UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

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

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

 

[   ]

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 [  ]

 

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 [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [ ]		Smaller reporting company [X]
(Do not check if a smaller reporting company)		Emerging growth company [ ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

 

As of November 9, 2017, 97,693,129 shares of the Company's common stock were outstanding.

 

 

CLEANTECH BIOFUELS, INC.

TABLE OF CONTENTS

 

 

			PAGE
PART I		Financial Information	3
Item 1		Consolidated Financial Statements	3
		Consolidated Balance Sheets – September 30, 2017 and December 31, 2016	3
		Consolidated Statements of Operations - Nine months ended September 30, 2017 and 2016	4
		Consolidated Statements of Changes in Stockholders’ Equity (Deficit) – September 30, 2017	5
		Consolidated Statements of Cash Flows –Nine months ended September 30, 2017 and 2016	6
		Notes to Consolidated Financial Statements	7
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3		Quantitative and Qualitative Disclosures About Market Risk	27
Item 4		Controls and Procedures	27
PART II		Other Information	28
Item 1		Legal Proceedings	28
Item 1A		Risk Factors	28
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3		Defaults upon Senior Securities	28
Item 4		Mine Safety Disclosures	29
Item 5		Other Information	29
Item 6		Exhibits	29
Signatures			30

 

 

PART I. FINANCIAL INFORMATION 

 

Item 1. Consolidated Financial Statements

 

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

CONSOLIDATED BALANCE SHEETS

 

 

		(unaudited)				(audited)
		September 30,				December 31,
		2017				2016
ASSETS
Current Assets:
Cash and cash equivalents		$	6,273			$	636
Prepaids and other current assets			73,901				29,119
			80,174				29,755
Property and equipment, net			-				-
Non-Current Assets:
Technology license			1,569,250				1,569,250
Patents			600,000				600,000
Intangibles			50,914				50,914
Goodwill			26,582				26,582
Total Assets		$	2,326,920			$	2,276,501
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		$	435,108			$	421,839
Accrued interest			1,127,139				958,825
Accrued payroll and professional fees			1,737,392				1,593,892
Notes payable, net			3,007,553				3,008,158
Total Current Liabilities			6,307,192				5,982,714
Notes Payable - Long-Term			-				-
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; 97,693,409 and 94,188,413 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively			97,693				94,188
Minority Interest			505				505
Additional paid-in capital			7,557,797				7,380,114
Notes receivable - restricted common stock			(98,622	)			(94,884	)
Accumulated deficit			(11,537,645	)			(11,086,136	)
Total Stockholders' Equity (Deficit)			(3,980,272	)			(3,706,213	)
Total Liabilities and Stockholders' Equity (Deficit)		$	2,326,920			$	2,276,501

 

The accompanying notes are an integral part of these consolidated financial statements. 

 

 

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2017				2016				2017				2016
Costs and expenses:
General and administrative		$	65,573			$	92,137			$	184,077			$	330,468
Professional fees			27,124				21,183				97,054				72,302
			92,697				113,320				281,131				402,770
Other expense (income):
Interest expense			58,646				57,502				174,116				166,807
Interest income, net of accrued interest written-off			(1,257	)			13,975				(3,738	)			10,535
			57,389				71,477				170,378				177,342
Income tax benefit			-				-				-				-
Net loss		$	150,086			$	184,797			$	451,509			$	580,112
Basic and diluted net loss per common share			**				**				**				**
Weighted average common shares outstanding			96,890,078				93,738,413				95,444,524				92,360,635

 

**-	less than $0.01

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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				Minority				Common				Accumulated
		Shares				Amount				Capital				Interest				Stock				Deficit
Balances at December 31, 2016			94,188,413			$	94,188			$	7,380,114			$	505			$	(94,884	)		$	(11,086,136	)
Issuance of restricted shares to Board Member at $0.10/share			1,000,000				1,000				99,000				-				-				-
Issuance of restricted shares to consultants at $0.028/share			2,300,000				2,300				62,500				-				-				-
Conversion of Note Payable			204,996				205				16,183				-				-				-
Interest on Notes Receivable			-				-				-				-				(3,738	)			-
Net loss			-				-				-				-				-				(451,509	)
Balances at September 30, 2017			97,693,409			$	97,693			$	7,557,797			$	505			$	(98,622	)		$	(11,537,645	)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

 

