Table of Contents

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, 2019

 

] 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., St. Louis, Missouri

63130

(Address of principal executive offices)

(Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

 

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 [ ✓ ] No[  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes [ ✓] 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 [ ✓]

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 [ ✓]

 

As of November 12, 2019, 100,733,409 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, 2019 and December 31, 2018

3

              

Consolidated Statements of Operations – Nine months ended September 30, 2019 and 2018

4

              

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) – For the three and nine months ended September 30, 2019 and 2018

5

              

Consolidated Statements of Cash Flows – Nine months ended September 30, 2019 and 2018

6

              

Notes to Consolidated Financial Statements

7

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4

Controls and Procedures

28

 

 

 

PART II

Other Information

29

 

 

 

Item 1

Legal Proceedings

29

Item 1A

Risk Factors

29

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 3

Defaults upon Senior Securities

29

Item 4

Mine Safety Disclosures

29

Item 5

Other Information

29

Item 6

Exhibits

30

 

 

 

Signatures

31

 

 

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,

 
   

2019

   

2018

 

ASSETS

 
                 

Current Assets:

               

Cash and cash equivalents

  $ 1     $ 11,057  

Prepaids and other current assets

    18,518       41,651  
      18,519       52,708  
                 

Property and equipment, net

    -       -  
                 

Non-Current Assets:

               

Technology license

    1,569,250       1,569,250  

Patents

    600,000       600,000  

Total Assets

  $ 2,187,769     $ 2,221,958  
                 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 
                 

Current Liabilities:

               

Accounts payable

  $ 426,939     $ 422,053  

Accrued interest

    1,558,344       1,440,103  

Accrued payroll and professional fees

    2,117,451       1,975,724  

Notes payable, net

    3,340,224       3,197,152  

Total Current Liabilities

    7,442,958       7,035,032  
                 

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; 99,733,409 and 99,333,409 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

    99,733       99,333  

Additional paid-in capital

    7,495,557       7,494,357  

Notes receivable - restricted common stock

    (45,806 )     (44,100 )

Accumulated deficit

    (12,804,673 )     (12,362,664 )

Total Stockholders' Equity (Deficit)

    (5,255,189 )     (4,813,074 )

Total Liabilities and Stockholders' Equity (Deficit)

  $ 2,187,769     $ 2,221,958  

 

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,

 
   

2019

   

2018

   

2019

   

2018

 

Costs and expenses:

                               

General and administrative

  $ 52,866     $ 49,839     $ 150,237     $ 164,698  

Professional fees

    17,949       28,360       93,165       134,991  
      70,815       78,199       243,402       299,689  
                                 

Other expense (income):

                               

Interest expense

    71,291       66,265       200,313       191,470  

Other expense

    -       26,207       -       26,207  

Interest income, net of accrued interest written-off

    (579 )     (795 )     (1,706 )     (2,588 )
      70,712       91,677       198,607       215,089  
                                 

Income tax benefit

    -       -       -       -  
                                 

Net loss

  $ 141,527     $ 169,876     $ 442,009     $ 514,778  
                                 
                                 

Basic and diluted net loss per common share

     **        **        **        **  

Weighted average common shares outstanding

    99,733,409       99,033,409       99,511,187       98,722,298  

 

** - 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)

 

 

   

For the three months ended September 30, 2019

 
                           

Notes Rec -

         
                   

Additional

   

Restricted

         
   

Common Stock

   

Paid-in

   

Common

   

Accumulated

 
   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

 

Balances at June 30, 2019

    99,733,409     $ 99,733     $ 7,495,557     $ (45,227 )   $ (12,663,145 )

Interest on notes receivable

    -       -       -       (579 )     -  

Net loss

    -       -       -       -       (141,528 )

Balances at September 30, 2019

    99,733,409     $ 99,733     $ 7,495,557     $ (45,806 )   $ (12,804,673 )

 

   

For the three months ended September 30, 2018

 
                                   

Notes Rec -

         
                   

Additional

           

Restricted

         
   

Common Stock

   

Paid-in

   

Minority

   

Common

   

Accumulated

 
   

Shares

   

Amount

   

Capital

   

Interest

   

