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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from
 _______________ 
to
 _______________
 Commission file number 333-145939
 CleanTech Biofuels, Inc.
  
 Delaware
    
    33-0754902(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)7386 Pershing Ave., University City, Missouri
    
    63130(Address of principal executive offices)
    
    (Zip Code)
 (314) 802-8670
 Securities registered under Section 12(b) of the Exchange Act:  Securities registered under Section 12(g) of the Exchange Act:
 o
 o þ
 þ
 o þ
  
  DOCUMENTS INCORPORATED BY REFERENCE
  o þ




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##### 



CLEANTECH BIOFUELS, INC.
TABLE OF CONTENTS
 PAGEPART IITEM 1. Description of Business
    
    
    3ITEM 2. Description of Property
    
    
    20ITEM 3. Legal Proceedings
    
    
    20ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    22PART IIITEM 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases 
of Equity Securities
    
    
    22ITEM 6. Managements Discussion and Analysis or Plan of Operation
    
    
    24ITEM 7. Financial Statements
    
    
    37ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    49ITEM 8A. Controls and Procedures
    
    
    50ITEM 8B. Other Information
    
    
    50PART IIIITEM 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
    
    
    50ITEM 10. Executive Compensation
    
    
    50ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    51ITEM 12. Certain Relationships and Related Transactions and Director Independence
    
    
    51ITEM 13. Exhibits
    
    
    51ITEM 14. Principal Accountant Fees and Services
    
    
    52Signatures
    
    
    53Index to Exhibits
    
    
    54Exhibit 14Exhibit 21.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Statement Regarding Forward-Looking Information
   
    
    the commercial viability of our technologies,
 
    
    our ability to maintain and enforce our exclusive rights to our technologies,
 
    
    our ability to raise additional capital on favorable terms in the next three to four
months,
 
    
    our disputes and resulting litigation with the licensor of our PSC technology,
 
    
    the demand for and production costs of ethanol,
 
    
    competition from other alternative energy technologies, and
 
    
    other risks and uncertainties detailed from time to time in our filings with the SEC.
  
 PART I
 
 ITEM 1. Description of Business
 Company Overview
  
    
    complete the research and development of our licensed technologies, which we believe
when combined can convert municipal solid waste into ethanol; and
 
    
    explore, develop and/or license additional technologies for processing waste into energy
products as opportunities to do so present themselves.
  
    
    the Pressurized Steam Classification technology, which we refer to as our PSC
technology, invented at the University of Huntsville, Alabama, that uses a pressurized
steam classification vessel to convert municipal solid waste, also known as MSW, into
cellulosic material while simultaneously segregating and eliminating any inorganic
materials in the solid waste and cleaning recyclable materials in the MSW;
  3




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
    
    the sulfuric acid hydrolysis process, which we refer to as our Brelsford technology,
developed by Brelsford Engineering, Inc., that employs an acid hydrolysis process to
convert cellulosic material into fermentable sugars, which can then be fermented into
ethanol; and
 
    
    the nitric acid hydrolysis process, which we refer to as our HFTA technology,
developed by scientists working at the University of California, Berkeley, that
incorporates anticipated improvements in chemical reaction by which acid hydrolysis occurs.
        4




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Proof of Concept/Demonstration Phase
         5




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Commercialization Phase
      Replication and Rollout Phase
   Industry Overview
 General
   6




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Corn Ethanol
   Cellulosic Ethanol
    
    
    acid hydrolysis of cellulosic materials followed by fermentation of the resulting
sugars, which is the technology we plan to employ;
 
    
    Enzymatic processing of cellulose into fermentable sugars; and
 
    
    gasification followed by either catalytic or fermentation transformation of the
synthesis gas into fuel.
  7




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Acid Hydrolysis
 6 5
 Enzymatic Conversion
  Gasification
  
    
    Gasification  Complex carbon based molecules are broken apart to access the carbon as
carbon monoxide, carbon dioxide and hydrogen are produced;
 
    
    Fermentation  Convert the carbon monoxide, carbon dioxide and hydrogen into ethanol
using the microorganisms; and
 
    
    Distillation  Ethanol is separated from water.
  Government Policies
  Clean Air Oxygen Standards
   8




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Phase out of MTBE
  Renewable Fuels Standard
  Tax Incentives
  Tariff Protection
  Our Technologies
  PSC technology
    
    
    Cellulosic biomass, a decontaminated, homogeneous feedstock that we expect will
represent approximately 55 to 60 percent of the MSW and will be suitable for conversion to
ethanol or other uses.
  9




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
    
    Separated recyclables (steel cans and other ferrous materials, aluminum cans, plastics,
and glass), which we expect will represent about 25 percent of the MSW input and are sorted
and can be sold to recyclers.
   
