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EX-32.2 - CERTIFICATION - CleanTech Biofuels, Inc.ex_322.htm
EX-32.1 - CERTIFICATION - CleanTech Biofuels, Inc.ex_321.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

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.
(Exact name of registrant as specified in its charter)
 
 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)

(Registrant's telephone number): (314) 802-8670

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes oNo o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer o  Accelerated filer o
 Non-accelerated filer o (Do not check if a smaller reporting company)  Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
As of May 4, 2015, 86,988,413 shares of the Company's common stock were outstanding.
 


 
 
 
 
 
CLEANTECH BIOFUELS, INC.
TABLE OF CONTENTS
 
PART I      Financial Information
  PAGE
       
Item 1
Consolidated Financial Statements
   
       
 
Consolidated Balance Sheets – March 31, 2015 and December 31, 2014
  3
       
 
Consolidated Statements of Operations - Three months ended March 31, 2015 and 2014
  4
       
 
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) – March 31, 2015
  5
       
 
Consolidated Statements of Cash Flows – Three months ended March 31, 2015 and 2014
  6
       
 
Notes to Consolidated Financial Statements
  7
       
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  16
       
Item 3
Quantitative and Qualitative Disclosures About Market Risk
  22
       
Item 4T
Controls and Procedures
  23
       
PART II     Other Information
   
       
Item 1
Legal Proceedings
  23
       
Item 1A
Risk Factors
  23
       
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
  23
       
Item 3
Defaults upon Senior Securities
  24
       
Item 4
Mine Safety Disclosures
  24
       
Item 5
Other Information
  24
       
Item 6
Exhibits
  24
      24
Signatures
   
     
Index to Exhibits
   
 
  
 
 

 
 
PART I. FINANCIAL INFORMATION
Item 1.  Consolidated Financial Statements

       
 CLEANTECH BIOFUELS, INC.
 (formerly Alternative Ethanol Technologies, Inc.)
 CONSOLIDATED BALANCE SHEETS
 
   
(unaudited)
   
(audited)
 
   
March 31,
   
December 31,
 
   
2015
   
2014
 
ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 1,353     $ 162  
Prepaids and other current assets
    39,247       38,390  
      40,600       38,552  
                 
Property and equipment, net
    -       -  
                 
Non-Current Assets:
               
Technology license
    1,569,250       1,569,250  
Patents
    600,000       600,000  
Total Assets
  $ 2,209,850     $ 2,207,802  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
Current Liabilities:
               
Accounts payable
  $ 395,675     $ 391,997  
Accrued interest
    604,499       555,189  
Accrued payroll and professional fees
    1,165,084       1,093,240  
Notes payable, net
    2,769,251       2,846,947  
Total Current Liabilities
    4,934,509       4,887,373  
                 
Note Payable - Long-Term
    77,696       -  
                 
STOCKHOLDERS' 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;
               
86,988,413 and 86,138,413 shares issued and outstanding at
               
March 31, 2015 and December 31, 2014, respectively
    86,988       86,138  
Additional paid-in capital
    7,129,014       7,089,664  
Notes receivable - restricted common stock
    (121,686 )     (140,027 )
Accumulated deficit
    (9,896,671 )     (9,715,346 )
Total Stockholders' Equity (Deficit)
    (2,802,355 )     (2,679,571 )
Total Liabilities and Stockholders' Equity (Deficit)
  $ 2,209,850     $ 2,207,802  
 
The accompanying notes are an integral part of these financial statements

 
3

 
 
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
 
   
Three months ended
 
   
March 31,
 
Costs and expenses:
 
2015
   
2014
 
General and administrative
  $ 100,418     $ 96,156  
Professional fees
    28,082       32,705  
Operating Loss
    128,500       128,861  
                 
Other expense (income):
               
Interest expense
    49,484       46,738  
Interest income, net of accrued interest written-off
    3,341       (2,083 )
      52,825       44,655  
                 
Income tax benefit
    -       -  
                 
Net loss
  $ 181,325     $ 173,516  
                 
                 
Basic and diluted net loss per common share
    **       **  
Weighted average common shares outstanding
    86,871,746       79,046,647  
 
** - less than $0.01
 
The accompanying notes are an integral part of these financial statements.

 
4

 
 
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT) (unaudited)
 
                     
Notes Rec -
       
               
Additional
   
restricted
       
   
Common Stock
   
Paid-in
   
common
   
Accumulated
 
   
Shares
   
Amount
   
Capital
   
stock
   
Deficit
 
Balances at December 31, 2014
    86,138,413     $ 86,138     $ 7,089,664     $ (140,027 )   $ (9,715,346 )
                                         
Interest on Notes Receivable
    -       -       -       (1,708 )     -  
Issuance of restricted shares to employee at $0.01 per share
    500,000       500       4,700       -       -  
Issuance of restricted shares to investor in Feb. at $0.10/share
    500,000       500       49,500                  
Expiration of Note Receivable in February at $0.10 per share
    (150,000 )     (150 )     (14,850 )     20,049          
Net loss
    -       -       -       -       (181,325 )
Balances at March 31, 2015
    86,988,413     $ 86,988     $ 7,129,014     $ (121,686 )   $ (9,896,671 )
 
The accompanying notes are an integral part of these financial statements.
 
 
5

 
 
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
   
Three months ended
 
   
March 31,
 
Operating Activities
 
2015
   
2014
 
Net loss applicable to common stockholders
  $ (181,325 )   $ (173,516 )
Adjustments to reconcile net loss applicable to common stockholders to net
               
  cash used by operating activities:
               
  Items that did not use (provide) cash:
               
Interest income, net of accrued interest written-off
    3,341       (2,083 )
Share-based compensation expense
    -       808  
Issuance of restricted common stock
    5,200       6,000  
  Changes in operating assets and liabilities that provided (used) cash, net:
               
Prepaids and other current assets
    (932 )     1,696  
Accounts payable
    3,678       992  
Other assets and other liabilities
    49,310       46,491  
Accrued liabilities
    71,844       26,887  
Net cash used by operating activities
    (48,884 )     (92,725 )
                 
Cash Flows Provided (Used) by Investing Activities
               
Expenditures for equipment
    -       -  
Net cash used by investing activities
    -       -  
                 
Cash Flows Provided by Financing Activities
               
Advances - related parties
    75       169  
Issuance of Convertible Note Payable
    -       100,000  
Sale of common stock
    50,000       -  
Net cash provided by financing activities
    50,075       100,169  
Net increase in cash and cash equivalents
    1,191       7,444  
Cash and cash equivalents at beginning of period
    162       403  
Cash and cash equivalents at end of period
  $ 1,353     $ 7,847  
                 
 Supplemental disclosure of cash flow information:
               
Cash paid for interest
  $ 174     $ 247  
                 
Supplemental disclosure of noncash investing and financing activities:
               
Common stock issued to employees, directors and/or consultants
  $ 5,200     $ 6,000  
 
The accompanying notes are an integral part of these financial statements
 
 
6

 
 
CLEANTECH BIOFUELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 – Organization and Business

Alternative Ethanol Technologies, Inc. (the “Company”), was incorporated in Delaware on December 20, 1996. Effective August 2, 2007, the Company changed its name to CleanTech Biofuels, Inc.

