CleanTech Biofuels, Inc. (Form: 10-Q, Received: 11/12/2013 12:01:41)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______TO _________

Commission file number 333-145939

CLEANTECH BIOFUELS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0754902
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7386 Pershing Ave., University City, Missouri	63130
(Address of principal executive offices)	(Zip Code)

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company þ

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

As of November 11, 2013, 78,486,647 shares of the Company's common stock were outstanding.

CLEANTECH BIOFUELS, INC.

TABLE OF CONTENTS

		PAGE
PART I	Financial Information
Item 1	Consolidated Financial Statements	3
	Consolidated Balance Sheets – September 30, 2013 and December 31, 2012	3
	Consolidated Statements of Operations - Three and nine months ended September 30, 2013 and 2012 and Inception to September 30, 2013	4
	Consolidated Statements of Changes in Stockholders’ Equity (Deficit) – September 30, 2013	5
	Consolidated Statements of Cash Flows – Nine months ended September 30, 2013 and 2012 and Inception to September 30, 2013	6
	Notes to Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4T	Controls and Procedures	23

PART II	Other Information	24
Item 1	Legal Proceedings	24
Item 1A	Risk Factors	24
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3	Defaults upon Senior Securities	25
Item 4	Mine Safety Disclosures	25
Item 5	Other Information	25
Item 6	Exhibits	26
Signatures		27
Index to Exhibits

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS


	( unaudited)			(audited)
	September 30,			December 31,
	2013			2012
ASSETS
Current Assets:
Cash and cash equivalents	$	19,043		$	58,181
Prepaids and other current assets		38,921			37,020
		57,964			95,201

Property and equipment, net		-			-

Non-Current Assets:
Technology license		1,521,250			1,521,250
Patents		600,000			600,000
Total Assets	$	2,179,214		$	2,216,451

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	406,535		$	431,452
Accrued interest		335,252			223,619
Accrued payroll and professional fees		958,984			905,656
Notes payable, net		2,566,948			2,313,507
Total Current Liabilities		4,267,719			3,874,234

Notes Payable - Long-Term		200,000			233,510

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;
73,486,647 and 72,486,647 shares issued and outstanding at
September 30, 2013 and December 31, 2012, respectively		73,487			72,487
Additional paid-in capital		6,631,520			6,526,876
Notes receivable - restricted common stock		(149,854	)		(143,853	)
Deficit accumulated during the development stage		(8,843,658	)		(8,346,803	)
Total Stockholders' Equity (Deficit)		(2,288,505	)		(1,891,293	)
Total Liabilities and Stockholders' Equity (Deficit)	$	2,179,214		$	2,216,451

The accompanying notes are an integral part of these financial statements

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)


											July 14, 2004
	Three months ended					Nine months ended					(inception) to
	September 30,					September 30,					September 30,
	2013			2012		2013			2012		2013
General and administrative	$	99,600		$	93,846	$	291,186		$	282,323	$	3,981,083
Professional fees		23,275			44,553		79,398			135,042		1,506,194
Research and development		-			70,000		-			120,000		1,337,847
Operating Loss		122,875			208,399		370,584			537,365		6,825,124

Other expense (income):
Interest expense		46,594			37,638		132,272			108,361		2,016,727
Amortization of technology license		-			-		-			-		35,000
Deposit forfeiture		-			-		-			-		(25,000	)
Other income		-			-		-			-		(82,000	)
Interest income		(2,033	)		5,453		(6,001	)		984		(60,541	)
		44,561			43,091		126,271			109,345		1,884,186

Income tax benefit		-			-		-			-		-

Net loss applicable to common stockholders	$	167,436		$	251,490	$	496,855		$	646,710	$	8,709,310


Basic and diluted net loss per common share		**			**	$	0.01		$	0.01	$	0.15
Weighted average common shares outstanding		73,153,314			72,536,647		72,708,869			71,639,098		56,804,010

** - less than $0.01

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

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY(DEFICIT) (unaudited)


					Additional		Notes Rec -			July 14, 2004
	Common Stock				Paid-in		restricted			(inception) to
	Shares		Amount		Capital		common stock			Sep 30, 2013
Balances at December 31, 2012		72,486,647	$	72,487	$	6,526,876	$	(143,853	)	$	(8,346,803	)

Interest on Notes Receivable		-		-		-		(6,001	)		-
Stock-based compensation		-		-		5,644		-			-
Issuance of restricted shares to investor in August-2013
at $0.10 per share		1,000,000		1,000		99,000		-			-
Net loss		-		-		-		-			(496,855	)
Balances at September 30, 2013		73,486,647	$	73,487	$	6,631,520	$	(149,854	)	$	(8,843,658	)

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

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



							July 14, 2004
	Nine months ended						(inception) to
	September 30 ,						September 30,
Operating Activities	2013			2012			2013
Net loss applicable to common stockholders	$	(496,855	)	$	(646,710	)	$	(8,709,310	)
Adjustments to reconcile net loss applicable to common
stockholders to net cash used by operating activities:
Items that did not use (provide) cash:
Common stock issued for organizational costs		-			-			100
Depreciation		-			3,287			68,356
Amortization		-			-			35,000
Interest income		(6,001	)		984			(33,154	)
Amortization of discounts (interest expense) and
other financing charges		-			-			1,284,106
Share-based compensation expense		5,644			13,655			799,556
Issuance of restricted common stock		-			-			63,000
Write-off of technology license		-			-			790,545
Fair value of RAM warrant settlement		-			-			125,027
Changes in operating assets and liabilities that provided
(used) cash, net:
Prepaids and other current assets		(2,000	)		5,914			(5,600	)
Technology license		-			-			(132,500	)
Accounts payable		(24,917	)		86,853			411,251
Other assets and other liabilities		131,564			107,645			669,816
Accrued liabilities		53,328			146,036			958,984
Net cash used by operating activities		(339,237	)		(282,336	)		(3,674,823	)