    
    the relationship between agitation of the waste material, moisture, and the temperature
and pressure of steam in the vessel;
 
    
    the method of introduction of steam into the autoclave vessel, the pressure range, along
with the method of full depressurization, and treatment of the steam being vented from the
process to prevent air pollution;
 
    
    the method of mixing the heat and steam with the waste uniformly throughout the vessel;
and,
 
    
    the direct and critical correlation between the length and diameter of the vessel,
internal flighting and the total tonnage of waste to be processed for proper mixing and
product yield.
         10




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Brelsford technology
   
    
    difficulties accelerating the hydrolysis reaction that breaks down cellulose fibers
without consuming so much energy, which produces heat, that the process becomes
uneconomical;
 
    
    the high level of the acid concentration needed to hydrolyze cellulose; and
 
    
    the disposal of the lignin byproduct.
     HFTA Technology
   11




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Proving our Technologies
      12




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Principal Products or Services and their Markets
  Ethanol
   Continuing High Petroleum Prices
  Expanding Infrastructure to use Ethanol as a Gasoline Alternative
  Government Regulations
   13




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MSW Processing Services
    Recyclable Byproducts
   Distribution Methods of the Products or Services
  Competition
   14




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Petroleum products
  Bio-Diesel and competing alternative energy products
  Ethanol from sugars and starches
     Cellulosic Ethanol
   15




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Enzymatic Conversion
   Acid Hydrolysis
   
    
    agricultural residues (straws, corn stalks and cobs, bagasse, cotton gin trash, palm oil
wastes, etc.),
 
    
    crops grown specifically for their biomass (grasses, sweet sorghum, fast growing trees,
etc.),
 
    
    paper (recycled newspaper, paper mill sludges, sorted municipal solid waste, etc.),
 
    
    wood wastes (prunings, wood chips, sawdust, etc.), and
 
    
    green wastes (leaves, grass clippings, vegetable and fruit wastes, etc.).
   16




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Imports
  Sources and Availability of Raw Materials
      17




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Customers
  Intellectual Property License Terms
 PSC technology
     Brelsford Technology
   18




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HFTA Technology
  Government Approvals
  Governmental Regulation and Industry Standards for Fuel Grade Ethanol
     19




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Environmental Laws
   Employees
  Access to SEC Filings
 www.cleantechbiofuels.net
 
 ITEM 2. Description of Property
  
 ITEM 3. Legal Proceedings
 RAM Resources, LLC v. Supercritical Recovery Systems, Inc.
   20




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CleanTech Biofuels, Inc. v. Bioproducts International, Inc
        21




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ITEM 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 ITEM 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases
of Equity Securities
  Price Range ofCommon Stock (1)Fiscal Year
    
    High
    
    
    LowYear Ended December 31, 2006First Quarter
    
    $
    0.80
    
    
    $
    0.40Second Quarter
    
    $
    2.00
    
    
    $
    0.70Third Quarter
    
    $
    0.80
    
    
    $
    0.31Fourth Quarter
    
    $
    0.80
    
    
    $
    0.30Year Ended December 31, 2007First Quarter
    
    $
    2.00
    
    
    $
    0.65Second Quarter
    
    $
    1.01
    
    
    $
    0.65Third Quarter
    
    $
    1.00
    
    
    $
    0.15Fourth Quarter
    
    $
    0.55
    
    
    $
    0.25
 (1)
    
    all periods presented are adjusted for the 100 to 1 reverse stock split that occurred on February 21, 2007    22




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Number of SecuritiesNumber of securities to be
    
    
    
    
    
    
    Remaining Available forissued upon Exercise of
    
    
    Weighted-Average
    
    
    Future Issuance Under EquityOutstanding Warrants and
    
    
    Exercise Price of
    
    
    Compensation PlansRights and Number of
    
    
    Outstanding Options,
    
    
    (excluding securitiesPlan Category
    
    Shares of Restricted Stock
    
    
    Warrants and Rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by security holders: 2007 Stock Option Plan
    
    
    5,810,000(1)
    
    
    
    $0.15
    
    
    
    1,190,000Equity compensation
plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    
 (1)
    
    includes 1,200,000 options to be issued to our chief executive officer upon commissioning of
our pilot plant Dividend Policy
  Recent Sales of Unregistered Securities
   Holder
    
    Number of SharesBrite Star Associates, Inc.
    
    
    1,777,867Two Shamrocks, Inc.
    
    
    1,600,000Fountain Consulting, Inc.
    
    
    1,482,000St Ives Consulting, Inc.
    
    
    1,368,000STL Capital Holdings, Inc.
    