On March 27, 2007, the Company acquired SRS Energy, Inc., a Delaware corporation (“SRS Energy”), pursuant to an Agreement and Plan of Merger and Reorganization. In accordance with the merger agreement, SRS Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, merged with and into SRS Energy. The merger was consummated on May 31, 2007 and resulted in SRS Energy becoming a wholly-owned subsidiary of the Company. As a result of the merger, the stockholders of SRS Energy surrendered all of their issued and outstanding common stock and received shares of the Company’s common stock, $.001 par value per share (“Common Stock”). The former parent of SRS Energy, Supercritical Recovery Systems, Inc., immediately prior to the merger, distributed 78.8% of its 96% ownership in SRS Energy to its shareholders on a pro rata basis. For accounting purposes, because the Company had been a public shell company prior to the merger, the merger was treated as an acquisition of the Company and a recapitalization of SRS Energy.

The Company is in its’ development stage and has been engaged in technology development and pre-operational activities since its formation. The Company is currently seeking outside sources of funding to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, and biofuel and chemical research firms for evaluation. In addition to research and development, the Company is also working towards licensing and/or developing potential commercial projects. These projects plan to focus on cleaning and separating municipal solid waste (also referred to as MSW) into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics, aluminum).

The Company has no operating history as a producer of biomass or energy sources and has not constructed any plants to date. We have no revenues and will be required to secure outside funding in order to execute our business plan and commercialize our products. Our current cash is not sufficient to fund our current operations. Our liabilities are substantially greater than our current available funds and current assets. Although we continue to seek additional financing through the sale of additional equity, various government funding opportunities and/or possibly through strategic alliances with larger energy or waste management companies, we have not had recent success securing meaningful amounts of financing. The Company will require substantial additional financing to implement its business plan and it may be unable to obtain the capital required to do so. If we are not able to immediately and successfully raise additional capital and/or achieve profitability or positive cash flow, we may not be able to continue operations.

The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring items considered necessary for a fair presentation, have been included. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2015.

Note 2 – Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This ASU amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning after December 15, 2015, but early adoption is permitted. We are currently evaluating the impact the adoption will have on our consolidated financial statements and related disclosures.
 
 
7

 
 
In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s ability to continue as a Going Concern.” This ASU provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements and requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity’s ability to continue as a going concern. This new guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.

In June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915) - Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation.” This ASU removes the definition of a development stage entity from the Master Glossary of the Accounting Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This new guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within those years. Early application is permitted. The Company elected to early adopt this ASU for the annual period ended December 31, 2014. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. This new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. On April 1, 2015, the FASB proposed deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. The FASB also proposed permitting early adoption of the standard, but not before the original effective date of December 15, 2016. We are currently evaluating the impact the pronouncement will have on our consolidated financial statements and related disclosures and will apply this ASU upon commencement of revenues.

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements and Property, Plant, and Equipment - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, which amends the definition of a discontinued operation by raising the threshold for a disposal to qualify as discontinued operations. This ASU will also require entities to provide additional disclosures about discontinued operations as well as disposal transactions that do not meet the discontinued operations criteria. This new guidance is effective for annual periods beginning on or after December 15, 2014 and interim periods within those years. Beginning in 2015, we will apply the new guidance, as applicable, to future disposals of components or classifications as held for sale.

There were various other accounting standards updates recently issued, most of which represented technical corrections to the accounting literature or were applicable to specific industries, and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
 
 
8

 
 
Note 3 – Mergers/Acquisitions

On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc. (“Biomass”) pursuant to a merger between Biomass and a wholly-owned subsidiary of the Company (with Biomass as the surviving subsidiary of the Company) in accordance with an Agreement and Plan of Merger by and between the Company and Biomass. By virtue of the merger, the Company acquired a license agreement pursuant to which the Company holds a license in the United States and Canada to use patented technology licensed from Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate MSW (the “Biomass Recovery Process”). In July 2010, the United States Patent and Trademark Office issued US patent number 7,745,208 for this process (the “BRP Patent”).

Upon consummation of the merger, the Company paid $20,000 in cash and issued a promissory note in the original principal amount of $80,000 bearing interest at an annual rate of 6% to a shareholder of the Licensor. This note has been paid in full. Additionally, the Company issued to the four shareholders of the Licensor a total of 1,895,000 shares of Common Stock and deposited an additional 4,000,000 shares of Common Stock into an escrow account (collectively, the “Shares”). The Shares were issued as part of the merger consideration received by the shareholders of the Licensor. In accordance with a November 2013 amendment, the Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process and includes no performance requirements on the Company; the license agreement is for a term of 21 years from the date of the amendment or the life of any patent issued for the Biomass Recovery Process, including any amendments, modifications or extensions; the license requires that the Company pay a royalty in the amount of $2.00 per ton of MSW used in the Biomass Recovery Process to the Licensor; and the Company released the 4,000,000 shares of common stock to the Licensor previously held in escrow since the merger. The Company has recorded a long-term asset of approximately $1.6 million which it will begin to amortize upon utilizing the license in our operations.

Note 4 – Patent

The Company owns US Patent No. 6,306,248 (the “PSC Patent”), which is the underlying technology upon which the BRP Patent is based. The Company acquired the PSC Patent on October 22, 2008 pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”).  As part of the acquisition of the PSC Patent, we also became the licensor of such technology under the existing license agreement between Bio-Products International, Inc., the licensee (“Bio-Products”) and WWT. The Company has paid WWT $600,000 and issued warrants to purchase 1,800,000 shares of Common Stock at $0.10 per share and 500,000 shares of Common Stock at $0.11 per share. WWT assigned all of its rights, title and interest in the note, warrants, security agreement and purchase agreement to Vertex Energy, Inc. (“Vertex”) as a result of a merger in March 2009. The warrants had an exercisable term of five years which expired on October 22, 2014. The cost of the PSC Patent acquisition of $600,000 is recorded as a long-term asset on the Balance Sheet.