Cash Flows Provided (Used) by Investing Activities
Acquisition of patent, net		-			-			(150,000	)
Merger of Biomass North America Licensing, Inc., net		-			-			(20,000	)
Acquisition of HFTA technology, net		-			-			-
Expenditures for equipment		-			-			(54,237	)
Net cash used by investing activities		-			-			(224,237	)

Cash Flows (Used) Provided by Financing Activities
Advances - related parties		99			(1,978	)		(33,321	)
Payments on capital lease, including interest		-			-			(13,903	)
Series A Convertible Debentures, including interest		-			-			1,424,900
Issuance of Note Payable		-			-			100,000
Issuance of Convertible Notes Payable		200,000			301,712			2,950,722
Payments on Note Payable		-			-			(635,295	)
Sale of common stock		100,000			-			125,000
Net cash (used) provided by financing activities		300,099			299,734			3,918,103
Net increase (decrease) in cash and cash equivalents		(39,138	)		17,398			19,043
Cash and cash equivalents at beginning of period		58,181			-			-
Cash and cash equivalents at end of period	$	19,043		$	17,398		$	19,043

CLEANTECH BIOFUELS, INC.

(formerly Alternative Ethanol Technologies, Inc.)

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS cont'd (unaudited)


	Nine months ended September 30,				July 14, 2004 (inception) to September 30,
	2013		2012		2013

Supplemental disclosure of cash flow information:
Cash paid for interest	$	708	$	717	$	24,598

Supplemental disclosure of noncash investing and financing activities:
Promissory notes receivable related to Series A Convertible Debentures	$	-	$	-	$	450,000
Capital lease related to the purchase of equipment	$	-	$	-	$	14,119
Common stock issued for organizational costs	$	-	$	-	$	100
Common stock issued to consultant, director and former employee	$	-	$	-	$	63,000
Common stock issued for promissory notes	$	-	$	-	$	133,596
Common stock issued for Convertible notes converted	$	-	$	155,551	$	435,980
Common stock issued for Debentures converted	$	-	$	-	$	1,498,887
Common stock and note payable issued for acquistion of Biomass	$	-	$	-	$	1,501,250
Common stock issued for HFTA	$	-	$	-	$	693,045

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

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 1 – Organization and Business

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

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

The Company is a development stage company that has been engaged in technology development and pre-operational activities since its formation. The Company is currently in the process of raising capital to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output will 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 raise additional capital 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. 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 capital to implement its business plan and it may be unable to obtain the capital required to do so. If we are not able to immediately and successfully raise additional capital and/or achieve profitability or positive cash flow, we may not be able to continue operations.

The accompanying unaudited, consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Articles 8 and 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring items considered necessary for a fair presentation, have been included. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. For further information, refer to the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission (“SEC”) on March 26, 2013.

Note 2 – Recent Accounting Pronouncements

In July 2013, the FASB issued amendments to guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments require entities to present an unrecognized tax benefit netted against certain deferred tax assets when specific requirements are met. The amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013 (early adoption is permitted). The Company is currently evaluating the impact of the amended accounting guidance on our consolidated financial position. However, the amendments only affect gross versus net presentation and do not impact the calculation of the unrecognized tax benefit.

In July 2012, the FASB issued updated authoritative guidance to amend previous guidance on the annual and interim testing of indefinite-lived intangible assets for impairment. The guidance provides entities with the option of first assessing qualitative factors (such as changes in management, key personnel, strategy, key technology or customers) to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If it is determined, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not less than the carrying amount, a quantitative impairment test would still be required. The Company performs annual impairment tests. The authoritative guidance is effective for fiscal 2013 and is not expected to have a significant impact on the Company’s consolidated financial statements.

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

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 3 – Mergers/Acquisitions

On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc. (“Biomass”) pursuant to a merger between Biomass and a wholly-owned subsidiary of the Company (with Biomass as the surviving subsidiary of the Company) in accordance with an Agreement and Plan of Merger by and between the Company and Biomass. By virtue of the merger, the Company acquired a license agreement pursuant to which the Company holds a license in the United States and Canada to use patented technology licensed from Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate municipal solid waste, also known as 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% (the “Note”) 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. The escrowed shares will be released to the Licensor’s shareholders if and when the Company commences a commercial development that utilizes the Biomass Recovery Process. The Company recorded a long-term asset of $1.5 million which it will begin to amortize upon utilizing the license in our operations. If the escrowed shares are released based on the specified future events, an increase to the value of the asset will be recorded at that time. Based on the market value of Common Stock as of September 30, 2013, it would result in an increase of approximately $120,000 to the asset. Any future increase in the value of the asset would depend on the market value of our Common Stock at the time of utilization. See Note 11 - Subsequent Events for an update.