		Nine months ended
		September 30,
		2017				2016
Operating Activities
Net loss applicable to common stockholders		$	(451,509	)		$	(580,112	)
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 accured interest written-off			(3,738	)			10,535
Share-based compensation expense			62,500				-
Issuance of restricted common stock			2,300				70,800
Changes in operating assets and liabilities that provided (used) cash, net:
Prepaids and other current assets			(44,782	)			1,668
Accounts payable			13,269				26,082
Other assets and other liabilities			174,097				163,344
Accrued liabilities			143,500				161,371
Net cash used by operating activities			(104,363	)			(146,312	)
Cash Flows Provided (Used) by Investing Activities
Expenditures for equipment			-				-
Net cash used by investing activities			-				-
Cash Flows Provided (Used) by Financing Activities
Advances - related parties			-				(453	)
Issuance of Note Payable			15,000				50,000
Payments on Notes Payable			(5,000	)			(15,448	)
Sale of common stock			100,000				110,000
Net cash provided by financing activities			110,000				144,099
Net (decrease) increase in cash and cash equivalents			5,637				(2,213	)
Cash and cash equivalents at beginning of period			636				3,085
Cash and cash equivalents at end of period		$	6,273			$	872
Supplemental disclosure of cash flow information:
Cash paid for interest		$	-			$	3,463
Supplemental disclosure of noncash investing and financing activities:
Common stock issued to consultant, directors, and/or employee		$	81,188			$	70,800
Common stock issued for acquisition of 25 Van Keuren LLC		$	-			$	50,000

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

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. Except where otherwise noted, the words “we,” “us,” “our,” and similar terms, as well as “CleanTech” or the “Company,” refer to CleanTech Biofuels, Inc. and its subsidiaries, collectively.

 

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 that will provide the capital for us to design, build, and operate a commercial biomass recovery plant that will allow us to produce biomass feedstock for customer evaluation, trial purchases, and/or be used in equipment selection for power generation and possibly combined heat and power ("CHP") production. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, 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, aluminum). Our plans may also include the possibility of operating a MSW transfer station where we could install our technology.

 

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 nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ended December 31, 2017. 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, 2016, filed with the Securities and Exchange Commission (“SEC”) on March 31, 2017, as amended by the Company’s Amendment No. 1 to its Annual Report on Form 10-K/A, filed with the SEC on August 2, 2017.

 

 

 

Note 2 – Recent Accounting Pronouncements

 

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2017-11 Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). This ASU, changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share ("EPS") in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. The standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718) Scope of Modification Accounting. This ASU, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The standard is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04 Intangibles—Goodwill and Other (Topic 350) “Simplifying the Test for Goodwill Impairment.” This ASU simplifies several aspects of the accounting for goodwill impairment. The guidance requires an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures. 

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, “Compensation-Stock Compensation.” This ASU simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

 

In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This ASU requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The ASU requires adoption based upon a modified retrospective approach. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements and related disclosures.

 

In November 2015, the FASB issued ASU 2015-17, “Balance Sheet Classification of Deferred Taxes.” The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. The standard is effective for annual periods beginning after December 15, 2016, and interim periods within the fiscal years. Early adoption is permitted. The adoption of this guidance did not to have a material impact on our consolidated financial statements and related disclosures.

 

 

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. The adoption of this guidance and its impact on our consolidated financial statements and related disclosures is disclosed in Note 13 – Going Concern.

 

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. In August 2015, the FASB approved a one-year deferral of the effective date of this ASU. This standard will now become effective beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

 

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.

 

Note 3 – Mergers/Acquisitions

 

25 Van Keuren LLC

On June 23, 2016, the Company entered into an Acquisition Agreement with 25 Van Keuren LLC, a New Jersey Limited Liability Company (“Van Keuren”), pursuant to which the Company acquired 99% of the outstanding membership interests in Van Keuren with the former members of Van Keuren retaining a 1% interest.

 

The New Jersey Sports and Exposition Authority has received certification of an amendment to the Solid Waste Management Plan from the New Jersey Department of Environmental Protection (“DEP”) to include the proposed operation of a municipal solid waste transfer station and material recovery facility (“TS/MRF”) at a site located in Jersey City, New Jersey. CleanTech Biofuels and Van Keuren intend to seek the necessary permits and approvals from the New Jersey DEP to build, own and operate the TS/MRF. As part of the acquisition, CleanTech acquired an option to lease the property in Jersey City within 30 days after the final permit issues from the New Jersey DEP. The Company intends to: (1) install its Biomass Recovery Process on the site, and (2) operate the TS/MRF.

 

Van Keuren has had no operations or revenue since inception and has solely been working towards obtaining the permits required to operate the TS/MRF. As payment for the acquisition, the Company issued in the aggregate 1,000,000 shares of restricted common stock of the Company (par value $0.001) to certain holders of membership interests in Van Keuren. As of the close of business on June 23, 2016, the Company stock quote was $0.05. The total assets of Van Keuren at the time of the acquisition were $51,000 (2.3% of the Company’s assets). The liabilities and equity consisted of accounts payable of $27,000 and member equity of $24,000. The assets consist solely of costs incurred towards obtaining the required permits and have been recorded as an intangible asset on our consolidated financial statements. This intangible will be expensed if and when the Company and Van Keuren complete the permit process and begin operations.