On September 1, 2010, the Company issued a promissory note to CMS Acquisition, LLC (“CMS”) in the amount of $100,000 and bearing interest at 6.0% per annum. The note is secured with a security interest in the PSC Patent. In connection with the financing, the Company issued a warrant to CMS to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The warrant is exercisable at any time for five years from the date of issuance or re-issuance. The note was originally to mature on February 28, 2011. The Company and CMS have entered into various amendments extending the due date, the most recent of which was March 17, 2015, which extended the due date to September 17, 2016. As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to March 17, 2015, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until March 17, 2020, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until March 17, 2020, and (vi) the Company has approved the assignment of the note by CMS to the WL Meyer Legacy Trust as of the March 17, 2015 amendment.
 
 
9

 
 
Note 5 - Technology Licenses

Biomass North America Licensing, Inc.
We own an exclusive license in the United States and Canada to use the Biomass Recovery Process (See Note 3 – Mergers/Acquisitions). We have recorded a long-term asset of approximately $1.6 million for the value of this license. Amortization of this asset will begin upon commencement of the use of the Biomass Recovery Process.

In accordance with a November 2013 amendment, the Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process and includes no performance requirements on the Company; the license agreement is for a term of 21 years from the date of the amendment or the life of any patent issued for the Biomass Recovery Process, including any amendments, modifications or extensions; and the license requires that the Company pay a royalty in the amount of $2.00 per ton of MSW used in the Biomass Recovery Process to the Licensor.

Bio-Products International, Inc.
As disclosed in Note 4 - Patent, the Company acquired the PSC Patent in 2008 and as a result, became the licensor to Bio-Products for the PSC Patent pursuant to a Master License Agreement dated as of August 18, 2003 (the “PSC License Agreement”). Pursuant to the terms of the PSC License Agreement, Bio-Products (a wholly-owned subsidiary of Clean Earth Solutions, Inc., “CES”) is the exclusive licensee of the PSC Patent and has the right to sublicense the technology that is part of the PSC Patent (but not the BRP Patent) to any party. In addition, we are entitled to be paid 5% of any revenue derived by Bio-Products from the use of the technology and 40% of any sublicensing fees paid to Bio-Products for the use of the technology. The Master License Agreement is for a term of 20 years that commenced on August 18, 2003. On September 22, 2010, the Company sent a Notice of Breach to Bio-Products, which included removing the exclusivity of the license. We received a response from Bio-Products on November 5, 2010 disputing our claims. In February 2011, we became aware that Bio-Products effected a transfer of the license in violation of the PSC License Agreement. As a result, on March 21, 2011, we sent a notice of termination to Bio-Products and the transferee terminating the License Agreement. In June 2011, Steve Vande Vegte, a shareholder in CES, filed a lawsuit against various parties, including the Company. The only Cause of Action against the Company is for Declaratory Relief seeking to avoid our March 2011 termination of the license to which Mr. Vande Vegte is not a party. On August 5, 2011, the Company filed a demurrer requesting that the court dismiss the case on the grounds that Mr. Vande Vegte lacks standing to pursue a claim concerning the license and that the claim raised in the complaint is not ripe. The court granted our demurrer to dismiss Cleantech from this lawsuit on December 8, 2011.

All intangible assets are reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognized if the carrying amount of an intangible asset exceeds its implied fair value.

Note 6 – Debt
 
   
Mar 31, 2015
   
Dec 31, 2014
 
         
Convertible Notes Payable (2009 Offering), which are made up of various individual notes with an aggregate face value of $224,738, due one year from date of note, 6.0% interest
  $ 224,738     $ 224,738  
           
Convertible Notes Payable (11/10 Offering), which are made up of various individual notes with an aggregate face value of $1,861,003, due one year from date of note, 6.0% interest
    1,861,003       1,861,003  
           
WL Meyer Legacy Trust (fomerly CMS Acquisition LLC) Note Payable, with a face value of $77,696 due on September 17, 2016, interest at 6.0% thru May 15,2011; 10.0% thereafter
    77,696       77,696  
                 
Convertible Notes Payable (5/12 Offering), made up of various individual notes with a face value of $583,510, due in 18 months from date of note, interest at 6.0%
    583,510       583,510  
                 
Convertible Note Payable (2/14 Offering), which is made up of one note with a face value of $100,000 due in 18 months from date of note, interest at 6.0%
    100,000       100,000  
Total debt
    2,846,947       2,846,947  
Current maturities
    (2,769,251 )     (2,846,947 )
  Long-term portion, less current maturities
  $ 77,696     $ -  
 
 
10

 

Convertible Notes Payable - Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a warrant, and one offering of a convertible note (with no warrant), having the terms set forth below:

Offering
 
Note Interest Rate
   
Note Conversion Price
   
Warrant Exercise Price
 
Term
 
Closed or Open
2008 Offering
    6.0 %   $ 0.25     $ 0.45  
One-year
 
Closed
2009 Offering
    6.0 %   $ 0.08     $ 0.30  
One-year
 
Closed
6/10 Offering
    12.0 %   $ 0.08     $ 0.30  
One-year
 
Closed
11/10 Offering
    6.0 %   $ 0.06     $ 0.30  
One-year
 
Closed
5/12 Offering
    6.0 %   $ 0.10     $ 0.35  
18 months
 
Closed
2/14 Offering
    6.0 %   $ 0.10       n/a  
18 months
 
Open
 
Each note holder retains the option of a cash repayment of the note plus interest, or the note can be converted at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million), into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features (except for the 11/10, 5/12, and 2/14 Offerings which carried no discounts). See Subsequent Events footnote for further disclosure regarding our notes.

2008 Offering - During September 2008, the Company commenced an offering of units and raised a total of $642,000 of investment proceeds through March 31, 2009. As of March 31, 2010, all of these notes had either been converted to shares of our common stock or exchanged into our 2009 Offering (resulting in new notes with a total face value of $539,829, which included the original principal and interest through the date of exchange).

2009 Offering - During April 2009, the Company commenced an offering of units and raised a total of $1,198,500 of investment proceeds through August 2010. Three notes have been converted to shares of Common Stock (one each in 2009, 2010, and 2014). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of March 31, 2015, we had $224,738 face value of notes outstanding, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

6/10 Offering - During June 2010, the Company commenced an offering of units and raised a total of $75,000 of investment proceeds in one note. Upon maturity in June 2011, this note was exchanged into our 11/10 Offering. As a result, the balance due on this offering is $-0-.