Note 4 – Patent

The Company owns US Patent No. 6,306,248 (the “PSC Patent”), which is the underlying technology upon which the BRP Patent is based. The Company acquired the PSC Patent on October 22, 2008 pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”). As part of the acquisition of the PSC Patent, we also became the licensor of such technology under the existing license agreement between Bio-Products International, Inc, the licensee (“Bio-Products”) and WWT. The Company has paid WWT $600,000 and issued warrants to purchase 1,800,000 shares of Common Stock at $0.10 per share and 500,000 shares of Common Stock at $0.11 per share. WWT assigned all of its rights, title and interest in the note, warrants, security agreement and purchase agreement to Vertex Energy, Inc. (“Vertex”) as a result of a merger in March 2009. The warrants are exercisable at any time until October 22, 2014. The cost of the PSC Patent acquisition of $600,000 is recorded as a long-term asset on the Balance Sheet. The value of the warrants had been recorded as a contra-balance amount with the note and has been fully amortized, as of March 31, 2010, through interest expense.

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 the Company’s 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 reissuance. 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 May 8, 2013, which extended the due date to March 8, 2014. As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to May 8, 2013 and (iv) issued a new warrant for 150,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until May 8, 2018.

Note 5 - Technology Licenses

Biomass North America Licensing, Inc.

We own a license in the United States and Canada to use the Biomass Recovery Process (See Note 3 – Mergers/Acquisitions). We recorded a long-term asset of $1.5 million for the value of this license when we acquired the license on September 15, 2008. Amortization of this asset will begin upon commencement of the use of the Biomass Recovery Process. The Company also deposited an additional 4,000,000 shares of the Company’s Common Stock into an escrow account for the benefit of the Licensor. For accounting purposes, the shares remaining in escrow are not considered issued and outstanding as a project has not started using the Biomass Recovery Process. The shares are not deemed issued or vested until that time as described above.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The license requires that the Company pay a royalty in the amount of $1.00 per ton of bone-dry biomass produced using the Biomass Recovery Process. The license agreement is for a term of 21 years or the life of any patent issued for the Biomass Recovery Process. The Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process, except that a principal owner of the Licensor has the right of first offer to manage and operate with respect to any development commenced using the licensed technology within 100 miles of the City of Chicago, Illinois. The license agreement further provides that the Company and the Licensor will work in good faith to complete a commercial development in the City of Chicago using the Biomass Recovery Process. See Note 11 - Subsequent Events for an update.

Bio-Products International, Inc.

As disclosed in Note 4 - Patent, the Company acquired the PSC Patent in 2008 and as a result, became the licensor to Bio-Products for the PSC Patent pursuant to a Master License Agreement dated as of August 18, 2003 (the “PSC License Agreement”). Pursuant to the terms of the PSC License Agreement, Bio-Products (a wholly-owned subsidiary of Clean Earth Solutions, Inc., “CES”) is the exclusive licensee of the PSC Patent and has the right to sublicense the technology that is part of the PSC Patent (but not the BRP Patent) to any party. In addition, we are entitled to be paid 5% of any revenue derived by Bio-Products from the use of the technology and 40% of any sublicensing fees paid to Bio-Products for the use of the technology. The Master License Agreement is for a term of 20 years that commenced on August 18, 2003. On September 22, 2010, the Company sent a Notice of Breach to Bio-Products, which included removing the exclusivity of the license. We received a response from Bio-Products on November 5, 2010 disputing our claims. In February 2011, we became aware that Bio-Products affected 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 void 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. See Note 10 – Commitments and Contingencies for a further update.

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

Note 6 – Debt

	September 30,			December 31,
	2013			2012


Convertible Notes Payable (2009 Offering), which are made up of various individual notes with an aggregate face value of $254,738 due in one year from date of note, interest at 6.0%	$	254,738		$	254,738
Convertible Notes Payable (11/10 Offering), which are made up of various individual notes with an aggregate face value of $1,851,004 and $1,831,073 at September 30, 2013 and December 31, 2012, respectively, due in one year from date of note, interest at 6.0%		1,851,004			1,831,073
CMS Acquisition, LLC Note Payable, with a face value of $77,696 due on March 8, 2014, interest at 6.0% thru May 15,2011; 10.0% thereafter		77,696			77,696
Convertible Notes Payable (5/12 Offering), which is made up of various individual notes with a face value of $583,510 and $383,510 at September 30, 2013 and December 31, 2012, respectively, due in 18 months from the date of note, interest at 6.0%		583,510			383,510
Total debt		2,766,948			2,547,017
Current maturities		(2,566,948	)		(2,313,507	)
Long-term portion, less current maturities	$	200,000		$	233,510

Convertible Notes Payable

Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a 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

Each note may be converted, at the note holder’s option, at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million), into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features (except for the 11/10 and 5/12 Offerings which carried no discounts). See Subsequent Events footnote for further disclosure regarding our notes.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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. One note was converted to shares of Common Stock in 2009 and one note was converted to shares of Common Stock in 2010. Beginning in March 2011, certain notes were exchanged into our 11/10 Offering. As a result, as of September 30, 2013, we had $254,738 face value of notes outstanding, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We are working with the remaining noteholders to either: repay the notes, refinance to our 11/10 Offering or convert the notes to shares of our Common Stock.

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

11/10 Offering - During November 2010, the Company commenced an offering of units and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of Common Stock in 2011 and four notes were converted to shares of Common Stock in 2012. As of September 30, 2013, we had $1,851,004 face value of notes outstanding, which includes the exchanged notes from our 2009 Offering.