Stock

   

Deficit

 

Balances at June 30, 2018

    99,083,409     $ 99,083     $ 7,558,007     $ 505     $ (68,081 )   $ (12,040,311 )

Note Receivable expired - shares forfeited in September at $0.10/share

    (150,000 )     (150 )     (14,850 )     -       25,330       -  

Divestiture of Van Keuren investment

    -       -       (50,000 )     (505 )     -       -  

Interest on notes receivable

    -       -       -       -       (795 )     -  

Net loss

    -       -       -       -       -       (169,876 )

Balances at September 30, 2018

    98,933,409     $ 98,933     $ 7,493,157     $ -     $ (43,546 )   $ (12,210,187 )

 

   

For the nine months ended September 30, 2019

 
                           

Notes Rec -

         
                   

Additional

   

Restricted

         
   

Common Stock

   

Paid-in

   

Common

   

Accumulated

 
   

Shares

   

Amount

   

Capital

   

Stock

   

Deficit

 

Balances at December 31, 2018

    99,333,409     $ 99,333     $ 7,494,357     $ (44,100 )   $ (12,362,664 )

Issuance of restricted shares to consultants at $0.01/share

    400,000       400       1,200       -       -  

Interest on notes receivable

    -       -       -       (1,706 )     -  

Net loss

    -       -       -       -       (442,009 )

Balances at September 30, 2019

    99,733,409     $ 99,733     $ 7,495,557     $ (45,806 )   $ (12,804,673 )

 

   

For the nine months ended September 30, 2018

 
                                   

Notes Rec -

         
                   

Additional

           

Restricted

         
   

Common Stock

   

Paid-in

   

Minority

   

Common

   

Accumulated

 
   

Shares

   

Amount

   

Capital

   

Interest

   

Stock

   

Deficit

 

Balances at December 31, 2017

    97,633,409     $ 97,633     $ 7,536,257     $ 505     $ (66,288 )   $ (11,695,409 )

Note Receivable expired - shares forfeited in September at $0.10/share

    (150,000 )     (150 )     (14,850 )     -       25,330       -  

Issuance of restricted shares to consultants at $0.04/share

    1,450,000       1,450       21,750       -       -       -  

Divestiture of Van Keuren investment

    -       -       (50,000 )     (505 )     -       -  

Interest on notes receivable

    -       -       -       -       (2,588 )     -  

Net loss

    -       -       -       -       -       (514,778 )

Balances at September 30, 2018

    98,933,409     $ 98,933     $ 7,493,157     $ -     $ (43,546 )   $ (12,210,187 )

 

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,

 
   

2019

   

2018

 

Operating Activities

               

Net loss applicable to common stockholders

  $ (442,009 )   $ (514,778 )

Adjustments to reconcile net loss applicable to common stockholders to net cash used by operating activities:

               

Items that did not use (provide) cash:

               

Interest income, net of accrued interest written-off

    (1,706 )     (2,588 )

Amortization of discounts (interest exp)

    (3,922 )     -  

Issuance of restricted common stock

    1,600       23,200  

Divestiture of Van Keuren investment

    -       15,877  

Changes in operating assets and liabilities that provided (used) cash, net:

               

Prepaids and other current assets

    23,133       14,267  

Accounts payable

    4,886       5,040  

Other assets and other liabilities

    -       201,800  

Accrued liabilities

    345,962       143,505  

Net cash used by operating activities

    (72,056 )     (113,677 )
                 

Cash Flows Provided (Used) by Investing Activities

               

Expenditures for equipment

    -       -  

Net cash provided by investing activities

    -       -  
                 

Cash Flows Provided (Used) by Financing Activities

               

Issuance of Note Payable

    85,000       117,000  

Payments on Notes Payable

    (24,000 )     -  

Net cash provided by financing activities

    61,000       117,000  

Net increase (decrease) in cash and cash equivalents

    (11,056 )     3,323  

Cash and cash equivalents at beginning of period

    11,057       2,505  

Cash and cash equivalents at end of period

  $ 1     $ 5,828  
                 

Supplemental disclosure of cash flow information:

               

Cash paid for interest

  $ 3,641     $ -  
                 

Supplemental disclosure of noncash investing and financing activities:

         

Common stock issued to consultant, directors, and/or employee

  $ 1,600     $ 23,200  

Divestiture of Van Keuren investment

  $ -     $ 15,877  

 

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

 

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

 

The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring items considered necessary for a fair presentation, have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ended December 31, 2019. For further information, refer to the Company’s audited Consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on April 1, 2019.