 

 

Biomass North America Licensing, Inc.

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 – Goodwill and Intangibles

 

Goodwill

The changes in Goodwill were as follows:

 

Balance at December 31, 2016		$	26,582
Additions			-
Balance at September 30, 2017		$	26,582

 

The Goodwill recorded was a result of the acquisition of Van Keuren in June 2016 as disclosed previously in Note 3. The amount of Goodwill represents the fair value paid for the acquisition (shares of Company common stock) in excess of the value of the net assets of Van Keuren.

 

Intangible Asset

The components of the Intangible Asset are as follows:

 

		September 30, 2017												December 31, 2016
		Gross				Accumulated				Net Book				Gross				Accumulated				Net Book
		Amount				Amortization				Value				Amount				Amortization				Value
Van Keuren purchase		$	50,914			$	-			$	50,914			$	50,914			$	-			$	50,914

 

The Company’s goodwill and acquired intangible assets with indefinite lives are not amortized, but are subject to an annual impairment test. The Company performs an impairment analysis on its goodwill and intangible assets at least annually and whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. Acquired intangible assets with definite lives are amortized over their estimated useful lives and are tested for impairment only when impairment indicators are present.

 

Note 5 – 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 April 26, 2017, which extended the due date to April 26, 2018. As consideration in these amendments, the Company has: (i) paid $30,000 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 April 26, 2017, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until April 26, 2022, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until April 26, 2022, 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.

 

Note 6 – 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 5 - 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.

 

25 Van Keuren LLC

As discussed in Note 3 – Mergers/Acquisitions, the Company entered into an Acquisition Agreement with 25 Van Keuren LLC (“Van Keuren”). The total assets of Van Keuren at the time of the acquisition were approximately $51,000. The assets have been recorded as an intangible asset in our consolidated financial statements. This intangible will be expensed if and when the Company and Van Keuren complete the permit process and begin operations.

 

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 7 – Debt

 

		September 30, 2017				December 31, 2016
Convertible Notes Payable (2009 Offering), which are made up of various individual notes with an aggregate face value of $189,185 and  $199,790 at September 30, 2017 and December 31, 2016, respectively, due one year from date of note, interest at 6.0%		$	189,185			$	199,790
Convertible Notes Payable (11/10 Offering), which are made up of various individual notes with an aggregate face value of $1,877,162 at  September 30, 2017 and December 31, 2016, due one year from date of note, interest at 6.0%			1,877,162				1,877,162
WL Meyer Legacy Trust (formerly CMS Acquisition LLC) Note Payable, with a face value of $72,696 due on April 26, 2018, interest at 6.0% thru May 15, 2011; 10.0% thereafter			72,696				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
Convertible Note Payable (2015 Offering), which is made up of one note with a face value of $85,000 due in 18 months from date of note, interest at 6.0%			85,000				85,000
Note Payable, which is made up of one note with a face value of $50,000 due in six months from the date of note, interest at 9.0%			50,000				50,000
Note Payable, which is made up of one note with a face value of $35,000 due in six months from the date of note, interest at 9.0%			35,000				35,000
Note Payable, which is made up of one note with a face value of $15,000 due March 20, 2017, interest at 6.0%			15,000				-
Total debt			3,007,553				3,008,158
Current maturities			(3,007,553	)			(3,008,158	)
Long-term debt		$	-			$	-

 

Convertible Notes Payable - Since September 2008, the Company has conducted six 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		Closed
2015 Offering			6.0	%		$	0.10			$	0.15		18 months		Closed

 

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, 2/14, and 2015 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. Four notes have been converted to shares of Common Stock (one each in 2009, 2010, 2014 and 2017). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of September 30, 2017, we had $189,185 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 during 2011 and four notes were converted to shares of Common Stock in 2012. As of September 30, 2017, we had $1,877,162 face value of notes outstanding, which includes exchanged notes from our 2009 Offering. As of September 30, 2017, all of the notes have 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 September 30, 2017, all of these notes were outstanding and 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 raised a total of $100,000 of investment proceeds in one note. As of September 30, 2017, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.

 

2015 Offering - During September 2015, the Company commenced an offering of units and raised a total of $85,000 of investment proceeds in one note. As of September 30, 2017, this note is outstanding and matured. We plan to work with the note holder to exchange, convert or repay this note.

 

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) April 26, 2018 pursuant to an amendment on April 26, 2017 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 $30,000 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 April 26, 2017, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until April 26, 2022, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until April 26, 2022, 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. The outstanding face value of the note was $72,696 at September 30, 2017 and $77,696 at December 31, 2016. 