5/12 Offering - During May 2012, the Company commenced an offering of units and, as of September 30, 2013, had raised a total of $583,510 of investment proceeds.

CMS Acquisition, LLC Note Payable

In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter, and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note is due the earlier of: (i) March 8, 2014 pursuant to an amendment on May 8, 2013 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 various amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to May 8, 2013 and (iv) issued a new warrant for 150,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until May 8, 2018.

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

Warrants issued to:	Exercise price		As of Sep 30, 2013		As of Dec 31, 2012
Noteholders, 11/10 Offering	$	0.30		2,410,394		6,926,367
Noteholders, 5/12 Offering	$	0.35		1,667,170		1,095,742
Equity Offering 8/13	$	0.15		3,000,000		-
CMS Acquistion LLC	$	0.05		2,150,000		2,000,000
Vertex Energy, Inc.	$	0.11		1,800,000		1,800,000
Vertex Energy, Inc.	$	0.10		500,000		500,000
				11,527,564		12,322,109

The discounts on all notes payable have been amortized on a straight-line basis over the term of each note. All discounts were fully amortized and expensed as of June 30, 2011.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 7 - Stockholders' Equity (Deficit)

In January 2012, the Company issued 83,333 shares of Common Stock (at $0.06 per share) to an investor upon the conversion of a Convertible Note.

In April 2012, the Company issued 2,564,055 shares of Common Stock (at $0.06 per share) to an investor upon the conversion of Convertible Notes.

In April 2012, the Company issued 78,592 restricted shares of Common Stock (at $0.06 per share) in exchange for $4,715.55 related to certain accounts payable.

In June 2012, the Company issued 150,000 restricted shares of our Common Stock (at $0.04 per share) to our newly elected non-management director. The director issued a promissory note to the Company in exchange for the stock purchase similar to the restricted share grants to all other newly elected directors.

In August 2012, 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 stock, issued at $0.15 per share were forfeited and cancelled.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of September 30, 2013, the Company issued 1,000,000 restricted shares (at $0.10 per share) of our Common Stock in exchange for $100,000 in investment in this offering. The Company has closed all debt offerings.

Net Loss per share – The Company calculates basic loss per share (“EPS”) and diluted EPS. EPS is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS would reflect the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. As of September 30, 2013 and December 31, 2012, the Company had options, warrants and other convertible securities to purchase an aggregate of approximately 69 million and 68 million shares of our common stock, respectively, that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive. Therefore, the Company only presents basic loss per share on the statement of operations.

Note 8 - Related Party Transactions

The Company has entered into stock purchase agreements with the 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.

The Company has hired, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals are part of the engineering firm Fenton Engineering International (FEI) which we have used and continue to use their services. As of September 30, 2013, all amounts have been paid to FEI except for approximately $58,000.

Two members of our current Board of Directors, James Russell and David Bransby are parties in investments made in our convertible note offerings. As of September 30, 2013 and December 31, 2012, the aggregate amount of these investments, including interest, is approximately $420,000 and $402,000, respectively.

The Company had engaged the law firm of Sauerwein, Simon and Blanchard (“SSB”) related to various issues including our reverse merger, our SB-2 registration statement, litigation matters and general business activity. A member of our board of directors is a partner of SSB. We no longer use SSB as legal counsel. As of September 30, 2013, all amounts have been paid to SSB except for approximately $90,000.

Beginning in 2009, the Company has provided advances to two employees – Ed Hennessey and Mike Kime. Mr. Kime resigned from his positions with the Company effective June 21, 2010. As of September 30, 2013 and December 31, 2012, the aggregate balances of advances totaled approximately $33,000 and $33,000, respectively. The balances are included in Prepaids and Other Current Assets on the Balance Sheet.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Note 9 – Share-based Payments

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

In March 2007, the Company 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 March 2012, the Company granted options under the Stock Plan to purchase an aggregate of 250,000 shares of Common Stock to consultants in which half vested immediately and half vested in March 2013, with an exercise price of $0.04. In March 2013, the Company granted options under the Stock Plan to purchase an aggregate of 250,000 shares of Common Stock to consultants in which half vested immediately and half vested in March 2014, with an exercise price of $0.02. As of September 30, 2013, none of these options were cancelled or expired and 375,000 shares of these options were vested.

In June 2012, the Company granted options under the Stock Plan to purchase 40,000 shares of Common Stock to our newly elected director in which one half vests annually beginning in June 2013, with an exercise price of $0.04. As of September 30, 2013, none of these options were cancelled or expired and 20,000 shares of these options were vested.

In March 2013, the Company granted options under the Stock Plan to purchase an aggregate of 750,000 shares of Common Stock to an employee in which one-third vested immediately and the remaining options vest ratably in August 2013 and August 2014, with an exercise price of $0.02. As of September 30, 2013, none of these options were cancelled or expired and 500,000 shares of these options were vested.

In September 2013, the Company granted options under the Stock Plan to purchase an aggregate of 1,000,000 shares of Common Stock to two part-time employees (newly hired CTO and VP–BD) in which one-third will vest ratably beginning in September 2014, with an exercise price of $0.10. As of September 30, 2013, none of these options were cancelled, expired or vested.