 

 

 

Note 2Recent Accounting Pronouncements   

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modified the disclosure requirements in Topic 820, "Fair Value Measurement," based on the FASB Concepts Statement, "Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements," including consideration of costs and benefits. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718).” This ASU addresses share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

 

In July 2017, the FASB issued 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 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. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.

 

In January 2017, the 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 to 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 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 is 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 did not have a material impact on our consolidated financial statements and related disclosures.  

 

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 became 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. We have adopted the guidance and currently it does not have a material impact on the financial statements as the Company does not have revenue. The requirements of the ASU will be followed when the Company does have revenue.

 

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

 

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 which 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.

 

 

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. 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. Van Keuren has had no operations or revenue since inception and has solely been working towards obtaining the permits required to operate a municipal solid waste transfer station and material recovery facility (“TS/MRF”). 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. As of August 29, 2018, the Company’s investment in Van Keuren was divested pursuant to a Settlement Agreement and Release among the Company and the former members of Van Keuren (the “Van Keuren Settlement Agreement”), and the related intangible assets were written off. As part of the Van Keuren Settlement Agreement, CleanTech acquired a one-year option to lease certain property in Jersey City, subject to the receipt by the property of the final permits and approvals required from the New Jersey Department of Environmental Protection (“DEP”) to build, own and operate a TS/MRF. The property did not receive the required permits and approvals prior to the expiration of the option on August 29, 2019.

 

 

Note 4 – Goodwill and Intangibles

 

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. The goodwill recorded was a result of the acquisition of Van Keuren in June 2016 as disclosed previously in Note 3. As of August 29, 2018, the Company’s investment in Van Keuren was divested and the related intangibles were written off.

 

 

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 the various amendments to this note, 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) approved the assignment of the note by CMS to the WL Meyer Legacy Trust. In July 2019, this note was replaced with a new note for $136,097 (principal and interest of prior note), due January 2020 with 6% interest. For more information on this note, see Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Debt.

 

 

 

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 that 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 were recorded as an intangible asset in our consolidated financial statements; however, as of August 29, 2018, the Company’s investment in Van Keuren was divested and the related intangibles were written off.

 

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, 2019

   

December 31, 2018

 

Convertible Notes Payable (2009 Offering), which are made up of various individual notes with an aggregate face value of $189,185 at September 30, 2019 and December 31, 2018, due one year from date of note, interest at 6.0%

  $ 189,185     $ 189,185  

Convertible Notes Payable (11/10 Offering), which are made up of various individual notes with an aggregate face value of $1,804,371 and $1,877,162 at September 30, 2019 and December 31, 2018, respectively, due one year from date of note, interest at 6.0%

    1,804,371       1,877,162  

WL Meyer Legacy Trust (formerly CMS Acquisition LLC) Note Payable, with a face value of $0 at September 30, 2019 and $72,696 at December 31, 2018, due April 2018, interest at 6.0% thru May 15, 2011; 10.0% thereafter

    -       72,696  

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 $15,000 due March 2017, interest at 6.0%

    15,000       15,000  

Note Payable, which is made up of one note with a face value of $25,000 due October 2018, interest at 6.0%

    25,000       25,000  

Convertible Note Payable, which is made up of one note with a face value of $97,599 due March 2019, interest at 6.0%

    97,599       97,599  

Convertible Note Payable, which is made up of one note with a face value of $50,000 due March 2019, interest at 6.0%

    50,000       50,000  

Convertible Note Payable, which is made up of one note with a face value of $17,000 due March 2019, interest at 6.0%

    17,000       17,000  

Convertible Note Payable, which is made up of one note with a face value of $30,000 due May 2019, interest at 6.0%

    30,000       30,000  

Convertible Note Payable, which is made up of one note with a face value of $20,000 due August 2019, interest at 6.0%