 

June and October 2016 Note Payable –The Company issued notes payable, with no conversion feature, to a current Board of Directors member, in the amounts of $50,000 and $35,000, respectively. As of September 30, 2017 both notes have matured. We plan to work with the note holder to exchange or repay these notes.

 

 

January 2017 Note Payable – The Company issued a note payable, with no conversion feature, to William Meyer in the amount of $15,000 with a 6% interest rate due March 20, 2017. We plan to work with the note holder to exchange or repay the note.

 

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 September 30, 2017. 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				September 30,				December 31,
Warrants issued to:		Price				2017				2016
Noteholders, 11/10 Offering		$	0.30				-				398,221
Noteholder in 2015 Offering		$	0.15				2,550,000				2,550,000
Investors in Subscription Agreements (a)		$	0.15				7,050,000				13,725,000
WL Meyer Legacy Trust		$	0.05				2,300,000				2,300,000
WL Meyer Legacy Trust		$	0.10				150,000				150,000
							12,050,000				19,123,221

 

(a)	Warrants issued to investors under these Subscription Agreements can be exercised anytime withinthree years from date of Agreement. These warrants currently expire at various dates from November 2017 through June 2020.

 

Note 8 – Stockholders' Equity (Deficit)

 

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 September 30, 2017, the Company issued 7,635,000 restricted shares (at $0.10 per share) of our Common Stock in exchange for $763,500 in investment in this offering. See Subsequent Event footnote for further updates to this offering and other share grants affecting Stockholders’ Equity.

 

In February 2016, the Board approved a grant to certain Board members and management for an aggregate of 4,000,000 shares of restricted common stock (at $0.013 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 June 2016, the Company completed an acquisition of Van Keuren, as previously disclosed in Note 3, and issued in the aggregate 1,000,000 shares of restricted common stock of the Company (at $0.05 per share) to certain holders of membership interests in Van Keuren. 

 

In August 2016, a note receivable from a former director matured and was not paid. The note was originally issued in August 2007 to purchase shares of our common stock. As a result, 150,000 shares of restricted common stock, issued at $0.15 per share were forfeited and cancelled.

 

In September 2016, the Company issued 750,000 shares of common stock to a consultant for business transactions and financing services to be provided over a one-year term.

 

In May 2017, the Company issued 100,000 shares of common stock to a consultant for accounting services provided to the Company.

 

In July 2017, the Company issued 200,000 shares of common stock to a consultant for accounting services provided to the Company.

 

 

In August 2017, the Company granted 3,000,000 shares of common stock to consultants for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets to be provided over a two-year term. Of the 3,000,000 shares of common stock granted, 2,000,000 were issued.

 

In September 2017, the Company issued 204,996 shares of Common Stock ($0.08 per share) to an investor on conversion of a Convertible Note.

 

Net Loss per share – The Company calculates basic loss per share and diluted EPS. EPS is computed as net earnings (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 September 30, 2017 and December 31, 2016, the Company had options, warrants and other convertible securities to purchase an aggregate of approximately 85 million and 86 million shares, respectively, of our common stock, 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.

 

Note 9 – 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 September 30, 2017, all amounts have been paid to FEI except for approximately $47,000.

 

Two members of our current Board, James Russell and David Bransby, are parties in investments made in our convertible note offerings. As of September 30, 2017 and December 31, 2016, their aggregate investment in our note offerings including interest, is approximately $842,000 and $806,000, respectively.

 

Beginning in 2009, the Company has provided advances to two employees – Ed Hennessey and Mike Kime. Mr. Kime resigned from his position with the Company effective June 21, 2010. As of September 30, 2017 and December 31, 2016, the aggregate balance of Mr. Hennessey’s advances totaled approximately $14,000 and $13,000, respectively. Mr. Kime’s advance were netted against monies due and paid to him in 2016 pursuant to a settlement agreement following his departure from the Company. The balance of Mr. Hennessey’s advances are included in Prepaids and Other Current Assets on the Balance Sheet.

 

In June and October of 2016 the Company issued notes payable, with no conversion feature, to a current Board of Directors member, in the amounts of $50,000 and $35,000, respectively.

 

In February of 2017 the Company received $50,000 from a Board Member in exchange for 500,000 shares of common stock.

 

In June of 2017 the Company received $50,000 from a Board Member in exchange for 500,000 shares of common stock.

 

Note 10 – 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.

 

 

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 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 September 30, 2017, none of these options were cancelled or expired and 1,000,000 shares of these options were vested.

 

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, with an exercise price of $0.10. As of September 30, 2017, none of these options were cancelled or expired and 350,000 shares of these options were vested.