11/10 Offering - During November 2010, the Company commenced an offering of units and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of Common Stock in 2011 and four notes were converted to shares of Common Stock in 2012. As of March 31, 2015, we had $1,861,003 face value of notes outstanding, which includes the exchanged notes from our 2009 Offering. As of March 31, 2015, approximately $1.7 million of these notes matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

5/12 Offering - During May 2012, the Company commenced an offering of units and raised a total of $583,510 of investment proceeds. As of March 31, 2015, all of these notes matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

2/14 Offering - During February 2014, the Company commenced an offering of units and, as of March 31, 2015, had raised a total of $100,000 of investment proceeds.

WL Meyer Legacy Trust (formerly CMS Acquisition, LLC) Note Payable - In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note is due the earlier of: (i) September 17, 2016 pursuant to an amendment on March 17, 2015 or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and was fully amortized (interest expense) as of February 28, 2011 (the original due date). As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the note, (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to March 17, 2015, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until March 17, 2020, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until March 17, 2020, and (vi) the Company has approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust per the March 17, 2015 amendment. As of March 31, 2015, $77,696 face value of this note is outstanding.
 
 
11

 

The discounts on all notes payable have been amortized on a straight-line basis over the original term of each note. All discounts were fully amortized and expensed as of June 30, 2011. The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the amount of shares of Common Stock (these warrants have not been exercised or converted to shares of Common Stock).

   
Exercise
   
March 31,
   
December 31,
 
Warrants issued to:
 
Price
   
2015
   
2014
 
Noteholders, 11/10 Offering
  $ 0.30       798,649       798,649  
Noteholders, 5/12 Offering
  $ 0.35       571,428       571,428  
Investors in Subscription Agrements (a)
  $ 0.15       15,105,000       13,605,000  
WL Meyer Legacy Trust
  $ 0.05       2,300,000       2,300,000  
WL Meyer Legacy Trust
  $ 0.10       150,000       -  
              18,925,077       17,275,077  
 
(a) Warrants issued to investors under these Subscription Agreements can be exercised anytime within  three years from date of Agreement.
 
Note 7 - Stockholders' Equity (Deficit)

In January 2014, the Company issued 500,000 restricted shares (at $0.012 per share) of our Common Stock per the consulting agreement with GWS Environmental Consultants. GWS has certain expertise and contacts in the collection, recycling, transfer, and disposal of MSW and will provide the Company consulting for a three-year period regarding these items.

In April 2014, the Board approved a grant to certain Board members and management for an aggregate of 4,250,000 shares of restricted common stock (at $0.008 per share). In January 2015, the Board approved a grant to a member of management for 500,000 shares of restricted common stock ($0.01 per share). The Board granted these awards in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company. Based on the foregoing, the Board determined such grants were in the best interest of the Company and its stockholders.

In September 2014, a note receivable from a former director matured and was not paid. The note was originally issued in September 2009 to purchase shares of our common stock. As a result, 150,000 shares of restricted common stock, issued at $0.10 per share were forfeited and cancelled. In February 2015, a note receivable from a former director matured and was not paid. The note was originally issued in February 2010 to purchase shares of our common stock. As a result, 150,000 shares of restricted common stock, issued at $0.10 per share were forfeited and cancelled.

In October 2014, the Company issued 516,766 shares of restricted Common Stock ($0.08 per share) to an investor upon the conversion of a Convertible Note.

Net Loss per share – The Company calculates basic loss per share (“EPS”) and diluted EPS. EPS is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS would reflect the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. As of March 31, 2015 and December 31, 2014, the Company had options, warrants and other convertible securities to purchase an aggregate of approximately 81 million and 78 million shares of our common stock, respectively, that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive. Therefore, the Company only presents basic loss per share on the statement of operations.
 
 
12

 
 
Note 8 - Related Party Transactions

The Company has entered into stock purchase agreements with its executive officers and certain members of the Board of Directors (“Board”). The executive officers and directors issued notes to the Company in exchange for their stock purchases. These notes and accumulated interest are recorded as notes receivable in Stockholders’ Deficit.

In September 2013, the Company hired, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals maintain their engineering firm Fenton Engineering International (FEI) on a full-time basis and receive no salary in their part-time positions but are eligible for grants of stock options. We have used and continue to use their services. As of March 31, 2015, all amounts have been paid to FEI except for approximately $51,000.

Two members of our current Board, James Russell and David Bransby are parties in investments made in our convertible note offerings. As of March 31, 2015 and December 31, 2014, the aggregate amount of these investments, including interest, is approximately $565,000 and $557,000, respectively.

The Company had engaged the law firm of Sauerwein, Simon and Hein (“SSH”) related to various issues including our reverse merger, our SB-2 registration statement, litigation matters and general business activity. A member of our Board is a partner of SSH. We no longer use SSH as legal counsel. As of March 31, 2015, all amounts have been paid to SSH except for approximately $90,000.

Beginning in 2009, the Company has provided advances to two employees – Ed Hennessey and Mike Kime. Mr. Kime resigned from his positions with the Company effective June 21, 2010. As of both March 31, 2015 and December 31, 2014, the aggregate balances of advances totaled approximately $31,000. The balances are included in Prepaids and Other Current Assets on the Balance Sheet.

Note 9 – Share-based Payments

The Company recognizes share-based compensation expense for all share-based payment awards including stock options and restricted stock issued to employees, directors and consultants and is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The Company has no awards with market or performance conditions.

The Company issued grants of restricted Common Stock: (i) in January 2015 for 500,000 shares to a member of management, (ii) in January 2014 for 500,000 shares to a consultant to provide services regarding the collection, recycling, transfer, and disposal of MSW, and (iii) in April 2014, to certain Board members and management for 4,250,000 shares. The shares issued to Board members and management were in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company. Total expense related to these grants for the three months ended March 31, 2015 and 2014 were $5,200 and $6,000, respectively, and is included in our general and administrative expense and consulting expense, respectively.

In March 2007, the Company assumed and adopted the 2007 Stock Option Plan (“Stock Plan”) for its employees, directors and consultants, which includes an equity compensation plan for non-employee directors pursuant to which stock options and shares of restricted stock may be granted.  The Company currently has reserved a maximum of 14,000,000 shares of common stock to be issued for stock options or restricted shares awarded under the Stock Plan.