    20,000       20,000  

Convertible Note Payable, which is made up of one note with a face value of $35,000 due November 2019, interest at 6.0%

    35,000       35,000  

Convertible Note Payable, which is made up of one note with a face value of $60,000 due March 2020, interest at 6.0%

    60,000       -  

Note Payable, which is made up of one note with a face value of $95,385 due August 2020, interest at 9%

    67,462       -  

Convertible Note Payable, which is made up of one note with a face value of $25,000 due January 2020, interest at 6.0%

    25,000       -  

Note Payable, which is made up of one note with a face value of $136,097 due January 2020, interest at 6%

    136,097       -  

Total debt

    3,340,224       3,197,152  

Current maturities

    (3,340,224 )     (3,197,152 )

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 as follows:

 

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 consolidated 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 Event 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 or a convertible note payable. As a result, as of September 30, 2019, 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 in connection with 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 Common Stock in 2012. As of September 30, 2019, we had $1,804,371 face value of these notes outstanding, which includes the exchanged notes from our 2009 Offering. As of September 30, 2019, all of these 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, 2019, 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.

 

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 was 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) approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust per the March 17, 2015 amendment. In July 2019, this note was replaced with a new note for $136,097 (principal and interest of prior note), due January 2020 with 6% interest. As of September 30, 2019, $136,097 face value of this note is outstanding.

 

 

January 2017 Note Payable – The Company issued a note payable, with no conversion feature, to a shareholder in the amount of $15,000, with a 6% interest rate, which was due March 20, 2017. We are currently working with the note holder to renew or repay the note.

 

Between May 2012 and March 2019, the Company issued one note payable with no conversion rights and ten convertible notes payable to a member of the Board of Directors now recently deceased. These notes have an aggregate principal amount outstanding of $903,109 as of September 30, 2019, each with a 6% interest rate. We are currently working with the deceased’s estate to renew or repay the notes. The following is a summary of the notes outstanding:

 

   

September 30, 2019

   

December 31, 2018

 

Convertible Notes Payable (5/12 Offering), made up of various individual notes with a face value of $383,510, due in 18 months from date of note, interest at 6.0%

  $ 383,510     $ 383,510  

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 $25,000 due October 2018, interest at 6.0%

    25,000       25,000  

Convertible Note Payable, which is made up of one note with a face value of $97,599 due March 2019, interest at 6.0%

    97,599       97,599  

Convertible Note Payable, which is made up of one note with a face value of $50,000 due March 2019, interest at 6.0%

    50,000       50,000  

Convertible Note Payable, which is made up of one note with a face value of $17,000 due March 2019, interest at 6.0%

    17,000       17,000  

Convertible Note Payable, which is made up of one note with a face value of $30,000 due May 2019, interest at 6.0%

    30,000       30,000  

Convertible Note Payable, which is made up of one note with a face value of $20,000 due August 2019, interest at 6.0

    20,000       20,000  

Convertible Note Payable, which is made up of one note with a face value of $35,000 due November 2019, interest at 6.0%

    35,000       35,000  

Convertible Note Payable, which is made up of one note with a face value of $60,000 due March 2020, interest at 6.0%

    60,000       -  

Total debt to deceased Board of Directors Member

  $ 903,109     $ 843,109  

 

January 2019 Note Payable – In January 2019, the Company issued a note payable, to a current note holder, with no conversion feature, in the amount of $95,385 which is due August 2020. This note replaced past notes issued on January 7, 2011 and January 28, 2011, plus accrued interest. The note is currently in default. We are working with the note holder to renew or repay the note.

 

July 2019 Convertible Note Payable – In July 2019, the Company issued a convertible note payable, to a current note holder, in the amount of $25,000, with a 6% interest rate, due January 2020.

 

The discounts on notes payable are amortized on a straight-line basis over the original term of each note.

 

 

The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the number 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

   

2019

   

2018

 

Investors in Subscription Agreements (a)

  $ 0.15       3,000,000       6,300,000  

WL Meyer Legacy Trust (b)

  $ 0.05       2,300,000       2,300,000  

WL Meyer Legacy Trust (b)

  $ 0.10       150,000       150,000  
              5,450,000       8,750,000  

 

(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 February 2020 to June 2020.