    
    1,638,933Deluth Venture Capital Partners
    
    
    1,500,000
   23




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ITEM 6. Managements Discussion and Analysis or Plan of Operation
  Plan of Operation
   Proof of Concept/Demonstration Phase
 
    
    conduct testing and evaluation with Merrick & Company of our technologys ability to
process cellulosic material generated by the PSC process (and other sources) into
fermentable sugars;
 
    
    build and operate a demonstration plant using our technologies;
  24




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
    
    evaluate the performance of the demonstration plant and identify required improvements
to implement the technologies in a commercial setting; and
 
    
    begin design of a small commercial plant.
   Commercialization Phase
 
    
    identify and evaluate sites with advantageous feedstock supplies and transportation
logistics in areas that facilitate the prompt granting of development and environmental
permits for first small-scale commercial demonstration plant;
 
    
    negotiate co-location rights from the operator of a MRF or landfill for construction of
the small-scale commercial demonstration plant in order to realize cost savings from
utilizing common infrastructure and operating savings from proximity to feedstock, landfill
capacity and transportation;
 
    
    identify and qualify contractors and subcontractors to construct a small-scale
commercial demonstration plant;
 
    
    negotiate feedstock supply and product off-take contracts;
 
    
    secure funding for the construction of the small-scale demonstration plant; and
 
    
    begin permitting and pre-construction activities for a small-scale commercial
demonstration plant.
   Results of Operations
   25




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Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006Costs and expenses:General and administrative
    
    $
    476,937
    
    
    
    54.5
    %
    
    $
    16,496
    
    
    
    21.3
    %Professional fees
    
    
    279,814
    
    
    
    32.0
    %
    
    
    47,078
    
    
    
    60.7
    %Research and development
    
    
    118,230
    
    
    
    13.5
    %
    
    
    14,000
    
    
    
    18.0
    %874,981
    
    
    
    
    
    
    
    77,574Other expense (income):Interest
    
    
    64,029
    
    
    
    
    
    
    
    2,439Amortization of technology license
    
    
    20,000
    
    
    
    
    
    
    
    Deposit forfeiture
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Interest income
    
    
    (21,405
    )
    
    
    
    
    
    
    Net loss applicable to common stockholders
    
    $
    937,605
    
    
    
    
    
    
    $
    55,013
 Year ended December 31, 2007 compared to the year ended December 31, 2006
 Costs and expenses:
 General and administrative
 Professional fees
 Research and development
 Other expense (income):
 Interest expense
 Amortization of technology license
 Deposit forfeiture
 Interest income
  26




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Liquidity and Capital Resources
     Contractual Obligations and Commitments
  Merrick & Company.
 Hazen Research, Inc.
 Five Sigma Ltd.
  27




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Leases.
  Off-Balance Sheet Arrangements
  
    
    a retained or contingent interest in assets transferred to the unconsolidated entity or
similar arrangement that serves as credit;
 
    
    liquidity or market risk support to such entity for such assets;
 
    
    an obligation, including a contingent obligation, under a contract that would be
accounted for as a derivative instrument; or
 
    
    an obligation, including a contingent obligation, arising out of a variable interest in
an unconsolidated entity that is held by, and material to, us where such entity provides
financing, liquidity, market risk or credit risk support to, or engages in leasing,
hedging, or research and development services with us.
 RISK FACTORS
  Risks Related to Our Business
 We have no operating experience and may not be able to implement our business plan.
   We need to obtain significant additional capital to complete the development of our technologies,
and the failure to secure additional capital will prevent us from commercializing our technology
and executing our plan of operation.
  
    
    obtain additional debt or equity financing,
  28




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
    
    secure significant government grants, and/or
 
    
    enter into a strategic alliance with a larger energy company to provide funding.
  Our PSC technology may have design and engineering issues that may increase the costs of using the
technology.
   Our Brelsford technology is commercially unproven and may not be viable on a full-scale basis.
    29




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We may not have sufficient legal protection of our technologies and other proprietary rights, which
could result in the loss of some or all of our rights or the use of our intellectual properties by
our competitors.
    We could lose our exclusive rights to licensed technology.
     30




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We will be dependent on our ability to negotiate favorable feedstock supply and ethanol off-take
agreements.
  We may not be able to attract and retain management and other personnel we need to succeed.
  We will incur increased costs as a result of being a public company.
  Our failure to adequately adhere to the new corporate governance practices or the failure or
circumvention of our controls and procedures could seriously harm our business.
  Our senior managements lack of experience managing a publicly traded company will divert
managements attention from operations and harm our business.
   31




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Risks Related to our Industry
 As a new small company, we will be at a competitive disadvantage to most of our competitors, which
include larger, established companies that have substantially greater financial, technical,
manufacturing, marketing, distribution and other resources than us.
  Our success is dependent on continued high transportation fuel prices.
  New ethanol plants under construction or decreases in the demand for ethanol may result in excess
U.S. production capacity.
  Waste processing and energy production is subject to inherent operational accidents and disasters
from which we may not be able to recover, especially if we have only one or a very small number of
facilities.
  Alternative technologies could make our business obsolete.
   32




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Risks Related to Government Regulation and Subsidization
 Federal tax incentives that benefit ethanol producers could expire and other federal and state
programs designed to assist ethanol producers may end.
  Tariffs imposed on imported ethanol could be reduced or eliminated, which would increase
competition from foreign producers.
  Enforcement of energy policy regulations could change.
      33