In February 2015, the Company granted options under the Stock Plan to purchase an aggregate of 350,000 shares of Common Stock to a consultant in which one-half vested immediately and the remaining options vest in February 2016, with an exercise price of $0.10. As of March 31, 2015, none of these options were cancelled or expired and 175,000 shares of these options were vested.

In September 2013, the Company granted options under the Stock Plan to purchase an aggregate of 1,000,000 shares of Common Stock to two part-time employees (newly hired CTO and VP–BD) in which one-third will vest ratably beginning in September 2014, with an exercise price of $0.10. As of March 31, 2015, none of these options were cancelled or expired and 333,334 shares of these options were vested.
 
 
13

 
 
The following table provides a summary of the Company's share-based expense:

   
Three months ended
 
   
March 31, 2015
   
March 31, 2014
 
Pre-tax compensation expense:
           
      Stock options
  $ -     $ 808  
      Warrants
    -       -  
Total expense
    -       808  
      Tax benefit, net
    -       -  
After-tax compensation expense
  $ -     $ 808  
 
The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements totaled approximately $312,000 at March 31, 2015 and December 31, 2014. However, due to the uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently. As of March 31, 2015, there was no unrecognized compensation cost related to all current share-based payment arrangements.

A summary of the Company's stock option activity and related information is set forth in the following table:

   
Shares Under Option
   
Weighted Average Exercise Price
   
Aggregate intrinsic value
 
Options outstanding at December 31, 2014
    11,947,000     $ 0.10       (1 )
   Granted
    350,000     $ 0.10          
   Exercised
    -                  
   Forfeited
    -                  
Options outstanding at March 31, 2015
    12,297,000     $ 0.10       (1 )
                         
Options exercisable at March 31, 2015
    11,455,333     $ 0.10       (1 )
                         
Unvested Options at March 31, 2015
    841,667     $ 0.10       (1 )
 
(1) The weighted-average exercise price at March 31, 2015 and December 31, 2014 for all outstanding and exercisable options was greater than the fair value of the Company's common stock on that date, resulting in an aggregate intrinsic value of $-0-.
 
The following table summarizes information about the Company's issuances of restricted stock under the Stock Plan:
 
    Restricted shares issued     Weighted-Avg Exercise Price  
             
 Balance as of December 31, 2014     1,320,000       0.10  
 Granted     -       -  
 Forfeited     (150,000 )     0.10  
 Balance as of March 31, 2015     1,170,000       0.10  
 Restricted stock vested as of March 31, 2015     1,170,000       0.10  
 
Note 10 – Commitments and Contingencies

Commitments
Lease – The Company leases approximately 1,800 square feet of office space for use as our corporate office, located at 7386 Pershing Ave. in St. Louis, Missouri. The original lease term expired and can be extended for two year periods at expiring terms and conditions (current term ends December 2016). Our monthly rent under the lease is $1,800 plus the cost of utilities.

Contingencies
The Company currently has no open litigation and/or claims.
 
 
14

 

Note 11 – Subsequent Events

All of the promissory notes in our 2009 and 5/12 Offerings, and certain notes in our 11/10 Offering are now due. As of May 4, 2015, approximately $3.1 million is currently due, including interest. We plan to work with each remaining note holder to exchange, convert or repay these promissory notes.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one or three year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of May 4, 2015, the Company has issued 5,035,000 restricted shares of our Common Stock in exchange for $503,500 in investment in this offering.

In February 2014, the Company commenced a convertible note payable offering (our 2/14 Offering). As of May 4, 2015, the Company has raised $100,000 of investment proceeds.

 
15

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

Statement Regarding Forward-Looking Information
From time to time, we make written or oral statements that are “forward-looking,” including statements contained in this report and other filings with the Securities and Exchange Commission (“SEC”) and in our reports to stockholders. The Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended, provide a safe harbor for such forward-looking statements. All statements, other than statements of historical facts, included herein regarding our strategy, future operations, financial position, future revenues, projected costs, prospects, plans, objectives and other future events and circumstances are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “would,” “should” and similar expressions or negative expressions of these terms. Such statements are only predictions and, accordingly, are subject to substantial risks, uncertainties and assumptions.

Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity, performance or achievements. Refer to our Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 24, 2015, for a full description of factors we believe could cause actual results or events to differ materially from the forward-looking statements that we make. These factors include:
 
  our ability to raise additional capital on favorable terms or identify another source of outside liquidity,
  our ability to continue operating and to implement our business plan;
  the commercial viability of our technologies,
  our ability to maintain and enforce our exclusive rights to our technologies,
 
the demand for and production costs of various energy products that could be made from our biomass,
  competition from other alternative energy technologies, and
  other risks and uncertainties detailed from time to time in our filings with the SEC.
 
Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.

Company Overview

The following discussion of our Company Overview, Recent Developments and Plan of Operation should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance. These risks and other factors include, among others, those listed under “Statement Regarding Forward-Looking Information.”

The Company is in its’ development stage and is focused on being a provider of: (i) cellulosic biomass derived from municipal solid waste, also known as MSW, as a feedstock for producing energy and other chemical products and (ii) recyclables (metals, plastics, glass) from the MSW. We are the exclusive licensee in the United States and Canada of patented technology, which we refer to as our Biomass Recovery Process that cleans and separates MSW and generates a clean, homogeneous biomass feedstock that we believe can be converted into various energy products. Our license permits us to use the biomass we derive from MSW to produce all energy products. In addition, we own the patent for a pressurized steam classification technology originally developed by the University of Alabama Huntsville that we refer to as our PSC technology. The PSC technology is the underlying technology upon which the Biomass Recovery Process is based. Prior to March 2011, we had licensed the PSC technology to Bio-Products International, Inc. (“Bio-Products”). However, pursuant to a settlement agreement with Bio-Products in March 2009, we had the right to use the Biomass Recovery Process technology worldwide, for any product that we desired and with no royalty due to Bio-Products. We terminated the license to Bio-Products in March 2011.

 
16

 
 
We are a Delaware corporation. We were originally incorporated in 1996 as Long Road Entertainment, Inc., and were formed to operate as a holding company for businesses in the theater, motion picture and entertainment industries. We ceased conducting that business in 2005 and were dormant until the fall of 2006, at which time our founder and then controlling stockholder decided to pursue the sale of the company.  In anticipation of that sale, we changed our name to Alternative Ethanol Technologies, Inc.