 

In February 2016, the Board approved Common Stock grants to a member of management, and certain board members, for 4.0 million shares, in the aggregate, of restricted Common Stock. Additionally, the Board approved the issuance of stock option agreements to a member of management and certain consultants for the purchase of 3.5 million shares, in the aggregate, of Common Stock. 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 the grants were in the best interest of the Company and its stockholders. All of the share grant awards vest immediately and were issued pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the “ Securities Act”), or Section 4(a)(2) of the Securities Act, and will therefore be “restricted securities” as such term is used in Rule 144 of the Securities Act. The option agreements were issued outside of the Company’s 2007 Stock Option Plan and carry the following terms: seven year agreements, vesting in thirds ratably over three years, and are exercisable at the Company’s closing stock price as of the date of the grant. These options were calculated to have no value. Accordingly, there was no share-based compensation expense recorded in general and administrative expense.

 

In February 2016, the Company issued a stock option agreement to a consultant for the purchase of 100,000 shares of Common Stock. The option agreement was issued outside of the Company’s 2007 Stock Option Plan and carries the following terms: seven-year agreement, vesting in thirds ratably over three years, and are exercisable at the Company’s closing stock price as of the date of the grant. These options were calculated to have no value. Accordingly, there was no share-based compensation expense recorded in general and administrative expense.

 

In May 2017, the Company issued 100,000 shares of common stock to a consultant for accounting services provided to the Company.

 

In July 2017, the Company issued 200,000 shares of common stock to a consultant for accounting services provided to the Company.

 

In August 2017, the Company granted 3,000,000 shares of common stock to consultants for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets to be provided over a two-year term. Of the 3,000,000 shares of common stock granted, 2,000,000 were issued.

 

As of September 30, 2017, there was $55,383 in prepaids for compensation cost related to all share-based payment arrangements. There were 3,600,000 options granted with 1,200,000 shares vested as of September 30, 2017 and have a weighted-average exercise price of $0.13. The remaining options will vest as follows: 1,200,000 shares in February 2018 and 2019, respectively.

 

Stock option expense is recognized in the statements of operations ratably over the vesting period based on the number of options that are expected to ultimately vest. Our options have characteristics significantly different from those of traded options and changes in the assumptions can materially affect the fair value estimates. The Company incurred no share-based compensation expense related to option grants for the nine months ended September 30, 2017 and 2016.

 

 

The following table summarizes the Company's stock option activity and related information under the Stock Plan:

 

		Shares Under Option				Weighted-Avg Exercise Price				Aggregate Intrinsic Value
Options outstanding as of December 31, 2016			8,345,000			$	0.10				(1)
Granted			-
Forfeited			-
Options outstanding as of September 30, 2017			8,345,000				0.11				(1)
Options exercisable as of September 30, 2017			8,345,000				0.10

 

(1) The weighted-average exercise price at September 30, 2017 and December 31, 2016 for all outstanding and exercisable options was greater than the fair value of the Company's common stock on that date, resuylting 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 Issuance Price
Balance as of December 31, 2016			1,020,000			$	0.10
Granted			-			$	0.10
Forfeited			-			$	0.10
Balance as of September 30, 2017			1,020,000			$	0.10

 

 

In February 2016, the Company issued to members of management and a consultant 3,600,000 options outside of the Stock Plan. The options granted 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.

 

The Company issued the following grants outside of the Stock Plan: (1) 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, (iii) in April 2014, to certain Board members and management for 4,250,000 shares in the aggregate, (iv) in February 2016, to certain Board members and a member of management for 4,000,000 shares in the aggregate, (v) in May 2017 for 100,000 shares to a consultant for accounting services provided, (vi) in July 2017 for 200,000 shares to a consultant for accounting services provided and (vii) in August 2017 for 3,000,000 shares to a consulting group for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey (2) in February 2016, the Board approved the issuance of stock option agreements to a member of management and certain consultants for the purchase of 3,600,000 shares, in the aggregate, of Common Stock. The shares and options 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 nine months ended September 30, 2017 and 2016, was $3,200 and $52,800, respectively (included in our general and administrative expense).

 

All of the share grant awards vest immediately and were issued pursuant to Regulation D promulgated under the Securities Act, or Section 4(a)(2) of the SecuritiesAct, and will therefore be “restricted securities” as such term is used in Rule 144 of the Securities Act. The option agreements carry the following terms: seven year agreements, vesting in thirds ratably over three ye ars, and are exercisable at the Company’s closing stock price as of the date of the grant.

 

Note 11 – 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, however, we are continuing to lease on a month-to-month basis (current term ended 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.