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Costs of compliance may increase with changing environmental and operational safety regulations.
     Risks related to our Common Stock and Stock Price Fluctuation
 Our stock is thinly traded, so you may be unable to sell at or near ask prices or at all.
  
    
    we only recently re-commenced operations;
    
    we are a small company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or influence
sales volume; and
    
    stock analysts, stock brokers and institutional investors may be risk-averse and be
reluctant to follow an unproven, early stage company such as ours or purchase or recommend
the purchase of our shares until such time as we became more seasoned and viable.
   34




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Even if an active trading market develops, the market price for our common stock may be highly
volatile and could be subject to wide fluctuations.
  
    
    significant sales of our common stock or other securities in the open market;
    
    speculation in the press or investment community;
    
    actual or anticipated variations in quarterly operating results;
    
    changes in earnings estimates;
    
    publication (or lack of publication) of research reports about us;
    
    increases in market interest rates, which may increase our cost of capital;
    
    changes in applicable laws or regulations, court rulings, and other legal actions;
    
    changes in market valuations of similar companies;
    
    additions or departures of key personnel;
    
    actions by our stockholders; and
    
    general market and economic conditions.
 Shares of ethanol companies that trade in the public markets may be overvalued.
  Trading in our common stock is subject to special sales practices and may be difficult to sell.
   
    
    control of the market for the security by one or a few broker-dealers that are often
related to the promoter or issuer;
    
    manipulation of prices through prearranged matching of purchases and sales and false and
misleading press releases;
    
    boiler room practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons;
    
    excessive and undisclosed bid-ask differentials and markups by selling broker-dealers;
and
  35




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
    
    the wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting inevitable
collapse of those prices and with consequent investor losses.
  Substantial future sales of our common stock shares in the public market could cause our stock
price to fall.
  Potential issuance of additional common and preferred stock could dilute existing stockholders.
  
    
    exercising voting, redemption and conversion rights to the detriment of the holders of
common stock;
    
    receiving preferences over the holders of common stock regarding or surplus funds in the
event of our dissolution or liquidation;
    
    delaying, deferring or preventing a change in control of our company; and
    
    discouraging bids for our common stock.
     36




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ITEM 7. Financial Statements
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Larry ODonnell, CPA, P.C.
  37




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
BALANCE SHEET
 December 31,2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    120,356Receivables:Interest
    
    
    19,425Promissory notes
    
    
    450,000Prepaids and other current assets
    
    
    72,026661,807Property and equipment, net
    
    
    3,099Non-current asset:Technology license, net
    
    
    112,500Total Assets
    
    $
    777,406LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    91,988Accrued interest
    
    
    60,433Accrued professional fees
    
    
    36,600Total current liabilities
    
    
    189,021Series A Convertible Debentures
    
    
    1,400,000STOCKHOLDERS DEFICITPreferred stock, $0.001 par value; 10,000,000 authorized shares; no
shares issued or outstanding
    
    
    Common stock, $0.001 par value; 240,000,000 authorized shares; 49,343,680
shares issued and outstanding
    
    
    49,344Additional paid-in capital
    
    
    364,260Notes receivable - restricted common shares issued to Directors
    
    
    (90,000
    )Deficit accumulated during the development stage
    
    
    (1,135,219
    )Total Stockholders Deficit
    
    
    (811,615
    )Total Liabilities and Stockholders Deficit
    
    $
    777,406
 See accompanying notes to financial statements.
  38




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
 July 14, 2004Year Ended
    
    
    (inception) toDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007Costs and expenses:General and administrative
    
    $
    476,937
    
    
    $
    16,496
    
    
    $
    499,635Professional fees
    
    
    279,814
    
    
    
    47,078
    
    
    
    328,643Research and development
    
    
    118,230
    
    
    
    14,000
    
    
    
    132,230874,981
    
    
    
    77,574
    
    
    
    960,508Other expense (income):Interest
    
    
    64,029
    
    
    
    2,439
    
    
    
    66,768Amortization of technology license
    
    
    20,000
    
    
    
    
    
    
    
    20,000Deposit forfeiture
    
    
    
    
    
    
    (25,000
    )
    
    
    (25,000
    )Interest income
    
    
    (21,405
    )
    
    
    
    
    
    
    (21,405
    )62,624
    
    
    
    (22,561
    )
    
    
    40,363Net loss applicable to common stockholders
    
    $
    937,605
    
    
    $
    55,013
    
    
    $
    1,000,871Basic and diluted net loss per common share
    
    $
    0.02
    
    
    
    **
    
    
    $
    0.02Weighted average common shares outstanding
    
    
    45,174,094
    
    
    
    38,567,100
    
    
    
    40,459,232
 ** - less than $.01 per share See accompanying notes to financial statements.
  39




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
Statements of Changes in Stockholders Deficit
 Notes Rec -restricted
    