(b) These warrants expire in April 2022.

 

 

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, 2019, the Company had 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 January 2014, the Company issued 500,000 restricted shares (at $0.012 per share) of our Common Stock per the consulting agreement with GWS Environmental Consultants. GWS has certain expertise and contacts in the collection, recycling, transfer, and disposal of MSW and provided the Company consulting for a three-year period regarding these items.

 

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.  Pursuant to the Van Keuren Settlement Agreement, as of August 29, 2018, the Company’s investment in Van Keuren was divested and the restrictions on the shares of Company Common Stock issued as part of the Van Keuren acquisition were lifted.

 

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 restricted 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 restricted Common Stock to a consultant for accounting services provided to the Company.

 

In July 2017, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

 

In August 2017, the Company granted 3,000,000 shares of restricted 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 restricted 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.

 

In December 2017, a note receivable from an employee matured and was not paid. The note was originally issued in December 2008 to purchase shares of our Common Stock. As a result, 60,000 shares of restricted Common Stock, issued at $0.36 per share were forfeited and cancelled.

 

In March 2018, the Company issued 250,000 shares of restricted Common Stock to a consultant for legal / corporate finance services provided to the Company.

 

In March 2018, the Company issued the remaining 1,000,000 shares of restricted Common Stock granted in August 2017, to a consultant for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets.

 

In April 2018, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

In September 2018, a note receivable from a Board of Directors member matured and was not paid. The note was originally issued in September 2009 to purchase shares of our Common Stock. As a result, 150,000 shares of restricted Common Stock, issued at $0.10 per share were forfeited and cancelled.

 

In October 2018, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

In June 2019, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

Net Loss per share – The Company calculates basic loss per share (“EPS”) 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, 2019 and December 31, 2018, the Company had options, warrants and other convertible securities to purchase an aggregate of approximately 86 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. 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, 2019, all amounts have been paid to FEI except for approximately $48,000.

 

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, 2019 and December 31, 2018, the aggregate balance of Mr. Hennessey’s advances totaled approximately $15,000. Mr. Kime’s advances 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 is included in Prepaids and Other Current Assets on the Balance Sheet.

 

 

One recently deceased Board of Directors member is party to investments made in our convertible note offerings. As of September 30, 2019 and December 31, 2018, the aggregate amount due on these investments, including interest, is approximately $1,158,000 and $1,049,000, respectively.

 

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

 

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

 

Between May 2012 and March 2019, the Company issued one note payable with no conversion rights and ten convertible notes payable to a member of the Board of Directors now recently deceased. These notes have an aggregate principal amount outstanding of $903,109 as of September 30, 2019, each with a 6% interest rate. We are currently working with the deceased’s estate to renew or repay the notes. For a summary of these notes outstanding, see Note 7 – Debt.

 

 

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 measured at the grant date, based on the estimated fair value of the award, and expense is recognized 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) which vested ratably in one-third annual increments beginning in September 2014, with an exercise price of $0.10. As of September 30, 2019, 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 of which one-half vested immediately and the remaining options vested in February 2016, with an exercise price of $0.10. As of September 30, 2019, none of these options were cancelled or expired and all 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 restricted Common Stock to a consultant for accounting services provided to the Company.

 

In July 2017, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

In August 2017, the Company granted 3,000,000 shares of restricted 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 restricted Common Stock granted, 2,000,000 were issued as of December 31, 2017. In March 2018, the Company issued the remaining 1,000,000 shares of restricted Common Stock granted in August of 2017.

 

In March 2018, the Company issued 250,000 shares of restricted Common Stock to a consultant for legal / corporate finance services provided to the Company.

 

In April 2018, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

In October 2018, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

In June 2019, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.

 

As of September 30, 2019, there was $0 in prepaids for compensation costs related to all share-based payment arrangements. There were 3,600,000 options granted outside of the Company’s 2007 Stock Option Plan with a weighted-average exercise price of $0.15. As of September 30, 2019, none of these options were cancelled or expired and 3,600,000 shares of these options were vested.