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

	Three months ended				Nine months ended
	Sept 30, 2013		Sept 30, 2012		Sept 30, 2013		Sept 30, 2012
Pre-tax compensation expense:
Stock options	$	1,580	$	3,831	$	5,644	$	13,655
Warrants		-		-		-		-
Total expense		1,580		3,831		5,644		13,655
Tax benefit, net		-		-		-		-
After-tax compensation expense	$	1,580	$	3,831	$	5,644	$	13,655

Related to these grants, the Company will record future compensation expense of approximately $1,000 for the remainder of 2013. The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements totaled approximately $311,000 and $305,000 at September 30, 2013 and December 31, 2012, respectively. However, due to the uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently. As of September 30, 2013, there was approximately $3,000 of unrecognized compensation cost related to all current share-based payment arrangements, which will be recognized over a remaining period of approximately one year.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

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

	Shares Under Option			Weighted Average Exercise Price			Aggregate intrinsic value
Options outstanding at December 31, 2012		10,242,000		$	0.11			(1	)
Granted		2,000,000		$	0.06
Exercised		-
Forfeited		(295,000	)	$	(0.09	)
Options outstanding at September 30, 2013		11,947,000		$	0.10			(1	)

Options exercisable at September 30, 2013		9,353,666		$	0.11			(1	)

Unvested Options at September 30, 2013		2,593,334		$	0.07			(1	)

(1) The weighted-average exercise price at September 30, 2013 and December 31, 2012 for all outstanding and exercisable options was greater than the fair value of the Company's common stock on that date, resulting in an aggregate intrinsic value of $-0-.

The following table summarizes information about the Company's issuances of restricted stock to employees and directors:

	Restricted Shares Issued		Weighted Average Exercise Price
Balance as of December 31, 2012		1,470,000	$	0.09
Granted		-
Exercised		-
Forfeited		-
Balance as of September 30, 2013		1,470,000	$	0.09

Restricted stock vested at September 30, 2013		1,470,000	$	0.09

Note 10 – Commitments and Contingencies

Contingencies

As disclosed previously in Note 5 – Technology Licenses, 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. On December 8, 2011, the demurrer to dismiss Cleantech was granted. In October 2011, a Cross-Complaint was filed by Clean Conversion Technologies, Inc. (“CCT”) and Michael Failla v. Cleantech Biofuels, Inc. CCT is asking that the Company’s termination of the license agreement is void. The Company filed a motion to compel arbitration, which was denied. The trial date has been set for June 9, 2014. This case is ongoing and we intend to vigorously defend our rights.

On January 30, 2012, CCT filed an anti-trust lawsuit against the Company and Mr. Vande Vegte alleging monopolistic and anti-competitive acts to conspire to completely eliminate competition in an emerging line of commerce known as PSC conversion, which is a patented process owned by Cleantech (the PSC technology). This case has been voluntarily dismissed per the stipulation filed with the court in August 2013.

CLEANTECH BIOFUELS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

In view of the inherent difficulty of predicting the outcome of litigation and claims, the Company often cannot predict the eventual outcome of the pending matters, the timing of the ultimate resolution of these matters, or the eventual loss, fines or penalties related to each pending matter. We believe that these matters will not have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, an adverse outcome could be material to the Company’s results of operations or cash flows for any particular reporting period.

Commitments

Lease – The Company’s lease to rent approximately 1,800 square feet of office space for use as our corporate office, located at 7386 Pershing Ave. in St. Louis, Missouri has expired. We are currently in the process of extending this lease while occupying the space. Our monthly rent under the lease is $1,800 plus the cost of utilities.

Note 11 – Subsequent Events

All of the promissory notes in our 2009 Offering and certain notes in our 11/10 Offering are now due. As of September 30, 2013, approximately $2.1 million is currently due, including interest. We are working with each remaining noteholder to exchange, convert or repay these promissory notes.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of November 11, 2013, the Company has issued 2,000,000 restricted shares of our Common Stock in exchange for $200,000 in investment in this offering. The Company has closed all debt offerings.

In November 2013, the Company entered into an Amended Technology License and Joint Development Agreement with its’ Licensor (the “Amended Agreement”). Under the terms of the Amended Agreement, the Company retains the exclusive license to the licensed technology in the United States and Canada, while eliminating any performance requirements for a commercial development. The term is for 21 years or the date of expiration of the last of the technology patents, including any extensions, modifications or amendments. Additionally, the royalty to be paid by the Company to the Licensor will be $2.00 per ton of MSW with no royalty due if the MSW is used for research and development. The 4,000,000 shares previously held in escrow have been released to the Licensor and the Company will record a $120,000 addition to our Technology License asset related to these shares.

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

Statement Regarding Forward-Looking Information

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

Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity, performance or achievements. Refer to our Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 26, 2013, 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,
	●	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 made from our biomass,
	●	competition from other alternative energy technologies, and
	●	other risks and uncertainties detailed from time to time in our filings with the SEC.

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements in this report are made on the basis of management’s assumptions and analyses as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.

Company Overview

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

We are a development stage company 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 in the United States that we refer to as our Biomass Recovery Process that cleans and separates MSW and generates a clean, homogeneous biomass feedstock that we believe can be converted into various energy products. Our license permits us to use the biomass we derive from MSW to produce all energy products. In addition, we own the patent for a pressurized steam classification technology originally developed by the University of Alabama Huntsville that we refer to as our PSC technology. The PSC technology is the underlying technology upon which the Biomass Recovery Process was based. Prior to March 2011, we had licensed the PSC technology to Bio-Products International, Inc. (“Bio-Products”) but, pursuant to a settlement agreement with Bio-Products in March 2009, whereby, in addition to a customary mutual release, Bio-Products entered into a covenant not to sue whereby Bio-Products and its related parties agreed we had the right to use the Biomass Recovery Process technology worldwide, for any product that we desire and with no royalty due to Bio-Products. We terminated the license to Bio-Products in March 2011 as further described in the section titled “Recent Developments.”

