||||||||
0.0075 | 69,530,574 | 0.84 | 0.0075 | 69,530,574 | 0.0075 | |||||||||||||||||
0.0250 | 28,000,000 | 0.84 | 0.0250 | 28,000,000 | 0.0250 | |||||||||||||||||
0.0900 | 600,000 | 0.46 | 0.0900 | 600,000 | 0.0900 | |||||||||||||||||
Total | 116,130,574 | 0.84 | $ | 0.0116 | 116,130,574 | $ | 0.0116 |
Transactions involving the Company’s warrant issuance are summarized as follows:
Number of Shares | Weighted Average Price Per Share | |||||||
Outstanding at December 31, 2010 | 116,434,960 | $ | 0.0189 | |||||
Granted | 2,000,000 | 0.0041 | ||||||
Exercised | - | - | ||||||
Canceled or expired | (2,204,386 | ) | (0.3788 | ) | ||||
Outstanding at December 31, 2011 | 116,230,574 | 0.0119 | ||||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Canceled or expired | (100,000 | ) | (0.2400 | ) | ||||
Outstanding at September 30, 2012 | 116,130,574 | $ | 0.0116 |
Stock options
The following table summarizes the changes in options outstanding and the related prices for the shares of Common Stock issued to employees and directors of the Company at September 30, 2012:
F-11 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
Options Outstanding | Options Exercisable | |||||||||||||||||||||
Exercise Prices | Number Outstanding | Weighted Average Remaining Contractual Life (Years) | Weighted Average Exercise Price | Number Exercisable | Weighted Average Exercise Price | |||||||||||||||||
$ | 0.00050 | 17,500,000 | 4.26 | $ | 0.00050 | 13,125,000 | $ | 0.00050 | ||||||||||||||
$ | 0.00346 | 13,750,000 | 4.47 | $ | 0.00346 | 13,750,000 | $ | 0.00346 | ||||||||||||||
$ | 0.00348 | 3,333,333 | 4.38 | $ | 0.00348 | 3,333,333 | $ | 0.00348 | ||||||||||||||
$ | 0.00400 | 538,718,634 | 2.63 | $ | 0.00400 | 538,718,634 | $ | 0.00400 | ||||||||||||||
$ | 0.00844 | 80,883,534 | 4.11 | $ | 0.00844 | 80,883,534 | $ | 0.00844 | ||||||||||||||
$ | 0.00232 | 2,083,333 | 4.34 | $ | 0.00232 | 2,083,333 | $ | 0.00232 | ||||||||||||||
$ | 0.02500 | 2,000,000 | 1.83 | $ | 0.02500 | 2,000,000 | $ | 0.02500 | ||||||||||||||
$ | 0.02800 | 22,500,000 | 3.29 | $ | 0.02800 | 22,500,000 | $ | 0.02800 | ||||||||||||||
Total | 680,768,834 | 2.92 | $ | 0.00540 | 676,393,834 | $ | 0.00528 |
Transactions involving stock options issued to employees are summarized as follows:
Weighted Average | ||||||||
Number of | Price | |||||||
Shares | Per Share | |||||||
Outstanding at December 31, 2010: | 644,502,168 | $ | 0.004 | |||||
Granted | 22,916,666 | 0.034 | ||||||
Exercised | (50,000 | ) | (0.0034 | ) | ||||
Canceled or expired | (3,950,000 | ) | (0.346 | ) | ||||
Outstanding at December 31, 2011: | 663,418,834 | $ | 0.0054 | |||||
Granted | 17,500,000 | 0.0005 | ||||||
Exercised | (50,000 | ) | (0.004 | ) | ||||
Canceled or expired | (100,000 | ) | (0.004 | ) | ||||
Outstanding at September 30, 2012: | 680,768,834 | $ | 0.00540 |
On January 9, 2012, the Company granted options to purchase 17,500,000 shares of Common Stock to directors valued at $8,578. The option grants as approved by the Compensation Committee are vesting at 25% per quarter, fully vest in one year and the exercise price is $0.0005 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 | 207.88 | % | ||
Risk-free interest rate | 0.85 | % | ||
Dividend yield | — | % |
F-12 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
NOTE 10 – FAIR VALUE MEASUREMENT
The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) on January 1, 2008. 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 and is determined based on the lowest level input that is significant to the fair value measurement.
Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.
The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (Including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.
Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the debt derivative liabilities. Convertible notes were determined at market based on their short term historical conversions.
Quoted Prices in Active Markets for Identical Instruments Level 1 | Significant Other Observable Inputs Level 2 | Significant Unobservable Inputs Level 3 | Assets (Liabilities) At Fair Value | |||||||||||||
Liabilities: | ||||||||||||||||
Derivative liability | $ | - | $ | - | $ | (54,195 | ) | $ | (54,195 | ) | ||||||
Total | $ | - | $ | - | $ | (54,195 | ) | $ | (54,195 | ) |
F-13 |
MEDCLEAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2012
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of September 30, 2012:
Derivative Liability | ||||
Balance, December 31, 2011 | $ | 127,021 | ||
Mark-to-market at September 30, 2012: | ||||
Embedded debt derivative | 24,724 | |||
Reductions from conversions of debt | (97,550 | ) | ||
Balance, September 30, 2012 | $ | 54,195 |
NOTE 11 – SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date that the financial statements were issued and determined no reportable event occurred.
F-14 |
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, 2011, filed with the SEC on May 15, 2012, 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.
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 financial statements and notes thereto appearing elsewhere in this report.
Results of Operations
Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011
Net Revenue
Total revenue for the quarter ended September 30, 2012 was $204,871, compared with $602,946 for the same period in 2011, a decrease of $398,075 or 66%.
System revenues during the three month ended September 30, 2011, was $445,200, compared to $-0- in 2012. The decrease in system revenue was the result of the installation of a fixed based system during the three months ended September 30, 2011 compared to none for 2012. Revenues derived from the sale of consumables, component parts, service billings and amortization of maintenance contracts increased by $47,125 or 29.9% in the current period to $204,871. The increase in service billings was a result of additional service calls required due to equipment failure. Service billings will continue to fluctuate from 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.
4 |
Gross Profit
Gross profit on system revenue during the three months ended September 30, 2011, was $156,443 compared to $0 for the same period in 2012. Gross profit on the sale of consumables, component parts, service billings and amortization of maintenance contracts during the nine months ended September 30, 2012, was $149,129 compared to $91,608 for the same period in 2011.
Operating Expenses
Total operating expenses for the three months ended September 30, 2012, was $260,529, compared with $795,160 for the same period in 2011, a decrease of $534,631. In the three months ended September 30, 2012, we recognized non-cash equity based compensation to service providers and employees of $2,144, as compared to $350,654 recorded as equity based compensation for the same period in 2011. In addition, the variance reflects a decrease in professional fees and rent, marketing and travel expenses.
Interest and Other Income
Interest and other income for the three months ended September 30, 2012, was $-0- compared to $21 for the same period in 2011.
Derivative liability
Change in fair value of derivative liability was a net gain of $53,077 for the three months ended September 30, 2012, as compared to a net gain of $79,963 for the same period last year.
Interest expense
Interest expense and amortization for the three months ended September 30, 2012, was $27,496, compared with $181,621 for the same period in 2011. During the three months ended September 30, 2012, we recognized non-cash amortization expense, of convertible note debt discount, amounting to $17,141, compared to $157,847 for the same period in 2011.
Net Income (loss)
Net loss for the three month period ended September 30, 2012, was $85,819, compared to a loss of $648,746 for the same period in 2011.
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
Net Revenue
Total revenue for the nine months ended September 30, 2012, was $448,006, compared with $1,387,127 for the same period in 2011, a decrease of $939,121 or 67.7%.
System revenues during the nine month ended September 30, 2011, was $895,200, compared to $-0- in 2012. The decrease in system revenue was the result of the installation of a fixed based systems during the nine months ended September 30, 2011 compared to none for 2012. Revenues derived from the sale of consumables, component parts, service billings and amortization of maintenance contracts decreased by $43,921 or 8.9% in the current period to $448,006. The decrease in service billings was a result of fewer service calls required due to equipment failure. Service billings will continue to fluctuate from 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.