 

Note 12 – Subsequent Events

 

All of the promissory notes in our 2009, 5/12, 11/10, 2/14 and 2015 Offerings are now due. As of November 9, 2017, approximately $4.1 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 three-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of November 9, 2017, the Company has issued 7,635,000 restricted shares of our Common Stock in exchange for $763,500 in investment in this offering.

 

In October of 2017 the Company issued notes payable, with no conversion feature, to a current Board of Directors member, in the amount of $25,000.

 

Note 13 – Going Concern

 

During the nine months ended September 30, 2017, the Company had a net loss of $452,000, negative cash flow from operations of $104,000, and negative working capital of $6.2 million. Additionally, the Company has significant debt currently due. Management has performed its evaluation of the entity’s ability to continue as a going concern, and was not able to alleviate the substantial doubt about the Company’s ability to continue as a going concern within one year after November 13, 2017, the date these financial statements were available for issue.

 

 

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, 2016, filed with the SEC on March 31, 2017, as amended by the Company’s Amendment No. 1 to its Annual Report on Form 10-K/A, filed with the SEC on August 2, 2017, 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 in 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 as further described in the section entitled “Intellectual Property Terms.” The Company has spent $-0- on research and development activities for the nine months ended September 30, 2017 and 2016.

 

 

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

 

Acquisition of 25 Van Keuren LLC

On June 23, 2016, CleanTech entered into an Acquisition Agreement with 25 Van Keuren LLC, a New Jersey Limited Liability Company (“Van Keuren”) pursuant to which the Company acquired 99% of the outstanding membership interests in Van Keuren and the former members of Van Keuren retained a 1% interest.

 

The New Jersey Sports and Exposition Authority has received certification of an amendment to the Solid Waste Management Plan from the New Jersey Department of Environmental Protection (“DEP”) to include the proposed operation of a municipal solid waste transfer station and material recovery facility (“TS/MRF”) at a site located in Jersey City, New Jersey. CleanTech and Van Keuren intend to seek the necessary permits and approvals from the New Jersey DEP to build, own and operate the TS/MRF. As part of the acquisition, CleanTech acquired an option to lease the property located in Jersey City within 30 days after the final permit issues from the New Jersey DEP. The Company intends to: (1) install its Biomass Recovery Process on the site, and (2) operate the TS/MRF.

 

Van Keuren has had no operations or revenue since inception and has solely been working towards obtaining the permits required to operate the TS/MRF. As payment for the acquisition, the Company issued in the aggregate 1,000,000 shares of restricted Common Stock of the Company (par value $0.001) to certain holders of membership interests in Van Keuren. As of the close of business on June 23, 2016, the Company stock quote was $0.05. The total assets of Van Keuren at the time of the acquisition were $51,000 (2.3% of the Company’s assets). The liabilities and equity consisted of accounts payable of $27,000 and member equity of $24,000. The assets consist solely of costs incurred towards obtaining the required permits and have been recorded as an intangible asset on our consolidated financial statements. This intangible will be expensed if and when the Company and Van Keuren complete the permit process and begin operations.

 

Investments

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 three-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of November 9, 2017, the Company has issued 7,635,000 restricted shares of our Common Stock in exchange for $763,500 in investment in this offering.

 

 

The Company received an investment of $50,000 in June 2016 in exchange for a promissory note, which carries a 9% annual rate of interest, and a term of six months.

 

The Company received an investment of $35,000 in October 2016 in exchange for a promissory note, which carries a 9% annual rate of interest, and a term of six months.

 

All of the promissory notes in our 2009, 5/12, 11/10, 2/14 and 2015 Offerings are now due. As of November 9, 2017, approximately $4.1 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.

 

In September 2015, the Company commenced a convertible note payable offering (2015 Offering). As of November 9, 2017, the Company has raised $85,000 of investment proceeds.

 

In January 2017, the Company issued a note payable, with no conversion feature, to William Meyer in the amount of $15,000 with a 6% interest rate due March 20, 2017.

 

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, we have not had success securing meaningful amounts of outside capital in recent years. 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.

 

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 owned by 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 that will provide the capital for us to design, build, and operate a commercial biomass recovery plant that will allow us to produce biomass feedstock for customer evaluation, trial purchases, and/or be used in equipment selection for power generation and possibly combined heat and power (CHP) production. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, 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). Our plans may also include the possibility of operating a MSW transfer station where we could install our technology.

 

Jersey City

With our acquisition of Van Keuren, as described earlier under Recent Developments, the Company’s primary focus is to obtain the capital required to obtain the necessary permits and approvals from the New Jersey DEP and to build, own and operate the TS/MRF in Jersey City, NJ. As part of the acquisition, CleanTech acquired an option to lease the property located in Jersey City and intends to: (1) install its Biomass Recovery Process on the site, and (2) operate the TS/MRF. The Company may initially operate this location as a transfer station (after receiving the required permits and approvals) while designing and installing our Biomass Recovery Process equipment on the site. The biomass feedstock output would then be expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, and biofuel and chemical research firms for evaluation.