On March 27, 2007, we entered into an Agreement and Plan of Merger and Reorganization in which we agreed to acquire SRS Energy, Inc., a Delaware corporation that at that time was seeking to commercialize various technologies for the processing of waste materials into usable products. We consummated the merger on May 31, 2007 resulting in SRS Energy becoming our wholly-owned subsidiary. Effective August 2, 2007, we changed our name to CleanTech Biofuels, Inc.

We have no operating history as a producer of biomass feedstocks or any energy products and have not constructed any operating plants to date. We have not earned any revenues to date and our current capital and other existing resources are not sufficient to fund the implementation of our business plan or our required working capital. We will require substantial additional capital to implement our business plan and we may be unable to immediately obtain the capital required to continue operating.

Recent Developments

In October 2014, we entered into a nonbinding Memorandum of Understanding (“MOU”) with various parties (combined, the “Parties”) which memorializes the Parties’ intent for CleanTech to develop and operate a MSW transfer station and biomass recovery plant on land in Jersey City, NJ not owned by CleanTech. All Parties agree to work towards Definitive Agreements, as soon as reasonably practicable, including but not limited to: an escrow agreement whereby CleanTech would fund engineering and legal expenses incurred during the permitting application process, an option agreement providing CleanTech the right to purchase the permit applicant, a lease agreement for a period of not less than 20 years, including two 5 year options to extend the term of the lease to 30 years, and non-compete agreements from the parties. This MOU will terminate upon the earlier of: (i) execution of the Definitive Agreements, (ii) mutual agreement between the Parties, and (iii) 5 PM (EST) on June 29, 2015.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted common stock, par value $0.001 (“Common Stock”) and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one or three year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of May 4, 2015, the Company has issued 5,035,000 restricted shares of our Common Stock in exchange for $503,500 in investment in this offering.

All of the promissory notes in our 2009 and 5/12 Offerings, and certain notes in our 11/10 Offering are now due. As of May 4, 2015, approximately $3.1 million is currently due, including interest. We will work with each remaining note holder to exchange, or convert, these promissory notes. There can be no assurance that we will reach agreements with any or all of these note holders and we may be required to repay such amounts.

Plan of Operation

Our focus is to secure sufficient capital to fund our current working capital requirements and the construction of a commercial plant as described further in this section. We have had an ongoing lack of liquidity, and currently do not have sufficient capital to continue to fund our proposed operations, and are relying on the minimal assets on hand to fund our limited operations and corporate existence. All of our on-going and proposed developments/projects require a significant amount of capital that we currently do not have. While we continue to pursue outside sources of funding, in recent years, we have not had success securing meaningful amounts of outside capital. As a result, we can provide no assurance that we will secure any source of funding in the immediate time frame required and the failure to do so will likely result in an inability to continue operations.

 
17

 
 
Our company was initially conceived as a fully-integrated producer of cellulosic ethanol from MSW. Based on our investigation and acquisition of new technologies and research and development of our existing technologies in 2008, we re-focused our business to the commercialization of our Biomass Recovery Process technology for cleaning and separating MSW into its component parts and initiated a plan to consolidate the ownership and/or rights to use intellectual property around this technology. The technology is currently in commercial use in Coffs Harbor, Australia by an operator not affiliated with the Company (the “Third-Party Operator”). As a result, we believe this technology could be implemented commercially in the United States and elsewhere. In furtherance of our focus, we are continuing our ongoing search for an outside source of financing to design and build a commercial biomass recovery plant to produce biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, and biofuel research firms for evaluation. In addition to seeking a source of funding for plant development, the Company hopes to license and/or develop potential commercial projects as they present themselves. All of our developments plan to focus on cleaning and separating MSW into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics).

Biomass Feedstock Production

The Company strives to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, and biofuel and chemical research firms for evaluation. In addition to research and development, the Company also plans to license and/or develop potential commercial projects.

We hope to develop a plant in a major metropolitan area. We are working to develop one or more locations where waste collected would be processed using our technology and the biomass produced used to create heat and/or power.

In addition to the developments we are currently contemplating, from time to time other development opportunities are presented to us and we evaluate those potential developments. If we are able to operate a plant, and thereafter refine our know-how with respect to implementation of the technology, we intend to seek to partner with waste haulers, landfill owners and municipalities to implement the technology across the United States and internationally.

Any development of commercial plants and/or implementation of the licensing of our technology described above will require significant additional capital, which we currently do not have. To date, we have not been successful in raising the amount of capital necessary to implement our business plan and we cannot provide any assurance that we will be able to raise sufficient additional capital. While we anticipate that financing for the commercial biomass recovery plant and these other potential projects could also be provided in part via tax exempt bond financing or through the use of loan guarantees from local, state and federal authorities, we have not secured any such financing and there can be no assurance that we will be able to secure any such financing.

Bio-Fuel and Bio-Chemical Joint Testing/Research

If we are able to process MSW into biomass through our potential future biomass recovery plant and/or in future commercial vessels, we hope to enter into joint research agreements with companies looking to process biomass in their system(s) for various types of energy and chemical production. We believe that this testing and research could provide possible revenue streams, projects and additional opportunities for use of our biomass.

In February 2012, we entered into a Confidentiality Agreement and Material Transfer Agreement with Sweetwater Energy, Inc. (“Sweetwater”), a renewable energy company with patent-pending technology to produce sugars from several types of biomass for use in the biofuel, biochemical and bioplastics markets. We agreed and coordinated with the Third-Party Operator in Australia to ship 10 pounds of biomass produced at the Third-Party Operator’s facility to the Sweetwater lab for testing. The shipment arrived in May 2012 and Sweetwater has completed their initial testing. In June 2011, we entered into a Confidential Disclosure and Sampling Agreement with Novozymes North America, Inc., a developer of industrial enzymes, microorganisms, and biopharmaceutical ingredients for conversion into a variety of energy and chemical products. In July 2011, we supplied a sample of our biomass product for testing in their enzymatic hydrolysis process. Some initial testing was completed during the 3rd Quarter of 2011. We expect further testing to occur for both of these companies and for possible additional companies upon securing the requisite financing to build a biomass recovery plant to process MSW.

 
18

 
 
New Technologies; Commercializing Existing Technologies

Because of what we believe to be our unique ability to produce a clean, homogenous biomass feedstock, we are frequently presented with the opportunity to partner with or acquire new technologies.  In addition to developing our current technologies, we intend to continue to add technologies to our suite of solutions that complement our core operations.  We believe that our current technologies and aspects of those in development or contemplation will enable us to eventually expand our business to use organic material from other waste streams such as municipal bio-solids from waste water facilities and animal waste for fuel production.

