##### 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 JUNE 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
(State or other jurisdiction of incorporation or organization)
    
    33-0754902
(I.R.S. Employer Identification No.)7386 Pershing Ave., University City, Missouri
(Address of principal executive offices)
    
    63130
(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)Balance Sheets  June 30, 2008 and December 31, 2007
    
    
    3Statements of Operations  Three and six months ended June 30, 2008 and 2007 and Inception to June 30, 2008
    
    
    4Statements of Stockholders Deficit  June 30, 2008
    
    
    5Statements of Cash Flows  Six months ended June, 2008 and 2007 and Inception to June 30, 2008
    
    
    6Notes to Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4T Controls and Procedures
    
    
    18PART II Other InformationItem 1 Legal Proceedings
    
    
    19Item 1A Risk Factors
    
    
    19Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3 Defaults upon Senior Securities
    
    
    20Item 4 Submission of Matters to a Vote of Security Holders
    
    
    20Item 5 Other Information
    
    
    20Item 6 Exhibits
    
    
    20Signatures
    
    
    21Index to Exhibits
    
    
    22Exhibit 2.1Exhibit 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
 June 30,
    
    
    December 31,2008
    
    
    2007(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    43,092
    
    
    $
    120,356Receivables:Interest
    
    
    
    
    
    
    19,425Promissory notes
    
    
    
    
    
    
    450,000Prepaids and other current assets
    
    
    49,565
    
    
    
    72,02692,657
    
    
    
    661,807Property and equipment, net
    
    
    31,101
    
    
    
    3,099Non-current asset:Technology license, net
    
    
    105,000
    
    
    
    112,500Total Assets
    
    $
    228,758
    
    
    $
    777,406LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    127,317
    
    
    $
    91,988Accrued interest
    
    
    10,290
    
    
    
    60,433Accrued professional fees
    
    
    36,600
    
    
    
    36,600Capital Lease
    
    
    4,930
    
    
    
    Total current liabilities
    
    
    179,137
    
    
    
    189,021Capital Lease
    
    
    8,085
    
    
    
    Series A Convertible Debentures
    
    
    140,000
    
    
    
    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; 58,232,591
and 49,343,680 shares issued and outstanding at June 30, 2008 and
December 31, 2007, respectively
    
    
    58,233
    
    
    
    49,344Additional paid-in capital
    
    
    2,847,019
    
    
    
    364,260Notes receivable  restricted common shares issued to Directors
    
    
    (90,000
    )
    
    
    (90,000
    )Deficit accumulated during the development stage
    
    
    (2,913,716
    )
    
    
    (1,135,219
    )Total Stockholders Deficit
    
    
    (98,464
    )
    
    
    (811,615
    )Total Liabilities and Stockholders Deficit
    
    $
    228,758
    
    
    $
    777,406
 See accompanying notes to financial statements.
  3




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 STATEMENTS OF OPERATIONS (Unaudited)
 July 14, 2004Three months ended
    
    
    Six months ended
    
    
    (inception) toJune 30
    
    
    June 30
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008Costs and expenses:General and administrative
    
    $
    675,819
    
    
    $
    229,344
    
    
    $
    1,325,281
    
    
    $
    233,351
    
    
    $
    1,824,916Professional fees
    
    
    78,946
    
    
    
    154,873
    
    
    
    190,892
    
    
    
    156,843
    
    
    
    519,535Research and development
    
    
    53,812
    
    
    
    
    
    
    
    236,916
    
    
    
    
    
    
    
    369,146808,577
    
    
    
    384,217
    
    
    
    1,753,089
    
    
    
    390,194
    
    
    
    2,713,597Other expense (income):Interest
    
    
    4,136
    
    
    
    17,500
    
    
    
    23,887
    
    
    
    21,097
    
    
    
    90,655Amortization of technology license
    
    
    3,750
    
    
    
    
    
    
    
    7,500
    
    
    
    
    
    
    
    27,500Deposit forfeiture
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,000
    )Interest income
    
    
    (252
    )
    
    
    (5,020
    )
    
    
    (5,979
    )
    
    
    (5,020
    )
    
    
    (27,384
    )7,634
    
    
    
    12,480
    
    
    
    25,408
    
    
    
    16,077
    
    
    
    65,771Net loss applicable to common
stockholders
    
    $
    816,211
    
    
    $
    396,697
    
    
    $
    1,778,497
    
    
    $
    406,271
    
    
    $
    2,779,368Basic and diluted net loss per
common share
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    0.03
    
    
    $
    0.01
    
    
    $
    0.06Weighted average common shares
outstanding
    
    
    57,489,950
    
    
    
    43,684,232
    
    
    
    53,786,237
    
    
    
    41,154,508
    
    
    