 

 

Biomass Feedstock Production

We are working to develop one or more other locations where waste collected would be processed using our technology and the biomass produced used to create heat and/or power. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, 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.

 

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 3^rd 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.

 

New Technologies; Commercializing Existing Technologies

Because of our ability to produce a clean, homogenous biomass feedstock, we may be presented with the opportunity to partner with or acquire new technologies once we become operational. 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 technologies 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 will 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 tables set forth the amounts of expenses and changes in our consolidated statements of operations for the three and nine months ended September 30, 2017 and 2016. 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 September 30,
		2017				2016				Change
Costs and expenses:
General and administrative		$	65,573			$	92,137			$	(26,564	)
Professional fees			27,124				21,183				5,941
			92,697				113,320				(20,623	)
Other expense (income):
Interest expense			58,646				57,502				1,144
Interest income, net of accrued interest written-off			(1,257	)			13,975				(15,232	)
Net loss applicable to common stockholders		$	150,086			$	184,797			$	(34,711	)

 

General and Administrative – The decrease in 2017 was due to a decrease in payroll expense.

 

Interest Expense – The increase was due to the compounding effect of interest on our notes payable.

 

Interest Income, net of accrued interest written-off – The decrease in 2017 was due to a note receivable to purchase shares of our common stock, which was originally issued in August 2007, matured in August 2016 and was not paid. As a result, the accrued interest income of approximately $15,000 and the note were written-off and the shares were forfeited and cancelled.

 

		Nine months ended September 30,
		2017				2016				Change
Costs and expenses:
General and administrative		$	184,077			$	330,468			$	(146,391	)
Professional fees			97,054				72,302				24,752
			281,131				402,770				(121,639	)
Other expense (income):
Interest expense			174,116				166,807				7,309
Interest income, net of accrued interest written-off			(3,738	)			10,535				(14,273	)
Net loss applicable to common stockholders		$	451,509			$	580,112			$	(128,603	)

 

General and Administrative – The decrease in 2017 was due to a decrease in payroll and restricted common share grant expense.

 

Professional Fees – The increase in 2017 was due to increased accounting consulting expense.

 

 

Interest Expense – The increase was due to the compounding effect of interest on our notes payable and a full nine-month’s interest for the period ended September 30, 2017 on the June 2016, October 2016 and January 2017 notes payable.

 

Interest Income, net of accrued interest written-off – The decrease in 2017 was due to a note receivable to purchase shares of our common stock, which was originally issued in August 2007, matured in August 2016 and was not paid. As a result, the accrued interest income of approximately $15,000 and the note were written-off and the shares were forfeited and cancelled.

 

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 November 9, 2017, we raised an aggregate of: (i) approximately $3.2 million in separate offerings of units comprised of a convertible note and warrants in separate offerings from 2008 through 2015 and (ii) $763,500 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 November 9, 2017, our current cash and other assets are not sufficient to fund our operations. As of September 30, 2017, 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 six 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		Closed
2015 Offering			6.0	%		$	0.10			$	0.15		18 months		Closed

 

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, 2/14, and 2015 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. Four notes have been converted to shares of Common Stock (one each in 2009, 2010, 2014 and 2017). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of September 30, 2017, we had $189,185 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 September 30, 2017, we had $1,877,162 face value of notes outstanding, which includes exchanged notes from our 2009 Offering. As of September 30, 2017, all of the notes have 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 September 30, 2017, 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 raised a total of $100,000 of investment proceeds in one note. As of September 30, 2017, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.

 

2015 Offering - During September 2015, the Company commenced an offering of units and raised a total of $85,000 of investment proceeds in one note. As of September 30, 2017, this note is outstanding and matured. We plan to work with the note holder to exchange, convert or repay this note.

 

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) April 26, 2018 (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 $30,000 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 April 26, 2017, (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 April 26, 2022, (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 April 26, 2022, 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 September 30, 2017, $72,696 face value of this note is outstanding.

 

June 2016 Note Payable – The Company received an investment of $50,000 in June 2016 in exchange for this note. This note carries a 9% annual rate of interest and was due on December 3, 2016. As of September 30, 2017, the principal balance of this note was $50,000.

 

October 2016 Note Payable – The Company received an investment of $35,000 in October 2016 in exchange for this note. This note carries a 9% annual rate of interest and was due on April 12, 2017. As of September 30, 2017, the principal balance of this note was $35,000.

 

 

January 2017 Note Payable – The Company issued a note payable to William Meyer in the amount of $15,000 with a 6% interest rate and was due March 20, 2017.