To commercialize our technology, we anticipate we need to:

construct and operate a commercial plant that: (i) processes MSW into cellulosic biomass for conversion into energy or chemical products and (ii) separates recyclables (metals, plastics, glass) for single-stream recycling;
identify and partner with landfill owners, waste haulers and municipalities to identify locations suitable for our technology; and
pursue additional opportunities to implement our technology in commercial settings at transfer stations and landfills in our licensed territories.

Our ability to implement this strategy is heavily dependent on our ability to raise significant amounts of additional capital and to hire appropriate managers and staff.  Our success will also depend on a variety of market forces and other developments beyond our control.

Results of Operations

The following table sets forth the amounts of expenses and changes in our consolidated statements of operations for the three months ended March 31, 2015 and 2014. The company’s activities and related primary expenses are in the following categories: General and administrative – payroll (including share-based compensation, stock grants, and payroll taxes), general office expenses, travel, and business insurance; Professional fees - consulting, accounting and legal fees; Other expense (income) – interest expense on convertible notes payable and interest income on notes receivable related to restricted stock grants.
 
   
Three months ended March 31,
       
   
2015
   
2014
   
Change
 
General and administrative
  $ 100,418     $ 96,156     $ 4,262  
Professional fees
    28,082       32,705       (4,623 )
Operating loss
    128,500       128,861       (361 )
                         
Other expense (income):
                       
Interest expense
    49,484       46,738       2,746  
Interest income, net of accrued interest written-off
    3,341       (2,083 )     5,424  
                         
Net Loss
  $ 181,325     $ 173,516     $ 7,809  
 
General and Administrative – The increase in 2015 is due to the share value for shares of restricted common stock issued to a member of management in the first quarter of 2015 and increased travel expenses.

Professional Fees – The decrease in 2015 is due to reduced consulting fees.

Interest Income, net of accrued interest written-off – A note receivable to purchase shares of our common stock, originally issued in February 2010, matured in February 2015 and was not paid. As a result, the accrued interest income of approximately $5,000 and the note were written-off and the shares were forfeited and cancelled.

 
19

 
 
Liquidity and Capital Resources

As a development-stage company, we have no revenues and will be required to obtain an outside source of capital in order to execute our business plan and commercialize our products. Beginning in September 2008 and as of May 4, 2015, we raised an aggregate of: (i) approximately $3.15 million in separate offerings of units comprised of a convertible note and warrants in separate offerings from 2008 through 2014 and (ii) $503,500 in an equity offering of restricted Common Stock through our Subscription Agreements (our Equity Offering 8/13). We are continuing to explore opportunities to raise cash through the issuance of these units and other financing opportunities, however to date we have not been successful in doing so. As of May 4, 2015, our current cash and other assets are not sufficient to fund our operations. As of March 31, 2015, we had a significant working capital deficit. Our liabilities are substantially greater than our current assets. Our only significant assets are our intellectual property rights, which are intangible and not readily convertible into liquid assets.

We are attempting to identify one or more potential sources of additional financing, such as through the sale of additional equity, various government funding opportunities and/or possibly through strategic alliances with larger energy or waste management companies. The Company will continue to explore and if identified, evaluate financing alternatives and/or other transactions, including potentially retaining a financial advisor. However, we may not be successful in securing additional financing. If we are not able to obtain additional financing in the immediate future, we will be required to further delay our development until such financing becomes available. Further, even assuming that we secure additional funds, we may never achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, we will not have sufficient capital resources to implement our business plan or to continue our operations.

Debt

Convertible Notes Payable - Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a warrant, and one offering of a convertible note (with no warrant), having the terms set forth below:

Offering
 
Note Interest Rate
   
Note Conversion Price
   
Warrant Exercise Price
 
Term
 
Closed or Open
2008 Offering
    6.0 %   $ 0.25     $ 0.45  
One-year
 
Closed
2009 Offering
    6.0 %   $ 0.08     $ 0.30  
One-year
 
Closed
6/10 Offering
    12.0 %   $ 0.08     $ 0.30  
One-year
 
Closed
11/10 Offering
    6.0 %   $ 0.06     $ 0.30  
One-year
 
Closed
5/12 Offering
    6.0 %   $ 0.10     $ 0.35  
18 months
 
Closed
2/14 Offering
    6.0 %   $ 0.10       n/a  
18 months
 
Open
 
Each note holder retains the option of cash repayment of the note plus interest, or can convert the note at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million) into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features (except for the 11/10, 5/12, and 2/14 Offerings which carried no discounts). The discounts have been amortized on a straight-line basis over the term of each note and were fully amortized as of December 31, 2011.

2008 Offering - During September 2008, the Company commenced an offering of units and raised a total of $642,000 of investment proceeds through March 31, 2009.  As of March 31, 2010, all of these notes had either been converted to shares of our common stock or exchanged into our 2009 Offering (resulting in new notes with a total face value of $539,829, which included the original principal and interest through the date of exchange).

2009 Offering - During April 2009, the Company commenced an offering of units and raised a total of $1,198,500 of investment proceeds through August 2010. Three notes have been converted to shares of Common Stock (one each in 2009, 2010, and 2014). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of March 31, 2015, we had $224,738 face value of notes outstanding, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

 
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6/10 Offering - During June 2010, the Company commenced an offering of units and raised a total of $75,000 of investment proceeds in one note. Upon maturity in June 2011, this note was exchanged into our 11/10 Offering. As a result, the balance due on this offering is $-0-.

11/10 Offering - During November 2010, the Company commenced an offering of units and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of Common Stock in 2011 and four notes were converted to shares of Common Stock in 2012. As of March 31, 2015, we had $1,861,003 face value of notes outstanding, which includes the exchanged notes from our 2009 Offering. As of March 31, 2015, approximately $1.7 million of these notes matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

5/12 Offering - During May 2012, the Company commenced an offering of units and, as of March 31, 2015, had raised a total of $583,510 of investment proceeds. As of March 31, 2015, all of these notes are outstanding and have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

2/14 Offering - During February 2014, the Company commenced an offering of units and, as of March 31, 2015, had raised a total of $100,000 of investment proceeds and have $100,000 face value of notes outstanding.

