##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2008
 o
    
    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 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
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



CLEANTECH BIOFUELS, INC.
TABLE OF CONTENTS
 PAGEPART I Financial InformationItem 1 Financial Statements (Unaudited)
    
    
    3Balance Sheets  September 30, 2008 and December 31, 2007
    
    
    3Statements of Operations  Three and nine months ended September 30, 2008 and 2007 and Inception to September 30, 2008
    
    
    4Statements
of Stockholders Equity (Deficit)  September 30, 2008
    
    
    5Statements of Cash Flows  Nine months ended September, 2008 and 2007 and Inception to September 30, 2008
    
    
    6Notes to Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 4T Controls and Procedures
    
    
    20PART II Other InformationItem 1 Legal Proceedings
    
    
    21Item 1A Risk Factors
    
    
    21Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    22Item 3 Defaults upon Senior Securities
    
    
    22Item 4 Submission of Matters to a Vote of Security Holders
    
    
    22Item 5 Other Information
    
    
    22Item 6 Exhibits
    
    
    22Signatures
    
    
    23Index to Exhibits
    
    
    24Exhibit 10.18Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited)
 CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,803
    
    
    $
    120,356Receivables:Interest
    
    
    
    
    
    
    19,425Promissory notes
    
    
    
    
    
    
    450,000Prepaids and other current assets
    
    
    57,894
    
    
    
    72,02671,697
    
    
    
    661,807Property and equipment, net
    
    
    23,213
    
    
    
    3,099Non-current assets:Technology licenses, net
    
    
    2,123,032
    
    
    
    112,500Total Assets
    
    $
    2,217,942
    
    
    $
    777,406LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable
    
    $
    230,286
    
    
    $
    91,988Accrued interest
    
    
    12,717
    
    
    
    60,433Accrued professional fees
    
    
    36,600
    
    
    
    36,600Note Payable, net
    
    
    78,050
    
    
    
    Capital Lease
    
    
    4,596
    
    
    
    Total current liabilities
    
    
    362,249
    
    
    
    189,021Capital Lease
    
    
    7,304
    
    
    
    Due to Investors
    
    
    77,000
    
    
    
    Series A Convertible Debentures
    
    
    140,000
    
    
    
    1,400,000STOCKHOLDERS EQUITY (DEFICIT)Preferred 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; 61,090,153
and 49,343,680 shares issued and outstanding at September 30, 2008
and December 31, 2007, respectively
    
    
    61,090
    
    
    
    49,344Additional paid-in capital
    
    
    3,786,884
    
    
    
    364,260Notes receivable  restricted common shares issued to Directors
    
    
    (90,000
    )
    
    
    (90,000
    )Deficit accumulated during the development stage
    
    
    (2,126,585
    )
    
    
    (1,135,219
    )Total Stockholders Equity (Deficit)
    
    
    1,631,389
    
    
    
    (811,615
    )Total Liabilities and Stockholders Equity (Deficit)
    
    $
    2,217,942
    
    
    $
    777,406
 See accompanying notes to financial statements.
  3




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##### Table of Contents



CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 STATEMENTS OF OPERATIONS (Unaudited)
 July 14, 2004Three months ended
    
    
    Nine months ended
    
    
    (inception) toSeptember 30,
    
    
    September 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008Costs and expenses:General and administrative
    
    $
    99,204
    
    
    $
    175,635
    
    
    $
    400,534
    
    
    $
    408,986
    
    
    $
    900,169Professional fees
    
    
    90,284
    
    
    
    62,152
    
    
    
    281,176
    
    
    
    218,995
    
    
    
    609,819Research and development
    
    
    40,271
    
    
    
    41,533
    
    
    
    277,187
    
    
    
    41,533
    
    
    
    409,417229,759
    
    
    
    279,320
    
    
    
    958,897
    
    
    
    669,514
    
    
    
    1,919,405Other expense (income):Interest
    
    
    3,314
    
    
    
    21,466
    
    
    
    27,201
    
    
    
    42,563
    
    
    
    93,969Amortization of technology license
    
    
    3,750
    
    
    
    16,250
    
    
    
    11,250
    
    
    
    16,250
    
    
    
    31,250Deposit forfeiture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Interest income
    
    
    (3
    )
    
    
    (9,038
    )
    
    
    (5,982
    )
    
    
    (14,058
    )
    
    
    (27,387
    )7,061
    
    
    