    
    July 14, 2004Additional
    
    
    common
    
    
    (inception) toCommon Stock
    
    
    Paid-in
    
    
    shares issued
    
    
    December 31,Shares
    
    
    Amount
    
    
    Capital
    
    
    to Directors
    
    
    2007Balances at July 14, 2004 (inception)
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Common stock issued in July 2004, valued
at $100, for organizational costs
    
    
    38,470,900
    
    
    
    38,471
    
    
    
    (38,371
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )Balances at January 1, 2005
    
    
    38,470,900
    
    
    
    38,471
    
    
    
    (38,371
    )
    
    
    
    
    
    
    (100
    )Common stock sold for cash in May 2005
at $.26 per share
    
    
    38,471
    
    
    
    38
    
    
    
    9,962Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,153
    )Balances at December 31, 2005
    
    
    38,509,371
    
    
    
    38,509
    
    
    
    (28,409
    )
    
    
    
    
    
    
    (8,253
    )Common stock sold for cash in January 2006
at $.13 per share
    
    
    115,413
    
    
    
    116
    
    
    
    14,884Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,013
    )Balances at December 31, 2006
    
    
    38,624,784
    
    
    
    38,625
    
    
    
    (13,525
    )
    
    
    
    
    
    
    (63,266
    )Shares effectively issued to former AETA
stockholders in recapitalization in May 2007
    
    
    752,096
    
    
    
    752
    
    
    
    
    
    
    
    
    
    
    
    (134,348
    )Conversion of promissory notes in May 2007
at $.014 per share
    
    
    9,366,800
    
    
    
    9,367
    
    
    
    124,229Issuance of restricted shares to Directors in
August 2007 at $.15 per share
    
    
    600,000
    
    
    
    600
    
    
    
    89,400
    
    
    
    (90,000
    )Fair value of RAM warrants issued in August
2007 at $.13 per share
    
    
    
    
    
    
    
    
    
    
    125,027Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    39,129Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (937,605
    )Balances at December 31, 2007
    
    
    49,343,680
    
    
    $
    49,344
    
    
    $
    364,260
    
    
    $
    (90,000
    )
    
    $
    (1,135,219
    )
 See accompanying notes to financial statements.
  40




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##### Table of Contents



CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
 July 14, 2004Year Ended
    
    
    (inception) toDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007OPERATING ACTIVITIESNet loss applicable to common stockholders
    
    $
    (937,605
    )
    
    $
    (55,013
    )
    
    $
    (1,000,871
    )Adjustments to reconcile net loss applicable to common
stockholders to net cash used by operating activities:Common stock issued for organizational costs
    
    
    
    
    
    
    
    
    
    
    100Amortization
    
    
    20,000
    
    
    
    
    
    
    
    20,000Depreciation
    
    
    256
    
    
    
    
    
    
    
    256Share-based compensation expense
    
    
    39,129
    
    
    
    
    
    
    
    39,129Fair value of RAM warrant settlement
    
    
    125,027
    
    
    
    
    
    
    
    125,027Changes in operating assets and liabilities:Interest receivable
    
    
    (19,425
    )
    
    
    
    
    
    
    (19,425
    )Prepaids and other current assets
    
    
    (72,026
    )
    
    
    
    
    
    
    (72,026
    )Technology license
    
    
    (15,000
    )
    
    
    (75,000
    )
    
    
    (132,500
    )Accounts payable
    
    
    91,988
    
    
    
    
    
    
    
    91,988Accrued interest
    
    
    57,994
    
    
    
    2,439
    
    
    
    60,433Accrued liabilities
    
    
    (5,503
    )
    
    
    42,103
    
    
    
    36,600Cash used by operating activities
    
    
    (715,165
    )
    
    
    (85,471
    )
    
    
    (851,289
    )INVESTING ACTIVITIESExpenditures for equipment
    
    
    (3,355
    )
    
    
    
    
    
    
    (3,355
    )Cash used by investing activities
    
    
    (3,355
    )
    
    
    
    
    
    
    (3,355
    )FINANCING ACTIVITIESAdvances  related parties
    
    
    (111,144
    )
    
    
    69,914
    
    
    
    Series A Convertible Debentures
    
    
    950,000
    
    
    
    
    
    
    
    950,000Sale of common stock
    
    
    
    
    
    
    15,000
    
    
    
    25,000Cash provided by financing activities
    
    
    838,856
    
    
    
    84,914
    
    
    
    975,000Increase (decrease) in cash and cash equivalents
    
    
    120,336
    
    
    
    (557
    )
    
    
    120,356Cash and cash equivalents at beginning of period
    
    
    20
    
    
    
    577
    
    
    
    Cash and cash equivalents at end of period
    
    $
    120,356
    
    
    $
    20
    
    
    $
    120,356Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    6,334
    
    
    $
    
    
    
    $
    6,334Supplemental disclosure of noncash investing and
financing activities:Promissory notes receivable
    