 

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, 2019 and 2018.

 

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, 2018

    5,670,000     $ 0.10       (1)  

Granted

    -                  

Forfeited

    (370,000 )                

Options outstanding as of September 30, 2019

    5,300,000     $ 0.11       (1)  

Options exercisable as of September 30, 2019

    5,300,000     $ 0.11          

 

(1) The weighted-average exercise price at September 30, 2019 and December 31, 2018 for all outstanding and exercisable options was greater than the fair value of the Company's common stock on that date, resulting in an aggregate intrinsic value of $-0-.

 

 

 

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 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, 2018

    810,000     $ 0.10  

Granted

    -     $ 0.10  

Forfeited

    -     $ 0.10  

Balance as of September 30, 2019

    810,000     $ 0.10  

 

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, (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 markets, (viii) in March 2018 for 250,000 shares to a consultant for legal services provided, (ix) in April 2018 for 200,000 shares to a consultant for accounting services provided, (x) in October 2018 for 400,000 shares to a consultant for accounting services provided, (xi) in June 2019 for 400,000 shares to a consultant for accounting services provided, and (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, 2019 and 2018, was $26,133 and $37,500, 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 Securities Act, 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 years, 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 in December 2016; however, we are continuing to lease on a month-to-month basis. Our monthly rent under the lease is $1,800 plus the cost of utilities.

 

Contingencies

The Company currently has no open litigation 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 12, 2019, approximately $4.9 million is currently due, including interest. We plan to work with each remaining note holder to exchange, convert or repay these promissory notes.

 

In October 2019, the Company issued 1,000,000 shares of Common Stock, under a Subscription Agreement, at a purchase price of $.025 per share.

 

 

Note 13 – Going Concern

 

During the nine months ended September 30, 2019, the Company had a net loss of $442,000, negative cash flow from operations of $72,000 and negative working capital of $7.4 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 12, 2019, the date these consolidated 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 (the “Exchange Act”), 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 this report 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 description of our business should be read in conjunction with the consolidated financial statements and related notes to the consolidated 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.”

 

 

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

 

Investments

 

All of the promissory notes in our 2009, 5/12, 11/10, 2/14 and 2015 Offerings are now due. As of November 12, 2019, approximately $4.8 million is currently due, including interest. We will work with each remaining note holder to exchange, or convert, these promissory notes. There can be no assurance that we will reach agreements with any or all of these note holders and we may be required to repay such amounts.

 

Plan of Operation

 

Our focus is to secure sufficient capital to fund our current working capital requirements and the construction of a commercial plant as described further in this section. We have had an ongoing lack of liquidity. Currently, we 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 to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, and biofuel and chemical research firms for evaluation. In addition to research and development, the Company is also working towards licensing and/or developing potential commercial projects. These projects plan to focus on cleaning and separating 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).

 

 

Jersey City

As described earlier under Recent Developments, the Company’s primary focus has been to seek 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 (or a similar location). CleanTech is currently evaluating potential locations that could be used 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, 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, 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 3rd Quarter of 2011. We expect further testing to occur for both of these companies and for possible additional companies upon securing the requisite financing to build a biomass recovery plant to process MSW.

 

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, 2019 and 2018. The Company’s activities and related primary expenses are in the following categories: General and administrative – payroll, 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,

         
   

2019

   

2018

   

Change

 

Costs and expenses:

                       

General and administrative

  $ 52,866     $ 49,839     $ 3,027  

Professional fees

    17,949       28,360       (10,411 )
      70,815       78,199       (7,384 )
                         

Other expense (income):

                       

Interest expense

    71,291       66,265       5,026  

Other expense

    -       26,207       (26,207 )

Interest income, net of accrued interest written-off

    (579 )     (795 )     216  
                         

Net loss applicable to common stockholders

  $ 141,527     $ 169,876     $ (28,349 )

 

General and Administrative – The increase was due to an increase in corporate filling fees of $4,400 offset by a decrease in utilities of $1,200.

 

Professional Fees The decrease was due to a decrease in legal fees of $3,800 and a decrease in consulting fees of $6,700.