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

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

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

Recent Developments

In February 2013, the Company and Science Applications International Corporation (SAIC) entered into a Memorandum of Understanding (MOU) to work cooperatively in the development of joint waste-to-energy and micro-grid projects. In September 2013, SAIC has changed its’ name to Leidos Holdings, Inc. (Leidos). We plan to establish systems consisting of the Company’s Biomass Recovery Process and Leidos-sponsored alternative energy systems that use the Company’s biomass to produce electricity and steam or biofuels that use Leidos’ micro-grid technologies. Leidos provides engineering services, project management and design, and experience in waste to energy technologies, building combined heat and power facilities, and environmental assessments and permitting.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of November 8, 2013, the Company has issued 2,000,000 restricted shares of our Common Stock in exchange for $200,000 in investment in this offering. The Company has closed all debt offerings.

All of the promissory notes in our 2009 Offering and certain notes in our 11/10 Offering are now due. As of November 11, 2013, approximately $2.15 million is currently due, including interest. We are working with each remaining noteholder to exchange, or convert, these promissory notes. There can be no assurance that we will reach agreements with any or all of these noteholders and we may be required to repay such amounts.

In September 2013, the Company has hired, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals are part of the engineering firm Fenton Engineering International (FEI) which we have used and continue to use their services. In May 2012, the Company entered into an Engagement Agreement with FEI whereby FEI will provide the front-end engineering for the Company’s first operating commercial plant at an existing transfer station to process municipal solid waste into biomass and recyclables for conversion into renewable fuels, power and bio-based chemicals. This engineering phase will define the infrastructure required, locate utility tie-ins, locate existing and new structures, select materials handling equipment, develop an equipment arrangement and provide a cost estimate for the project.

In November 2013, the Company entered into an Amended Technology License and Joint Development Agreement with its’ licensor, Biomass North America LLC (the “Amended Agreement”). Under the terms of the Amended Agreement, the Company retains the exclusive license to the licensed technology in the United States and Canada, while eliminating any performance requirements for a commercial development. The term is for 21 years or the date of expiration of the last of the technology patents, including any extensions, modifications or amendments. Additionally, the royalty to be paid by the Company to the licensor will be $2.00 per ton of MSW with no royalty due if the MSW is used for research and development. The 4,000,000 shares previously held in escrow have been released to the licensor and the Company will record a $120,000 addition to our Technology License asset related to these shares.

On September 22, 2010, we notified Bio-Products that it was in breach of the license agreement governing our license of the PSC technology 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 affected a transfer of the license in violation of the 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 void 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. On December 8, 2011, the demurrer to dismiss Cleantech was granted. In October 2011, a Cross-Complaint was filed by Clean Conversion Technologies, Inc. (“CCT”) and Michael Failla asking that the Company’s termination of the sub-license agreement is void. The Company filed a motion to compel arbitration, which was denied. The trial date has been set for June 9, 2014. This case is ongoing.

Additionally, on January 30, 2012, CCT filed an anti-trust lawsuit alleging monopolistic and anti-competitive acts to conspire to completely eliminate competition in an emerging line of commerce known as PSC conversion, which is a patented process owned by Cleantech (the PSC technology). This case has been voluntarily dismissed per the filing with the court in August 2013.

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 currently do not have sufficient capital to continue operations. All of our developments/projects require a significant amount of capital that we currently do not have. While we continue to aggressively pursue capital, we have not had recent success securing meaningful amounts of financing. As a result, we can provide no assurance that we will secure any capital 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 affiliated with the Company (the “Third-Party Operator”). As a result, we believe this technology is ready for commercial implementation in the United States and elsewhere. In furtherance of our new focus, we are currently in the process of raising capital to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output will be sold or provided to electric utilities, power and steam producers, and biofuel research firms for evaluation. In addition to this capital raise for plant development, the Company is also working towards licensing and/or developing potential commercial projects as they present themselves. All of our developments plan to focus on cleaning and separating MSW into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics).

Biomass Feedstock Production

The Company plans to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output will 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.

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

In addition to the developments we are currently contemplating, other development opportunities are presented to us and we evaluate those potential developments. Upon operating a plant and after refining 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.

The further 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. We cannot provide any assurance that we will be able to raise this 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

As soon as we are able to process MSW into biomass through our future biomass recovery plant and/or in future commercial vessels, we plan to enter into joint research agreements with companies looking to process biomass in their system(s) for various types of energy and chemical production. This testing and research will 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. Cleantech has agreed and has 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. Sweetwater has completed their initial testing and we expect additional testing to occur on future samples upon securing our requisite funding.

In June 2011, we entered into a Confidential Disclosure and Sampling Agreement with Novozymes North America, Inc., a developer of industrial enzymes, microorganisms, and biopharmaceutical ingredients for conversion into a variety of energy and chemical products. In July 2011, we supplied a sample of our biomass product for testing in their enzymatic hydrolysis process. Some initial testing was completed during the 3 rd Quarter of 2011. We expect further testing to occur upon securing the requisite financing.