    44,983,720
 See
accompanying notes to financial statements
  4




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CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 Statements of Changes in Stockholders Deficit (unaudited)
 Notes Rec -restrictedcommon
    
    
    July 14, 2004Additional
    
    
    shares
    
    
    (inception) toCommon Stock
    
    
    Paid-in
    
    
    issued to
    
    
    June 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
    
    
    
    663,921Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    1,158,311Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,778,497
    )Balances at June 30, 2008
    
    
    58,232,591
    
    
    $
    58,233
    
    
    $
    2,847,019
    
    
    $
    (90,000
    )
    
    $
    (2,913,716
    )
 See accompanying notes to financial statements.
  5




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##### Table of Contents



CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)
 
 STATEMENTS OF CASH FLOWS (Unaudited)
 July 14, 2004For the six months ended
    
    
    (inception) toJune 30,
    
    
    June 30,2008
    
    
    2007
    
    
    2008OPERATING ACTIVITIESNet loss applicable to common stockholders
    
    $
    (1,778,497
    )
    
    $
    (406,271
    )
    
    $
    (2,779,368
    )Adjustments to reconcile net loss applicable to common
stockholders to net cash used by operating activities:Common stock issued for organizational costs
    
    
    
    
    
    
    
    
    
    
    100Amortization
    
    
    7,500
    
    
    
    
    
    
    
    27,500Depreciation
    
    
    12,796
    
    
    
    
    
    
    
    13,052Share-based compensation expense
    
    
    1,158,311
    
    
    
    
    
    
    
    1,197,440Fair value of RAM warrant settlement
    
    
    
    
    
    
    
    
    
    
    125,027Changes in operating assets and liabilities:Interest receivable
    
    
    (5,475
    )
    
    
    (4,375
    )
    
    
    (24,900
    )Prepaids and other current assets
    
    
    22,461
    
    
    
    
    
    
    
    (49,565
    )Technology license
    
    
    
    
    
    
    (15,000
    )
    
    
    (132,500
    )Accounts payable
    
    
    35,329
    
    
    
    
    
    
    
    127,317Accrued interest
    
    
    23,194
    
    
    
    15,061
    
    
    
    83,627Accrued liabilities
    
    
    
    
    
    
    14,496
    
    
    
    36,600Cash used by operating activities
    
    
    (524,381
    )
    
    
    (396,089
    )
    
    
    (1,375,670
    )INVESTING ACTIVITIESExpenditures for equipment
    
    
    (40,798
    )
    
    
    
    
    
    
    (44,153
    )Cash used by investing activities
    
    
    (40,798
    )
    
    
    
    
    
    
    (44,153
    )FINANCING ACTIVITIESAdvances  related parties
    
    
    
    
    
    
    (110,957
    )
    
    
    Capital lease
    
    
    13,015
    
    
    
    
    
    
    
    13,015Series A Convertible Debentures
    
    
    474,900
    
    
    
    950,000
    
    
    
    1,424,900Sale of common stock
    
    
    
    
    
    
    
    
    
    
    25,000Cash provided by financing activities
    
    
    487,915
    
    
    
    839,043
    
    
    
    1,462,915(Decrease) increase in cash and cash equivalents
    
    
    (77,264
    )
    
    
    442,954
    
    
    
    43,092Cash and cash equivalents at beginning of period
    
    
    120,356
    
    
    
    20
    
    
    
    Cash and cash equivalents at end of period
    
    $
    43,092
    
    
    $
    442,974
    
    
    $
    43,092Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    
    
    
    $
    
    
    
    $
    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
    
    $
    
    
    
    $
    
    
    
    $
    90,000Common stock issued for organizational costs
    
    $
    
    
    
    $
    
    
    
    $
    100Common stock issued for promissory notes
    
    $
    
    
    
    $
    
    
    
    $
    133,596Common stock issued for Debentures converted
    
    $
    1,333,337
    
    
    $
    
    
    
    $
    1,333,337
 See accompanying notes to financial statements.
  6




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##### Table of Contents



Note 1  Organization and Business
     Note 2  Interim Financial Statements
  Note 3  Technology Licenses
 Brelsford Engineering, Inc.
   7




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##### Table of Contents



Bio-Products International, Inc.
  HFTA, Inc.
     Note 4  Series A Convertible Debentures
   8




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Note 5  Stockholders Deficit
     Note 6  Related Party Transactions
     9




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Note 7  Share-based Payments
       10




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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
    
    
    
    0.15Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Options outstanding at June 30, 2008
    
    
    4,010,000Options exercisable at June 30, 2008
    
    
    
  Note 8  Commitments and Contingencies
 Project
management
  11




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##### Table of Contents



Leases 
 Note 9  Subsequent Events
 Regulation S Offering
    Acquisition of Biomass North America Licensing, Inc.
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Statement Regarding Forward-Looking Information
   12




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
    
    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
  
    
    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;
    