    28,678
    
    
    
    32,469
    
    
    
    44,755
    
    
    
    72,832Net loss applicable to common stockholders
    
    $
    236,820
    
    
    $
    307,998
    
    
    $
    991,366
    
    
    $
    714,269
    
    
    $
    1,992,237Basic and diluted net loss per common share
    
    
    **
    
    
    $
    0.01
    
    
    $
    0.02
    
    
    $
    0.02
    
    
    $
    0.04Weighted average common shares outstanding
    
    
    58,708,851
    
    
    
    49,043,680
    
    
    
    55,427,109
    
    
    
    43,784,232
    
    
    
    45,850,570
 **
    
     less than $.01 per share See accompanying notes to financial statements.
  4




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##### Table of Contents



CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 Statements of Changes in Stockholders Equity (Deficit) (unaudited)
 Notes Rec restrictedcommon
    
    
    July 14, 2004Additional
    
    
    shares
    
    
    (inception) toCommon Stock
    
    
    Paid-in
    
    
    issued to
    
    
    September 30,Shares
    
    
    Amount
    
    
    Capital
    
    
    Directors
    
    
    2008Balances at December 31, 2007
    
    
    49,343,680
    
    
    $
    49,344
    
    
    $
    364,260
    
    
    $
    (90,000
    )
    
    $
    (1,135,219
    )Conversion of promissory notes in
March 2008 at $.15 per share
    
    
    4,433,067
    
    
    
    4,433
    
    
    
    660,527Conversion of promissory notes in
April 2008 at $.15 per share
    
    
    4,455,844
    
    
    
    4,456
    
    
    
    663,921Shares released from escrow to HFTA
    
    
    962,562
    
    
    
    962
    
    
    
    499,570Shares issued in accordance with Biomass
North America Licensing, Inc. merger
    
    
    1,895,000
    
    
    
    1,895
    
    
    
    1,419,355Discount on Note Payable
    
    
    
    
    
    
    
    
    
    
    2,525Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    176,726Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (991,366
    )Balances at September 30, 2008
    
    
    61,090,153
    
    
    $
    61,090
    
    
    $
    3,786,884
    
    
    $
    (90,000
    )
    
    $
    (2,126,585
    )
 See accompanying notes to financial statements.
  5




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 STATEMENTS OF CASH FLOWS (unaudited)
 July 14, 2004For the nine months ended
    
    
    (inception) toSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008OPERATING ACTIVITIESNet loss applicable to common stockholders
    
    $
    (991,366
    )
    
    $
    (714,269
    )
    
    $
    (1,992,237
    )Adjustments to reconcile net loss applicable to common
stockholders to net cash used by operating activities:Common stock issued for organizational costs
    
    
    
    
    
    
    
    
    
    
    100Amortization
    
    
    11,250
    
    
    
    16,250
    
    
    
    31,250Depreciation
    
    
    20,684
    
    
    
    
    
    
    
    20,940Share-based compensation expense
    
    
    176,726
    
    
    
    11,413
    
    
    
    215,855Fair value of RAM warrant settlement
    
    
    
    
    
    
    125,027
    
    
    
    125,027Changes in operating assets and liabilities:Interest receivable
    
    
    (5,475
    )
    
    
    (12,525
    )
    
    
    (24,900
    )Prepaids and other current assets
    
    
    14,132
    
    
    
    (55,913
    )
    
    
    (57,894
    )Technology license
    
    
    
    
    
    
    (15,000
    )
    
    
    (132,500
    )Accounts payable
    
    
    138,298
    
    
    
    50,899
    
    
    
    230,286Accrued interest and other financing charges
    
    
    26,196
    
    
    
    36,528
    
    
    
    86,629Accrued liabilities
    
    
    
    
    
    
    (30,132
    )
    
    
    36,600Cash used by operating activities
    
    
    (609,555
    )
    
    
    (587,722
    )
    
    
    (1,460,844
    )INVESTING ACTIVITIESAcquisition of Biomass North America Licensing, Inc., net
    
    
    (20,000
    )
    
    
    
    
    
    
    (20,000
    )Expenditures for equipment
    
    
    (40,798
    )
    
    
    
    
    
    
    (44,153
    )Cash used by investing activities
    
    
    (60,798
    )
    
    
    
    
    
    
    (64,153
    )FINANCING ACTIVITIESAdvances  related parties
    
    
    