 

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

 

Other Expense – The decrease was due to the forfeiture of an outstanding promissory note by a member of our Board of Directors and the divestiture of the Van Keuren investment.  See Part II. Other Information: - Item 1.  Legal Proceedings for further discussion.

 

 

   

Nine months ended September 30,

         
   

2019

   

2018

   

Change

 

Costs and expenses:

                       

General and administrative

  $ 150,237     $ 164,698     $ (14,461 )

Professional fees

    93,165       134,991       (41,826 )
      243,402       299,689       (56,287 )
                         

Other expense (income):

                       

Interest expense

    200,313       191,470       8,843  

Other expense

    -       26,207       (26,207 )

Interest income, net of accrued interest written-of

    (1,706 )     (2,588 )     882  
                         

Net loss applicable to common stockholders

  $ 442,009     $ 514,778     $ (72,769 )

 

General and Administrative – The decrease was due to a decrease in restricted stock grants of $7,200 and a decrease in corporate filling fees of $5,300.

 

Professional Fees The decrease was due to a decrease in legal fees of $37,000 and a decrease in consulting fees of $4,100.

 

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

 

Other Expense – The decrease was due to the forfeiture of an outstanding promissory note by a member of our Board of Directors and the divestiture of the Van Keuren investment.  See Part II. Other Information: - Item 1.  Legal Proceedings for further discussion.

 

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 12, 2019, we have raised an aggregate of: (i) approximately $3.5 million in separate offerings of units comprised of notes payable and warrants in separate offerings from 2008 through 2019 and (ii) $788,500 from equity offerings of restricted Common Stock pursuant to Subscription Agreements. 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 12, 2019, our current cash and other assets are not sufficient to fund our operations. As of September 30, 2019, 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 consolidated 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 September 30, 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 or a convertible note payable. As a result, as of September 30, 2019, we had $189,185 face value of notes outstanding in connection with to this offering, 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, 2019, we had $1,804,371 face value of notes outstanding, which includes exchanged notes from our 2009 Offering. As of September 30, 2019, 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, 2019, all of these notes were outstanding and matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.

 

 

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. Under the terms of an amendment to this note dated April 26, 2017, this note matured on April 26, 2018. 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 the various amendments to this note, 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) approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust. In July 2019, this note was replaced with a new note for $136,097 (principal and interest of prior note), due January 2020 with 6% interest. As of September 30, 2019, $136,097 face value of this note is outstanding.

 

January 2017 Note Payable – The Company issued a note payable, with no conversion feature, to a shareholder in the amount of $15,000, with a 6% interest rate, which was due March 20, 2017. As of September 30, 2019, the note was outstanding. We are currently working with the note holder to renew or repay the note.

 

Between May 2012 and March 2019, the Company issued one note payable with no conversion rights and ten convertible notes payable to a member of the Board of Directors now recently deceased. These notes have an aggregate principal amount outstanding of $903,109 as of September 30, 2019, each with a 6% interest rate. We are currently working with the deceased’s estate to renew or repay the notes. The following is a summary of the notes outstanding:

 

   

September 30, 2019

   

December 31, 2018

 

Convertible Notes Payable (5/12 Offering), made up of various individual notes with a face value of $383,510, due in 18 months from date of note, interest at 6.0%

  $ 383,510     $ 383,510  

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 $25,000 due October 2018, interest at 6.0%

    25,000       25,000  

Convertible Note Payable, which is made up of one note with a face value of $97,599 due March 2019, interest at 6.0%

    97,599       97,599  

Convertible Note Payable, which is made up of one note with a face value of $50,000 due March 2019, interest at 6.0%

    50,000       50,000  

Convertible Note Payable, which is made up of one note with a face value of $17,000 due March 2019, interest at 6.0%

    17,000       17,000  

Convertible Note Payable, which is made up of one note with a face value of $30,000 due May 2019, interest at 6.0%

    30,000       30,000  

Convertible Note Payable, which is made up of one note with a face value of $20,000 due August 2019, interest at 6.0

    20,000       20,000  

Convertible Note Payable, which is made up of one note with a face value of $35,000 due November 2019, interest at 6.0%

    35,000       35,000  

Convertible Note Payable, which is made up of one note with a face value of $60,000 due March 2020, interest at 6.0%

    60,000       -  

Total debt to deceased Board of Directors Member

  $ 903,109     $ 843,109  

 

January 2019 Note Payable – The Company issued a note payable, to a current note holder, with no conversion feature, in the amount of $95,385 which is due August 2020. This note replaced past notes issued on January 7, 2011 and January 28, 2011, plus accrued interest. As of September 30, 2019, the note was outstanding. The note is currently in default. We are working with the note holder to renew or repay the note.