    $
    450,000
    
    
    $
    
    
    
    $
    450,000Series A Convertible Debentures
    
    $
    450,000
    
    
    $
    
    
    
    $
    450,000Restricted common stock issued to Directors
    
    $
    90,000
    
    
    $
    
    
    
    $
    90,000Common stock issued for organizational costs
    
    $
    
    
    
    $
    
    
    
    $
    100Common stock issued for promissory notes
    
    $
    133,596
    
    
    $
    
    
    
    $
    133,596
 See accompanying notes to financial statements.
  41




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##### Table of Contents



CLEANTECH BIOFUELS, INC.
(A DEVELOPMENT-STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Organization and Business
     Note 2  Summary of Significant Accounting Policies
 Use of Estimates -
 Research and Development Costs -
 Impairment
of Long-Lived Assets -
 Intellectual Property -
  42




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##### Table of Contents



Property, plant and equipment -
 Income Taxes - Accounting for Income Taxes
 Accounting for Uncertainty in Income Taxesan interpretation of SFAS No. 109, Accounting
for Income Taxes
 Fair Value of Financial Instruments -
 Comprehensive
Income - Reporting Comprehensive Income
 Net Loss per Common Share -
 Share-based compensation -
 Share-Based Payment
 Recent Accounting Pronouncements - Fair Value
Measurements,
  43




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities  Including an Amendment of FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity
Securities, Fair Value
Measurements.
 Note 3  Property and Equipment
  Note 4  Technology Licenses
   2008
    
    $
    15,0002009
    
    
    15,0002010
    
    
    15,0002011
    
    
    15,0002012
    
    
    15,000Thereafter
    
    
    37,500Total
    
    $
    112,500
   44




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##### Table of Contents



Note 5  Series A Convertible Debentures
   Note 6  Stockholders Deficit
     Note 7  Related Party Transactions
   45




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##### Table of Contents



Note 8  Share-based Payments
       46




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##### Table of Contents



WeightedShares Under
    
    
    AverageOption
    
    
    Exercise PriceAdoption of Stock Plan in March 2007
    
    
    Granted
    
    
    4,010,000
    
    
    $
    0.15Exercised
    
    
    Forfeited
    
    
    Options outstanding at December 31, 2007
    
    
    4,010,000
    
    
    
    0.15Options exercisable at December 31, 2007
    
    
    
   Note 9  Income Taxes
   47




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##### Table of Contents



Deferred Tax Assets:Start-up costs
    
    $
    132,000Net operating loss carryforward
    
    
    71,000Accrual to cash conversion
    
    
    49,000Other
    
    
    23,000Total
    
    
    275,000Valuation allowance
    
    
    (275,000
    )Net deferred tax asset
    
    $
    
 Note 10  Commitments and Contingencies
 Project management
  Leases -
   48




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##### Table of Contents



Note 11  Subsequent Events
     Note 12  Quarterly Financial Data (Unaudited)
  For the quarters ended 2007:Mar 31
    
    
    June 30
    
    
    Sept 30
    
    
    Dec 31Costs and expenses:General and administrative
    
    $
    4,007
    
    
    $
    229,344
    
    
    $
    175,635
    
    
    $
    67,951Professional fees
    
    
    1,970
    
    
    
    154,873
    
    
    
    62,152
    
    
    
    60,819Research and development
    
    
    
    
    
    
    
    
    
    
    41,533
    
    
    
    76,6975,977
    
    
    
    384,217
    
    
    
    279,320
    
    
    
    205,467Other expense (income):Interest
    
    
    3,597
    
    
    
    17,500
    
    
    
    21,466
    
    
    
    21,466Amortization of technology license
    
    
    
    
    
    
    
    
    
    
    16,250
    
    
    
    3,750Interest income
    
    
    
    
    
    
    (5,020
    )
    
    
    (9,038
    )
    
    
    (7,347
    )Net loss applicable to common stockholders
    
    $
    9,574
    
    
    $
    396,697
    
    
    $
    307,998
    
    
    $
    223,336Basic and diluted net loss per common share
    
    
    **
    
    
    $
    0.01
    
    
    $
    0.01
    
    
    
    **
 ** - less than $.01 per share 
 ITEM 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   49




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##### Table of Contents



ITEM 8A. Controls and Procedures
  Effectiveness of Disclosure Controls and Procedures
  Internal Control Over Financial Reporting
 Changes in Internal Control Over Financial Reporting
 
 ITEM 8B. Other Information
  
 PART III
 
 ITEM 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
  
 ITEM 10. Executive Compensation
   50




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##### Table of Contents



ITEM 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
 ITEM 12. Certain Relationships and Related Transactions and Director Independence
  
 ITEM 13. Exhibits
 ExhibitNumber
    
    Description3.1
     
    Restated Certificate of Incorporation (incorporated herein by reference to Exhibit
3.1 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).3.2
    
    Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).4.1
    
    Form of Series A Convertible Debenture (incorporated herein by reference to Exhibit
4.1 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).4.2
    
    Investors Rights Agreement dated as of April 16, 2007 by and among SRS Energy, Inc.
and certain Investors (incorporated herein by reference to Exhibit 4.2 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).4.3
    
    Series A Debenture Purchase Agreement dated as of April 16, 2007 by and among SRS
Energy, Inc. and certain Investors (incorporated herein by reference to Exhibit 4.3
of the Registrants registration statement on Form SB-2 filed on September 10, 2007,
File No. 333-145939).4.4
    
    Warrant dated August 31, 2007 by CleanTech Biofuels, Inc. in favor of RAM Resources,
L.L.C (incorporated herein by reference to Exhibit 4.4 of the Registrants
registration statement on Form SB-2 filed on September 10, 2007, File No.
333-145939).10.1
    
    Exclusive License Agreement between Brelsford Engineering, Inc. and SRS Energy, Inc.
dated as of April 1, 2005 (incorporated herein by reference to Exhibit 10.1 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).10.2
    
    Amendment to Exclusive License Agreement between Brelsford Engineering, Inc. and SRS
Energy, Inc. dated as of January 11, 2006 (incorporated herein by reference to
Exhibit 10.2 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.3
    
    Technology License Agreement between Bio-Products International, Inc. and SRS
Energy, Inc. dated as of August 17, 2005 (incorporated herein by reference to
Exhibit 10.3 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.4
    
    Technology License Agreement between Bio Products International, Inc. and SRS
Energy, Inc. dated as of March 8, 2007 (incorporated herein by reference to Exhibit
10.4 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.5
    
    Engagement Agreement between Alternative Ethanol Technologies, Inc. k/n/a CleanTech
Biofuels, Inc. and Merrick & Company (incorporated herein by reference to Exhibit
10.5 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.6
    
    Consulting Fee Agreement between Alternative Ethanol Technologies k/n/a CleanTech
Biofuels, Inc. and Five Sigma Ltd. dated as of April 17, 2007 (incorporated herein
by reference to Exhibit 10.6 of the Registrants registration statement on Form SB-2
filed on September 10, 2007, File No. 333-145939).10.7*
    
    2007 Stock Option Plan (incorporated herein by reference to Exhibit 10.7 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).10.8*
    
    Form of Director Stock Option Agreement (incorporated herein by reference to Exhibit
10.8 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.9*
    
    Director Stock Purchase Agreement (incorporated herein by reference to Exhibit 10.9
of the Registrants registration statement on Form SB-2 filed on September 10, 2007,
File No. 333-145939).10.10*
    
    Employment Agreement  Edward P. Hennessey, Jr. (incorporated herein by reference to
Exhibit 10.10 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.11*
    
    Form of Employee Agreement  Michael Kime and Tom Jennewein (incorporated herein by
reference to Exhibit 10.11 of the Registrants registration statement on Form SB-2
filed on September 10, 2007, File No. 333-145939).
  51




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##### Table of Contents



ExhibitNumber
    
    Description10.12*
    
    Form of Employee Stock Option Agreement  Michael Kime and Tom Jennewein
(incorporated herein by reference to Exhibit 10.12 of the Registrants registration
statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).10.13
    
    Commercial Lease with Pershing Properties, LLC dated October 12, 2007 (incorporated
herein by reference to Exhibit 10.13 of the Registrants registration statement on
Form SB-2/A filed on November 30, 2007, File No. 333-145939).10.14
    
    Sublicense Agreement with HFTA dated
March 20, 2008 (incorporated herein by
reference to Exhibit 10.1 of the Registrants current report on Form 8-K filed
March 25, 2008).14
    
    Code of Ethics (to be posted to our website at www.cleantechbiofuels.net)21.1
    
    List of Subsidiaries.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended31.2
    
    Certification of principal financial officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended32.1
    
    Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002) of Chief Executive Officer32.2
    
    Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002) of principal financial officer
 
 *
    
    Management contract or compensatory plan or arrangement. 
 ITEM 14. Principal Accountant Fees and Services
   52




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##### Table of Contents



SIGNATURES
  CleanTech Biofuels, Inc.
 March 28, 2008
    By:
    /s/ Edward P. Hennessey, Jr.Edward P. Hennessey, Jr.Chief Executive OfficerMarch 28, 2008
    By:
    /s/ Thomas G. JenneweinThomas G. JenneweinChief Financial Officer  March 28, 2008
    /s/ Edward P. Hennessey, Jr.Edward P. Hennessey, Jr., Chairman of the Board of Directors and Chief Executive Officer
(principal executive officer)March 28, 2008
    /s/ Thomas G. Jennewein.Thomas G. Jennewein, Chief Financial Officer(principal financial and accounting officer)March 28, 2008
    /s/ Benton BeckerBenton Becker, DirectorMarch 28, 2008
    /s/ Ira Langenthal, Phd.Ira Langental, Phd., DirectorMarch 28, 2008
    /s/ Paul Simon, Jr.Paul Simon, Jr., DirectorMarch 28, 2008
    /s/ Larry McGeeLarry McGee, Director  53