5 |
Gross Profit
Gross profit on system revenue during the nine months ended September 30, 2011, was $366,616 compared to $0 for the same period in 2012. Gross profit on the sale of consumables, component parts, service billings and amortization of maintenance contracts during the nine months ended September 30, 2012, was $276,744 compared to $211,482 for the same period in 2011.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2012, was $808,950, compared with $2,831,348 for the same period in 2011, a decrease of $2,022,398. In the nine months ended September 30, 2012, we recognized non-cash equity based compensation to service providers and employees of $8,914, as compared to $1,069,477 recorded as equity based compensation for the same period in 2011. In addition, the variance reflects a decrease in professional fees and rent, marketing and travel expenses.
Interest and Other Income
Interest and other income for the nine months ended September 30, 2012, was $35 compared to $278 for the same period in 2011.
Derivative liability
Change in fair value of derivative liability was a net loss of $24,724 for the nine months ended September 30, 2012 as compared to a net loss of $126,787 for the same period last year.
Interest expense
Interest expense and amortization for the nine months ended September 30, 2012, was $163,629, compared with $1,260,818 for the same period in 2011. During the nine months ended September 30, 2012, we recognized non-cash amortization expense, of convertible note debt discount, amounting to $138,454, compared to $937,333 for the same period in 2011.
Net Income (loss)
Net loss for the nine month period ended September 30, 2012, was $720,524, compared to a loss of $3,695,699 for the same period in 2011.
Liquidity and Capital Resources
The Company’s cash on hand and working capital as of September 30, 2011, and December 31, 2011, are as follows:
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
Cash on hand | $ | 5,273 | $ | 26,009 | ||||
Working capital (deficit) | $ | (1,778,358 | ) | $ | (1,317,482 | ) |
Under current conditions, the Company anticipates purchasing approximately $3,000 in additional fixed assets in 2012. Net cash used by operating activities totaled $105,936 for the nine months ended September 30, 2012.
6 |
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, 2012, was $150,601 net of an allowance of $24,098, a decrease of $19,984 from year ended December 31, 2011.
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, 2012, the Company decreased its inventory on hand by $17,160 to $385,518.
During the nine months ended September 30, 2012, we received $85,000 under the Equity Line of credit, whereby we issued an aggregate of 135,522,058 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.
Off-Balance Sheet Arrangements
As of September 30, 2012, the Company had no off-balance sheet arrangements.
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
Pursuant to Rule 13a- 15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s PEO and PFO concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.
7 |
(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.
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.
Other than the risk factor below 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, 2011, filed with the SEC on May 15, 2012.
OUR SHARES OF COMMON STOCK ARE NO LONGER ELIGIBLE TO BE TRADED ELECTRONICALLY. AS A RESULT, BROKERAGE FIRMS MAY BE UNWILLING TO TRADE WITH US.
If an issuer is not "DTC-eligible," then its shares cannot be electronically transferred between brokerage accounts, which, based on the realities of the marketplace as it exists today (particularly the OTCBB) means that shares of a company will not be traded (technically the shares can be traded manually between accounts, but this takes days and is not a realistic option for companies relying on broker dealers for stock transactions like all companies on the OTCBB). While DTC-eligibility is not a requirement to trade on the OTCBB, it is a necessity to process trades on the OTCBB if a company's stock is going to track with any volume. Currently, our shares are not DTC-eligibile. There are no assurances that our shares will again become DTC-eligible or, if they do, how long it will take.
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, 2012, 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. Mining Safety Disclosures.
Not applicable
Item 5. Other Information.
There is no other information required to be disclosed under this item which was not previously disclosed.
8 |
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 Accounting 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 Principal 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 Principal Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
101.INS | XBRL Instance Document * | |
101.SCH | XBRL Taxonomy Extension Schema Document * | |
101.CAL | XBRL Taxonomy Calculation Linkbase Document * | |
101.LAB | XBRL Taxonomy Labels Linkbase Document * | |
101.PRE | XBRL Taxonomy Presentation Linkbase Document * | |
101.DEF | XBRL Definition Linkbase Document * |
* | 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 14, 2012 | By: | /s/ David Laky | |
Name: David Laky | |||
Title: Executive Chairman (Principal Executive Officer) |
|||
Date: November 14, 2012 | By: | /s/ Cheryl K. Sadowski | |
Name: Cheryl K. Sadowski | |||
Title: Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) |
10 |