 

 

July 2019 Convertible Note Payable – The Company issued a convertible note payable, to a current note holder, in the amount of $25,000, with a 6% interest rate, due January 2020.

 

For more information, see Part II – Other Information: Item 3 – Default on Senior Securities.

 

The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the number 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

   

2019

   

2018

 

Investors in Subscription Agreements (a)

  $ 0.15       3,000,000       6,300,000  

WL Meyer Legacy Trust (b)

  $ 0.05       2,300,000       2,300,000  

WL Meyer Legacy Trust (b)

  $ 0.10       150,000       150,000  
              5,450,000       8,750,000  

 

(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 February 2020 to June 2020.

(b) These warrants expire in April 2022.

 

Summary of Cash Flow Activity

 

   

Nine months ended September 30,

 
   

2019

   

2018

 

Net cash used by operating activities

  $ (72,056 )   $ (113,677 )

Net cash provided by financing activities

  $ 61,000     $ 117,000  

 

Net cash used by operating activities

During the nine months ended September 30, 2019 cash used by operating activities was impacted primarily by the loss incurred for the period less increases in accrued interest. During the nine months ended September 30, 2018 cash used by operating activities was impacted primarily by the loss incurred for the period less increases in accrued interest and other accrued liabilities.

 

Net cash provided by financing activities

Net cash provided by financing activities for the nine months ended September 30, 2019 was due to the issuance of two convertible notes payable for $85,000 offset by payments on a note payable of $24,000. Net cash provided by financing activities for the nine months ended September 30, 2018 was due to the issuance of four convertible notes payable for $50,000, $17,000, $30,000 and $20,000.

 

 

Contractual Obligations and Commitments

 

In the table below, we set forth our obligations as of September 30, 2019. 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)

  $ 4,647,588     $ 4,647,588     $ -     $ -     $ -  

WL Meyer Legacy Trust (CMS) Note (2)

    137,976       137,976       -       -       -  

Note Payable (Non-convertible) (3)

    17,533       17,533       -       -       -  

Note Payable (Non-convertible) (4)

    28,008       28,008       -       -       -  

Note Payable (Non-convertible) (5)

    67,463       67,463       -       -       -  

Total contractual obligations

  $ 4,898,568     $ 4,898,568     $ -     $ -     $ -  

 

(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 January 2020.

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

(4) Amount represents value of principal amount of note and interest. Final payment on this note was due October 18, 2018.

(5) Amount represents value of principal amount of note and interest. Final payment on this note is due August 1, 2020.

 

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 consolidated 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, 2018, filed with the Securities and Exchange Commission on April 1, 2019. Our critical accounting policies and estimate assumptions have not changed during the nine months ended September 30, 2019.

 

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 Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified by the SEC’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 (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), 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 Exchange Act) are effective at that reasonable assurance level at September 30, 2019. 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, 2019, 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, 2018, 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 – None

 

Item 3. Defaults Upon Senior Securities

 

Certain promissory notes in our offering of units comprised of convertible promissory notes and warrants, commenced in April 2009 (2009, 11/10, 5/12, 2/14 and 2015 Offerings) are due. As of September 30, 2019, approximately $4.8 million (including approximately $1.6 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
   
3.1 Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
3.2 Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
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 12, 2019

 

/s/ Edward P. Hennessey, Jr.

 

       

 

 

 

 

    Edward P. Hennessey, Jr.  
    Chief Executive Officer  

 

 

Date: November 12, 2019

 

/s/ Edward P. Hennessey, Jr.

 

       

 

 

 

 

 

 

Edward P. Hennessey, Jr.

Interim Chief Financial Officer

(Principal Accounting Officer)

 

 

31

 

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