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##### Table of Contents



INDEX TO EXHIBITS
 ExhibitNumber
    
    Description3.1
     
    Restated Certificate of Incorporation (incorporated herein by reference to Exhibit
3.1 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).3.2
    
    Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).4.1
    
    Form of Series A Convertible Debenture (incorporated herein by reference to Exhibit
4.1 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).4.2
    
    Investors Rights Agreement dated as of April 16, 2007 by and among SRS Energy, Inc.
and certain Investors (incorporated herein by reference to Exhibit 4.2 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).4.3
    
    Series A Debenture Purchase Agreement dated as of April 16, 2007 by and among SRS
Energy, Inc. and certain Investors (incorporated herein by reference to Exhibit 4.3
of the Registrants registration statement on Form SB-2 filed on September 10, 2007,
File No. 333-145939).4.4
    
    Warrant dated August 31, 2007 by CleanTech Biofuels, Inc. in favor of RAM Resources,
L.L.C (incorporated herein by reference to Exhibit 4.4 of the Registrants
registration statement on Form SB-2 filed on September 10, 2007, File No.
333-145939).10.1
    
    Exclusive License Agreement between Brelsford Engineering, Inc. and SRS Energy, Inc.
dated as of April 1, 2005 (incorporated herein by reference to Exhibit 10.1 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).10.2
    
    Amendment to Exclusive License Agreement between Brelsford Engineering, Inc. and SRS
Energy, Inc. dated as of January 11, 2006 (incorporated herein by reference to
Exhibit 10.2 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.3
    
    Technology License Agreement between Bio-Products International, Inc. and SRS
Energy, Inc. dated as of August 17, 2005 (incorporated herein by reference to
Exhibit 10.3 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.4
    
    Technology License Agreement between Bio Products International, Inc. and SRS
Energy, Inc. dated as of March 8, 2007 (incorporated herein by reference to Exhibit
10.4 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.5
    
    Engagement Agreement between Alternative Ethanol Technologies, Inc. k/n/a CleanTech
Biofuels, Inc. and Merrick & Company (incorporated herein by reference to Exhibit
10.5 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.6
    
    Consulting Fee Agreement between Alternative Ethanol Technologies k/n/a CleanTech
Biofuels, Inc. and Five Sigma Ltd. dated as of April 17, 2007 (incorporated herein
by reference to Exhibit 10.6 of the Registrants registration statement on Form SB-2
filed on September 10, 2007, File No. 333-145939).10.7*
    
    2007 Stock Option Plan (incorporated herein by reference to Exhibit 10.7 of the
Registrants registration statement on Form SB-2 filed on September 10, 2007, File
No. 333-145939).10.8*
    
    Form of Director Stock Option Agreement (incorporated herein by reference to Exhibit
10.8 of the Registrants registration statement on Form SB-2 filed on September 10,
2007, File No. 333-145939).10.9*
    
    Director Stock Purchase Agreement (incorporated herein by reference to Exhibit 10.9
of the Registrants registration statement on Form SB-2 filed on September 10, 2007,
File No. 333-145939).10.10*
    
    Employment Agreement  Edward P. Hennessey, Jr. (incorporated herein by reference to
Exhibit 10.10 of the Registrants registration statement on Form SB-2 filed on
September 10, 2007, File No. 333-145939).10.11*
    
    Form of Employee Agreement  Michael Kime and Tom Jennewein (incorporated herein by
reference to Exhibit 10.11 of the Registrants registration statement on Form SB-2
filed on September 10, 2007, File No. 333-145939).10.12*
    
    Form of Employee Stock Option Agreement  Michael Kime and Tom Jennewein
(incorporated herein by reference to Exhibit 10.12 of the Registrants registration
statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).10.13
    
    Commercial Lease with Pershing Properties, LLC dated October 12, 2007 (incorporated
herein by reference to Exhibit 10.13 of the Registrants registration statement on
Form SB-2/A filed on November 30, 2007, File No. 333-145939).10.14
    
    Sublicense Agreement with HFTA dated
March 20, 2008 (incorporated herein by reference to Exhibit 10.1 of the
Registrants current report on Form 8-K filed March 25, 2008).
  54




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##### Table of Contents



ExhibitNumber
    
    Description14
    
    Code of Ethics (to be posted to our website at www.cleantechbiofuels.net)21.1
    
    List of Subsidiaries.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities
Exchange Act, as amended31.2
    
    Certification of principal financial officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities
Exchange Act, as amended32.1
    
    Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002) of Chief Executive Officer32.2
    
    Certificate (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002) of principal financial officer
 
 *
    
    Management contract or compensatory plan or arrangement.  55