WL Meyer Legacy Trust (formerly CMS Acquisition, LLC) Note Payable - In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note is due the earlier of: (i) September 17, 2016 (extended from February 28, 2011 through various amendments) or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note, (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to March 17, 2015, (iv) issued new warrants for 300,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until March 17, 2020, (v) issued new warrants for 150,000 shares of the Company’s Common Stock with an exercise price of $0.10 and exercisable at any time until March 17, 2020, and (vi) the Company has approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust per the March 17, 2015 amendment. As of March 31, 2015, $77,696 face value of this note is outstanding.

The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the amount of shares of Common Stock (these warrants have not been exercised or converted to common shares):

   
Exercise
   
March 31,
   
December 31,
 
Warrants issued to:
 
Price
   
2015
   
2014
 
Noteholders, 11/10 Offering
  $ 0.30       798,649       798,649  
Noteholders, 5/12 Offering
  $ 0.35       571,428       571,428  
Investors in Subscription Agrements (a)
  $ 0.15       15,105,000       13,605,000  
WL Meyer Legacy Trust
  $ 0.05       2,300,000       2,300,000  
WL Meyer Legacy Trust
  $ 0.10       150,000       -  
              18,925,077       17,275,077  
 
(a) Warrants issued to investors under these Subscription Agreements can be exercised anytime within three years from date of Agreement.
 
Summary of Cash Flow Activity

   
Three months ended March 31,
 
   
2015
   
2014
 
Net cash used by operating activities
  $ (48,884 )   $ (92,725 )
Net cash used by investing activities
    -       -  
Net cash provided by financing activities
    50,075       100,169  
 
 
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Net cash used by operating activities

During the three months ended March 31, 2015 and 2014, cash used by operating activities was impacted primarily by increases in accounts payable and other accrued liabilities.

Net cash provided by financing activities

Net cash provided by financing activities for the three months ended March 31, 2015 was due to an investment in our Equity Offering. Net cash provided by financing activities for the three months ended March 31, 2014 was due to the issuance of a note payable for investment.

Contractual Obligations and Commitments

In the table below, we set forth our obligations as of March 31, 2015. Some of the figures we include in this table are based on our estimates and assumptions about these obligations, including their durations, anticipated actions by third parties and other factors. The obligations we may pay in future periods may vary from those reflected in this table because of estimates or actions of third parties as disclosed in the notes to the table.
 
   
Payments due by Period
 
   
Total
   
Less than 1 year
   
1 to 3 years
   
4 to 5 years
   
More than 5 years
 
Convertible Notes (1)
  $ 3,340,000     $ 3,340,000     $ -     $ -     $ -  
WL Meyer Legacy Trust Note (2)
    109,000       -       109,000       -       -  
Operating Lease (3)
    38,000       38,000       -       -       -  
   Total contractual obligations
  $ 3,487,000     $ 3,378,000     $ 109,000     $ -     $ -  
 
(1) Amount represents value of principal amount of notes and estimates for interest. These notes are with various individuals, carry one-year or 18-month terms and are convertible into shares of Common Stock at the noteholders option. The first of these notes matured in April 2010. We are working with the noteholders to refinance their notes, convert their notes into shares of Common Stock or repay the notes.
(2) Amount represents the value of principal and interest, is secured by a security interest in the PSC Patent, and is due September 17, 2016.
(3) The lease for our office space has expired and can be extended for two year periods at expiring terms and conditions.
 
Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. Certain accounting issues require management estimates and judgments for the preparation of financial statements. Our management periodically evaluates the estimates and judgments made. Management bases its estimates and judgments on historical experience and on various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates as a result of different assumptions or conditions.

We believe that the estimates, assumptions and judgments relating to long-lived assets, convertible notes and warrants, fair-value measurement, share-based compensation and income tax matters have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting estimates. Our critical accounting policies and estimates are more fully described in our annual report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on March 24, 2015. Our critical accounting policies and estimate assumptions have not changed during the three months ended March 31, 2015.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk - Not applicable.

 
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Item 4T.  Controls and Procedures

Effectiveness of Disclosure Controls and Procedures – We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Security and Exchange Commission’s rules and regulations. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls and procedures will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives outlined above. Based on their most recent evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934) are effective at that reasonable assurance level at March 31, 2015. Further, the design of a control system must reflect the fact that there are resource constraints, including, but not limited to having two full-time employees (chief executive officer and chief financial officer), and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Changes in Internal Control Over Financial Reporting – During the three months ended March 31, 2015, there were no material changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
  
PART II. OTHER INFORMATION

Item 1.  Legal Proceedings - None

Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results. These cautionary statements are to be used as a reference in connection with any forward-looking statements. The factors, risks and uncertainties identified in these cautionary statements are in addition to those contained in any other cautionary statements, written or oral, which may be made or otherwise addressed in connection with a forward-looking statement or contained in any of our subsequent filings with the Securities and Exchange Commission.

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

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a three year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of March 31, 2015, the Company raised a total of $503,500 of investment proceeds. The issuance of units and the issuance of Common Stock were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 506(b) of Regulation D promulgated under the Securities Act (“Rule 506”) and/or Section 4(a)(2) of the Securities Act.

In January 2015, the Company issued 500,000 shares of restricted Common Stock to a member of management in consideration for services. These shares were issued in a private transaction in reliance on Section 4(a)(2) of the Securities Act.

 
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Item 3.  Defaults Upon Senior Securities

Certain promissory notes in our offering of units comprised of a convertible promissory note and a warrant, commenced in April 2009 (2009 Offering, 11/10 Offering, and 5/12 Offering) are due. As of March 31, 2015, approximately $3.1 million (including approximately $557,000 of accrued interest) was due and payable. We plan to work with each remaining note holder to exchange, or convert, these promissory notes. There can be no assurance that we will reach agreements with any or all of these note holders and we may be required to repay such amounts.

Item 4.  Mine Safety Disclosures – Not applicable

Item 5.  Other Information - None

Item 6.  Exhibits

(a) The following documents are filed as a part of this Report.
 
EXHIBIT NO.   DESCRIPTION
     
31.1
 
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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SIGNATURES

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


  CLEANTECH BIOFUELS, INC.  
       
Date: May 6, 2015
By:
/s/ Edward P. Hennessey, Jr.  
    Edward P. Hennessey, Jr.  
    Chief Executive Officer  
       

     
       
Date: May 6, 2015
By:
/s/ Thomas Jennewein  
    Thomas Jennewein  
    Chief Financial Officer  
    (Principal Accounting Officer)  

                                       
 
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INDEX TO EXHIBITS

EXHIBIT NO.   DESCRIPTION
     
31.1
 
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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