 

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				September 30,				December 31,
Warrants issued to:		Price				2017				2016
Noteholders, 11/10 Offering		$	0.30				-				398,221
Noteholder in 2015 Offering		$	0.15				2,550,000				2,550,000
Investors in Subscription Agreements (a)		$	0.15				7,050,000				13,725,000
WL Meyer Legacy Trust		$	0.05				2,300,000				2,300,000
WL Meyer Legacy Trust		$	0.10				150,000				150,000
							12,050,000				19,123,221

 

(a)	Warrants issued to investors under these Subscription Agreements can be exercised anytime within three years from date of Agreement. These warrants currently expire at various dates from November 2017 through June 2020.

 

Summary of Cash Flow Activity

 

		Nine months ended September 30,
		2017				2016
Net cash used by operating activities		$	(104,363	)		$	(146,312	)
Net cash used by investiung activities		$	-			$	-
Net cash provided by financing activities		$	110,000			$	144,099

 

Net cash used by operating activities

 

During the nine months ended September 30, 2017 cash used by operating activities was impacted primarily by the losses incurred for the quarters less increases in stock-based compensation expense, accounts payable and other accrued liabilities. During the nine months ended September 30, 2016 cash used by operating activities was impacted primarily by the losses incurred for the quarters less increases accounts payable and other accrued liabilities.

 

Net cash provided by financing activities

 

Net cash provided by financing activities for the nine months ended September 30, 2017 was primarily due to the issuance of a note payable for $15,000 and investments in our Equity Offering of $100,000, offset by note payable payments of $5,000. Net cash provided by financing activities for the nine months ended September 30, 2016 was primarily due to investments in our Equity Offering of $110,000 and in a Note Payable of $50,000, offset by note payable payments of $15,000.

 

Contractual Obligations and Commitments

 

In the table below, we set forth our obligations as of September 30, 2017. 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)		$	3,901,606			$	3,901,606			$	-			$	-			$	-
WL Meyer Legacy Trust (CMS) Note (2)			123,230				123,230				-				-				-
Note Payable (Non-convertible) (3)			55,979				55,979				-				-				-
Note Payable (Non-convertible) (4)			38,046				38,046				-				-				-
Note Payable (Non-convertible) (5)			15,831				15,831				-				-				-
Total contractual obligations		$	4,134,692			$	4,134,692			$	-			$	-			$	-

 

(1) Amount represents value of principal amount of notes and estimates for interest. These notes are with various individuals, carry one-year terms and are convertible into shares of the Common Stock at the noteholders option. The first of these notes came due in April 2010. If the noteholders do not convert their notes into shares of Common Stock, the notes will have to be repaid or refinanced.

(2) Amount represents value of principal amount of note and interest. Final payment on this note is due April 26, 2018.

(3) Amount represents value of principal amount of note and interest. Final payment on this note was due December 3, 2016.

(4) Amount represents value of principal amount of note and interest. Final payment on this note was due April 12, 2017.

(5) Amount represents value of principal amount of note and interest. Final payment on this note was due March 20, 2017.

 

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, 2016, filed with the Securities and Exchange Commission on March 31, 2017, as amended by the Company’s Amendment No. 1 to its Annual Report on Form 10-K/A, filed with the SEC on August 2, 2017.  Our critical accounting policies and estimate assumptions have not changed during the nine months ended September 30, 2017.

 

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

 

Item 4. 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, which was performed based on the criteria set forth in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, our chief executive officer and interim 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 September 30, 2017. Further, the design of a control system must reflect the fact that there are resource constraints, including, but not limited to having one full-time employee (chief executive 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 nine months ended September 30, 2017, 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, 2016, 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 September 30, 2017, the Company raised a total of $763,500 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 and/or Section 4(a)(2) of the Securities Act.

 

In July 2017, the Company issued 200,000 shares of common stock to a consultant for accounting services provided to the Company. In August 2017, the Company issued 2,000,000 shares of common stock to consultants for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets to be provided over a two-year term. In September 2017, the Company issued 204,996 shares of Common Stock ($0.08 per share) to an investor on conversion of a Convertible Note. These offerings of securities were exempt from registration under the Securities Act in accordance with Section 4(a)(2) thereof, as transactions by the issuer not involving a public offering.

 

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, 11/10, 5/12, 2/14 and 2015 Offerings) are due. As of September 30, 2017, approximately $4.1 million (including approximately $1.1 million 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

 

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.

 

 

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: November 9, 2017		/s/ Edward P. Hennessey, Jr.
		Edward P. Hennessey, Jr.
		Chief Executive Officer
Date: November 9, 2017		/s/ Edward P. Hennessey, Jr.
		Edward P. Hennessey, Jr
		Interim Chief Financial Officer
		(Principal Accounting Officer)