    
    
    
    (111,165
    )
    
    
    Capital lease
    
    
    11,900
    
    
    
    
    
    
    
    11,900Series A Convertible Debentures
    
    
    474,900
    
    
    
    950,000
    
    
    
    1,424,900Cash from investors
    
    
    77,000
    
    
    
    
    
    
    
    77,000Sale of common stock
    
    
    
    
    
    
    
    
    
    
    25,000Cash provided by financing activities
    
    
    563,800
    
    
    
    838,835
    
    
    
    1,538,800(Decrease) increase in cash and cash equivalents
    
    
    (106,553
    )
    
    
    251,113
    
    
    
    13,803Cash and cash equivalents at beginning of period
    
    
    120,356
    
    
    
    20
    
    
    
    Cash and cash equivalents at end of period
    
    $
    13,803
    
    
    $
    251,133
    
    
    $
    13,803Supplemental 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
    
    
    $
    133,596Common stock issued for Debentures converted
    
    $
    1,333,337
    
    
    $
    
    
    
    $
    1,333,337Common stock issued for acquistion of Biomass
    
    $
    1,521,250
    
    
    $
    
    
    
    $
    1,521,250Common stock issued for HFTA
    
    $
    500,532
    
    
    $
    
    
    
    $
    500,532
 See accompanying notes to financial statements.
  6




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##### Table of Contents



Note 1  Organization and Business
    near-term
  Note 2  Interim Financial Statements
  Note 3  Mergers/Acquisitions
   7




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##### Table of Contents



Note 4  Technology Licenses
 Brelsford Engineering, Inc.
  Bio-Products International, Inc.
  HFTA, Inc.
   8




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##### Table of Contents



Biomass North America Licensing, Inc. (Biomass)
    Note 5  Series A Convertible Debentures
   9




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##### Table of Contents



Note 6  Stockholders Deficit
     Note 7  Related Party Transactions
     10




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Note 8  Share-based Payments
     risk-free
  11




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Three months ended
    
    
    Nine months endedSept 30, 2008
    
    
    Sept 30, 2007
    
    
    Sept 30, 2008
    
    
    Sept 30, 2007Stock options:Pre-tax compensation expense
    
    $
    42,365
    
    
    $
    11,413
    
    
    $
    176,726
    
    
    $
    11,413Tax benefit, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    After-tax compensation expense
    
    $
    42,365
    
    
    $
    11,413
    
    
    $
    176,726
    
    
    $
    11,413
    Weighted
    
    
    AggregateShares Under
    
    
    Average
    
    
    IntrinsicOption
    
    
    Exercise Price
    
    
    ValueAdoption of Stock Plan in March 2007
    
    
    Granted
    
    
    4,010,000
    
    
    $
    0.15Exercised
    
    
    Forfeited
    
    
    Options outstanding at December 31, 2007
    
    
    4,010,000
    
    
    
    0.15
    
    
    $
    1,604,000Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Options outstanding at September 30, 2008
    
    
    4,010,000
    
    
    
    
    
    
    $
    1,604,000Options exercisable at September 30, 2008
    
    
    1,363,333
  Note 9  Due to Investors
   12




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Note 10  Commitments and Contingencies
 Project management
  Leases 
 Note 11  Subsequent Events
     13




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 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 to continue developing
our technologies,
 
    
    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.
 
 Company Overview
  
    
    the Pressurized Steam Classification technology, which we refer to as our PSC
technology 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;
 
    
    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.
  14




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##### Table of Contents




    
    construct and operate a commercial plant that processes municipal solid waste into
cellulosic biomass for combustion in existing co-fired boilers for electricity production
in Chicago, Illinois;
 
    
    identify and partner with landfill owners, waste haulers and municipalities to identify
locations suitable for our PSC technology; and
 
    
    pursue additional opportunities to implement our technology in commercial settings at
transfer stations and landfills in the United States and elsewhere in the world.
  