New Technologies; Commercializing Existing Technologies

Because of our unique ability to produce a clean, homogenous biomass feedstock, we are frequently presented with the opportunity to partner with or acquire new technologies. In addition to developing our current technologies, we will continue to add technologies to our suite of solutions that complement our core operations. We believe that our current technologies and aspects of those in development 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 intend 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 will depend 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 months ended September 30, 2013 and 2012:

	Three months ended September 30,
	2013			2012		Change
General and administrative	$	99,600		$	93,846	$	5,754
Professional fees		23,275			44,553		(21,278	)
Research and development		-			70,000		(70,000	)
Operating loss		122,875			208,399		(85,524	)

Other expense (income):
Interest expense		46,594			37,638		8,956
Interest income		(2,033	)		5,453		(7,486	)

Net Loss	$	167,436		$	251,490	$	(84,054	)

Professional Fees – The decrease in 2013 is due to a decrease of $19,000 in legal fees.

Research and Development – The Company incurred expense in 2012 related to an engagement for an engineering firm to provide the front-end engineering for the Company’s first commercial plant at an existing transfer station.

Interest Expense – The increase in 2013 is due to issuing additional convertible notes.

The following tables set forth the amounts of expenses and changes in our consolidated statements of operations for the nine months ended September 30, 2013 and 2012:

	Nine months ended September 30,
	2013			2012		Change
General and administrative	$	291,186		$	282,323	$	8,863
Professional fees		79,398			135,042		(55,644	)
Research and development		-			120,000		(120,000	)
Operating loss		370,584			537,365		(166,781	)

Other expense (income):
Interest expense		132,272			108,361		23,911
Interest income		(6,001	)		984		(6,985	)

Net Loss	$	496,855		$	646,710	$	(149,855	)

Professional Fees – The 2013 decrease is due to decreases of $45,000 in legal fees and $15,000 in other consulting.

Interest Expense – The increase in 2013 is due to issuing additional convertible notes.

Liquidity and Capital Resources

As a development-stage company, we have no revenues and will be required to raise additional capital in order to execute our business plan and commercialize our products. Beginning in September 2008 and as of November 11, 2013, we raised an aggregate of approximately $3.05 million, in separate offerings of units comprised of a convertible note and warrants and an additional $200,000 in a separate offering of units under a Stock Subscription Agreement. We are continuing to explore opportunities to raise cash through the issuance of these units and other financing opportunities. As of November 11, 2013, our current cash is not sufficient to fund our operations. Our liabilities are substantially greater than our current available funds. We are seeking additional financing through the sale of additional equity, various government funding opportunities, through strategic alliances with larger energy or waste management companies and/or possibly retaining a new financial advisor. However, we may not be successful in securing additional capital. If we are not able to obtain additional financing in the immediate future, we will be required to delay our development until such financing becomes available and may be required to cease operations. Further, even assuming that we secure additional funds, we may never achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, we will not have sufficient capital resources to implement our business plan or to continue our operations.

Debt

Convertible Notes Payable

Since September 2008, the Company has conducted five offerings of units comprised of a convertible promissory note and a warrant 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

Each note may be converted, at the note holder’s option, at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million) into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features (except for the 11/10 and 5/12 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 and expensed as of June 30, 2011.

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 2011and four notes were converted to shares of Common Stock in 2012. As of September 30, 2013, we had $1,851,004 face value of notes outstanding, which includes the exchanged notes from our 2009 Offering.

5/12 Offering - During May 2012, the Company commenced an offering of units and, as of September 30, 2013, had raised a total of $583,510 of investment proceeds and have $583,510 face value of notes outstanding.

CMS Acquisition, LLC Note Payable

In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note is due the earlier of: (i) March 8, 2014 (extended from February 28, 2011 through various amendments) or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and was amortized (interest expense) through the original due date of February 28, 2011. As consideration in these amendments, the Company has: (i) paid $25,000 in February 2011 towards accrued interest to date and principal on the Note (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to May 8, 2013 and (iv) issued a new warrant for 150,000 shares of the Company’s Common Stock with an exercise price of $0.05 and exercisable at any time until May 8, 2018. As of September 30, 2013, $77,696 face value of this note is outstanding.

Summary of Cash Flow Activity

	Nine months ended September 30 ,
	2013			2012
Net cash used by operating activities	$	(339,237	)	$	(282,336	)
Net cash used by investing activities		-			-
Net cash (used) provided by financing activities		300,099			299,734

Net cash used by operating activities

During the nine months ended September 30, 2013 and 2012, cash used by operating activities was impacted primarily by increases in accounts payable and other accrued liabilities.

Net cash provided by financing activities

Net cash provided by financing activities for the nine months ended September 30, 2013 and 2012, was primarily due to the issuance of notes payable for investment.

Contractual Obligations and Commitments

In the table below, we set forth our obligations as of September 30, 2013. Some of the figures we include in this table are based on our estimates and assumptions about these obligations, including their durations, anticipated actions by third parties and other factors. The obligations we may pay in future periods may vary from those reflected in this table because of estimates or actions of third parties as disclosed in the notes to the table.