    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.
   13




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Plan of Operation
     14




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##### Table of Contents



Proof of Concept/Demonstration Phase
   Commercialization Phase
  Replication and Rollout Phase
    15




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##### Table of Contents



Results of Operations
  Three months endedJune 30, 2008
    
    
    June 30, 2007
    
    
    $ Change
    
    
    % ChangeCosts and expenses:General and administrative
    
    $
    675,819
    
    
    $
    229,344
    
    
    $
    446,475
    
    
    
    194.7
    %Professional fees
    
    
    78,946
    
    
    
    154,873
    
    
    
    (75,927
    )
    
    
    -49.0
    %Research and development
    
    
    53,812
    
    
    
    
    
    
    
    53,812
    
    
    
    N/M808,577
    
    
    
    384,217
    
    
    
    424,360Other expense (income):Interest
    
    
    4,136
    
    
    
    17,500
    
    
    
    (13,364
    )
    
    
    -76.4
    %Amortization of technology license
    
    
    3,750
    
    
    
    
    
    
    
    3,750
    
    
    
    N/MInterest income
    
    
    (252
    )
    
    
    (5,020
    )
    
    
    4,768
    
    
    
    -95.0
    %Net loss applicable to common
stockholders
    
    $
    816,211
    
    
    $
    396,697
    
    
    $
    419,514
 Six months endedJune 30, 2008
    
    
    June 30, 2007
    
    
    $ Change
    
    
    % ChangeCosts and expenses:General and administrative
    
    $
    1,325,281
    
    
    $
    233,351
    
    
    $
    1,091,930
    
    
    
    467.9
    %Professional fees
    
    
    190,892
    
    
    
    156,843
    
    
    
    34,049
    
    
    
    21.7
    %Research and development
    
    
    236,916
    
    
    
    
    
    
    
    236,916
    
    
    
    N/M1,753,089
    
    
    
    390,194
    
    
    
    1,362,895Other expense (income):Interest
    
    
    23,887
    
    
    
    21,097
    
    
    
    2,790
    
    
    
    13.2
    %Amortization of technology license
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    N/MInterest income
    
    
    (5,979
    )
    
    
    (5,020
    )
    
    
    (959
    )
    
    
    19.1
    %Net loss applicable to common
stockholders
    
    $
    1,778,497
    
    
    $
    406,271
    
    
    $
    1,372,226
 General
  Three months ended June 30, 2008 compared to the three months ended June 30, 2007
 Costs and expenses:
 General
and administrative
 Professional fees
 Research and development
  16




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Other expense (income):
 Interest expense
 Amortization of technology license
 Interest income
 Six months ended June 30, 2008 compared to the six months ended June 30, 2007
 Costs and expenses:
 General and administrative
 Professional fees
 Research and development
 Other expense (income):
 Amortization of technology license
 Liquidity and Capital Resources
      17




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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
  Changes in Internal Control Over Financial Reporting
  18




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 CleanTech Biofuels, Inc. v. Bioproducts International, Inc
   
 Item 1A. Risk Factors
 We may not be able to raise the full $5.0 million with Concord Business Development (Concord)
    19




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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 
   Votes For
    
    
    Votes Against
    
    
    Votes WithheldPaul Simon, Jr.
    
    
    36,837,021
    
    
    
    
    
    
    
    4,479,203Benton Becker
    
    
    41,316,224
    
    
    
    
    
    
    
    
   Votes For
    
    
    29,761,555Votes Against
    
    
    5,422,766Votes Abstained
    
    
    134,333
  Votes For
    
    
    41,260,947Votes Against
    
    
    Votes Abstained
    
    
    55,275
 
 Item 5. Other Information 
 
 Item 6. Exhibits
  EXHIBIT NO.
    
    DESCRIPTION2.1
    
    
    Agreement and Plan of Merger and Reorganization by and among Cleantech Biofuels, Inc.,
Biomass NA Acquisition Subsidiary, Inc. and Biomass North America Licensing, Inc. dated as of
July 14, 200831.1
    
    
    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.
 
  20




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SIGNATURES
  CLEANTECH BIOFUELS, INC.Date: August 13, 2008
    
    /s/ Edward P. Hennessey, Jr.

Edward P. Hennessey, Jr.Chief Executive OfficerDate: August 13, 2008
    
    /s/ Thomas Jennewein

Thomas JenneweinChief Financial Officer andPrincipal Accounting Officer
  21




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INDEX TO EXHIBITS
 EXHIBIT NO.
    
    DESCRIPTION2.1
    
    
    Agreement and Plan of Merger and Reorganization by and among Cleantech Biofuels, Inc.,
Biomass NA Acquisition Subsidiary, Inc. and Biomass North America Licensing, Inc. dated as of
July 14, 200831.1
    
    
    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