    
    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.
    Recent Developments
   15




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Plan of Operation
   Biomass Feedstock Production
   16




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##### Table of Contents



Ethanol Production
 Proof of Concept/Demonstration Phase
   Commercialization Phase
   17




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Replication and Rollout Phase
   Results of Operations
  Three months endedSept 30, 2008
    
    
    Sept 30, 2007
    
    
    $ Change
    
    
    % ChangeCosts and expenses:General and administrative
    
    $
    99,204
    
    
    $
    175,635
    
    
    $
    (76,431
    )
    
    
    -43.5
    %Professional fees
    
    
    90,284
    
    
    
    62,152
    
    
    
    28,132
    
    
    
    45.3
    %Research and development
    
    
    40,271
    
    
    
    41,533
    
    
    
    (1,262
    )
    
    
    -3.0
    %229,759
    
    
    
    279,320
    
    
    
    (49,561
    )Other expense (income):Interest
    
    
    3,314
    
    
    
    21,466
    
    
    
    (18,152
    )
    
    
    -84.6
    %Amortization of technology license
    
    
    3,750
    
    
    
    16,250
    
    
    
    (12,500
    )
    
    
    -76.9
    %Interest income
    
    
    (3
    )
    
    
    (9,038
    )
    
    
    9,035
    
    
    
    -100.0
    %Net loss applicable to
common stockholders
    
    $
    236,820
    
    
    $
    307,998
    
    
    $
    (71,178
    )
 Nine months endedSept 30, 2008
    
    
    Sept 30, 2007
    
    
    $ Change
    
    
    % ChangeCosts and expenses:General and administrative
    
    $
    400,534
    
    
    $
    408,986
    
    
    $
    (8,452
    )
    
    
    -2.1
    %Professional fees
    
    
    281,176
    
    
    
    218,995
    
    
    
    62,181
    
    
    
    28.4
    %Research and development
    
    
    277,187
    
    
    
    41,533
    
    
    
    235,654
    
    
    
    567.4
    %958,897
    
    
    
    669,514
    
    
    
    289,383Other expense (income):Interest
    
    
    27,201
    
    
    
    42,563
    
    
    
    (15,362
    )
    
    
    -36.1
    %Amortization of technology license
    
    
    11,250
    
    
    
    16,250
    
    
    
    (5,000
    )
    
    
    -30.8
    %Interest income
    
    
    (5,982
    )
    
    
    (14,058
    )
    
    
    8,076
    
    
    
    -57.4
    %Net loss applicable to
common stockholders
    
    $
    991,366
    
    
    $
    714,269
    
    
    $
    277,097
  18




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General
  Three months ended September 30, 2008 compared to the three months ended September 30, 2007
 Costs and expenses:
 General and administrative
 Professional fees
 Other expense (income):
 Interest expense
 Interest income
 Nine months ended September 30, 2008 compared to the nine months ended September 30, 2007
 Costs and expenses:
 General and administrative
 Professional fees
 Research and development
 Other expense (income):
 Interest expense
 Interest income
  19




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Liquidity and Capital Resources
    Off-Balance Sheet Arrangements
  Critical Accounting Policies
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4T. Controls and Procedures
 Effectiveness of Disclosure Controls and Procedures
  20




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##### Table of Contents



Changes in Internal Control Over Financial Reporting
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 CleanTech Biofuels, Inc. v. Bioproducts International, Inc
   
 Item 1A. Risk Factors
   21




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 Item 3. Defaults Upon Senior Securities 
 
 Item 4. Submission of Matters to a Vote of Security Holders 
 
 Item 5. Other Information 
 
 Item 6. Exhibits
 (a)
    
    The following documents are filed as a part of this Report.
 EXHIBIT NO.
    
    DESCRIPTION10.18
    
    
    Technology License and Joint Development Agreement among Biomass North America Licensing,
Inc., Biomass North America, LLC and Anthony P. Noll31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended.31.2
    
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended.32.1
    
    
    Certification (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002) of Chief Executive Officer.32.2
    
    
    Certification (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.
  22




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SIGNATURES
  CLEANTECH BIOFUELS, INC.Date: November 13, 2008
    /s/ Edward P. Hennessey, Jr.Edward P. Hennessey, Jr.Chief Executive OfficerDate: November 13, 2008
    /s/ Thomas JenneweinThomas JenneweinChief Financial Officer and
Principal Accounting Officer  23




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##### Table of Contents



INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION10.18
    
    
    Technology License and Joint Development Agreement among Biomass North America Licensing,
Inc., Biomass North America, LLC and Anthony P. Noll31.1
    
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the
Securities Exchange Act, as amended.31.2
    
    
    Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of
the Securities Exchange Act, as amended.32.1
    
    
    Certification (Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002)
of Chief Executive Officer.32.2
    
    
    Certification (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.
 
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