	Payments due by Period
	Total		Less than 1 year		1 to 3 years		4 to 5 years		More than 5 years
Convertible Notes (1)	$	3,003,000	$	2,803,000	$	200,000	$	-	$	-
CMS Acquisition Note (2)		97,000		97,000		-		-		-
Operating Lease (3)		-		-		-		-		-
Total contractual obligations	$	3,100,000	$	2,900,000	$	200,000	$	-	$	-

(1) Amount represents value of principal amount of notes and estimates for interest. These notes are with various individuals, carry one-year or 18-month terms and are convertible into shares of Common Stock at the noteholders option. The first of these notes matured in April 2010. We are working with the noteholders to refinance their notes, convert their notes or repay the notes.
(2) Amount represents value of principal amount of note and interest and is secured by a security interest in the PSC Patent. Final payment on this note is due March 8, 2014.
(3) The lease for our office space has expired and we are currently working on a new lease while we occupy the space.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies

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

We believe that the estimates, assumptions and judgments relating to long-lived assets, convertible notes and warrants, fair-value measurement, share-based compensation and income tax matters have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting estimates. Our critical accounting policies and estimates are more fully described in our annual report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on March 26, 2013. Our critical accounting policies and estimate assumptions have not changed during the three months ended September 30, 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures

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

Our management does not expect that our disclosure controls and procedures will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives outlined above. Based on their most recent evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level at September 30, 2013. Further, the design of a control system must reflect the fact that there are resource constraints, including, but not limited to having two full-time employees (chief executive officer and chief financial officer), and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.

Changes in Internal Control Over Financial Reporting – During the three months ended September 30, 2013, 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

Steve Vande Vegte v. various individuals and companies, including Cleantech Biofuels, Inc . - On March 21, 2011, we terminated the Bio-Products License Agreement. On June 16, 2011, Steve Vande Vegte, a shareholder of the parent of Bio-Products, filed a lawsuit against various individuals and companies, including the Company, filed in the Superior Court of California, Orange County. The only Cause of Action against the Company was for Declaratory Relief seeking to void 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 was not ripe. On December 8, 2011, the demurrer to dismiss Cleantech was granted. In October 2011, a Cross-Complaint was filed by Clean Conversion Technologies, Inc. (“CCT”) and Michael Failla against the Company. CCT is seeking to void the Company’s termination of the sub-license agreement. The Company filed a motion to compel arbitration, which was denied. The trial date has been set for June 9, 2014. This case is ongoing and we intend to vigorously defend our rights.

Clean Conversion Technologies, Inc. v. Cleantech Biofuels, Inc . and Steve Vande Vegte - On January 30, 2012, CCT filed, in the United States District Court, Southern District of California, an anti-trust lawsuit against the defendants alleging monopolistic and anti-competitive acts to conspire to completely eliminate competition in an emerging line of commerce known as PSC conversion, which is a patented process owned by Cleantech (the PSC technology). This case has been voluntarily dismissed per the filing with the court in August 2013.

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, 2012, 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 –

During May 2012 (5/12 Offering), the Company commenced an offering of units comprised of a convertible promissory note and a warrant. As of September 30, 2013, the Company raised a total of $583,510 of investment proceeds. Each convertible promissory note carries an 18-month term and a 6% interest rate. In addition, each note can be converted into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at $0.10 per share at the holder’s option. Each note was issued with a warrant to purchase additional shares of Common Stock to provide 100% coverage of the principal amount of the associated note at a price of $0.35 per share. The issuance of units and the issuance of Common Stock upon conversion of notes were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 506 of Regulation D promulgated under the Securities Act (“Rule 506”) and/or Section 4(2) of the Securities Act.

In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a one-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of September 30, 2013, the Company raised a total of $100,000 of investment proceeds. The issuance of units and the issuance of Common Stock were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Rule 506 of Regulation D promulgated under the Securities Act (“Rule 506”) and/or Section 4(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities – Certain promissory notes in our offering of units comprised of a convertible promissory note and a warrant, commenced in April 2009 (2009 Offering and 11/10 Offering) are due. As of September 30, 2013, approximately $2.1 million (including approximately $275,000 of accrued interest) was due and payable. We plan to work with each remaining noteholder to exchange, or convert, these promissory notes. There can be no assurance that we will reach agreements with any or all of these noteholders and we may be required to repay such amounts.

Item 4. Mine Safety Disclosures

Item 5. Other Information

Item 6. Exhibits

(a) The following documents are filed as a part of this Report.

EXHIBIT NO.	DESCRIPTION

10.31	Amended Technology Licnse and Joint Development Agreement, dated November 1, 2013, among CTB Licensing LLC, Biomass North America LLC and Anthony P. Noll
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, 2013		/s/ Edward P. Hennessey, Jr.
		Edward P. Hennessey, Jr.
		Chief Executive Officer



Date: November 12, 2013		/s/ Thomas Jennewein
		Thomas Jennewein
		Chief Financial Officer and
		Principal Accounting Officer

INDEX TO EXHIBITS

EXHIBIT NO.	DESCRIPTION

10.31	Amended Technology Licnse and Joint Development Agreement, dated November 1, 2013, among CTB Licensing LLC, Biomass North America LLC and Anthony P. Noll
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.

CLEANTECH BIOFUELS LICENSING, LLC.	BIOMASS NORTH AMERICA, LLC
By: Ed Hennessey, Manager	By: Anthony Noll, President



Dated: November 12, 2013		/s/ Edward P. Hennessey, Jr.
		Edward P. Hennessey, Jr.
		Chief Executive Officer