10-Q

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, 2008

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

FOR THE TRANSITION PERIOD FROM                      TO                     

Commission file number 333-145939

CLEANTECH BIOFUELS, INC.

(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 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	Smaller reporting company þ
		(Do not check if a smaller reporting company)

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 8, 2008, 61,090,153 shares of the Company’s common stock were outstanding.

CLEANTECH BIOFUELS, INC.
TABLE OF CONTENTS

	PAGE
PART I Financial Information
Item 1 Financial Statements (Unaudited)		3
Balance Sheets — September 30, 2008 and December 31, 2007		3
Statements of Operations — Three and nine months ended September 30, 2008 and 2007 and Inception to September 30, 2008		4
Statements of Stockholders’ Equity (Deficit) — September 30, 2008		5
Statements of Cash Flows — Nine months ended September, 2008 and 2007 and Inception to September 30, 2008		6
Notes to Financial Statements		7
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3 Quantitative and Qualitative Disclosures About Market Risk		20
Item 4T Controls and Procedures		20
PART II Other Information
Item 1 Legal Proceedings		21
Item 1A Risk Factors		21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3 Defaults upon Senior Securities		22
Item 4 Submission of Matters to a Vote of Security Holders		22
Item 5 Other Information		22
Item 6 Exhibits		22
Signatures		23
Index to Exhibits		24
Exhibit 10.18
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)

BALANCE SHEETS

	September 30,			December 31,
	2008			2007
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,803		$	120,356
Receivables:
Interest		—			19,425
Promissory notes		—			450,000
Prepaids and other current assets		57,894			72,026
		71,697			661,807
Property and equipment, net		23,213			3,099
Non-current assets:
Technology licenses, net		2,123,032			112,500
Total Assets	$	2,217,942		$	777,406
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	230,286		$	91,988
Accrued interest		12,717			60,433
Accrued professional fees		36,600			36,600
Note Payable, net		78,050			—
Capital Lease		4,596			—
Total current liabilities		362,249			189,021
Capital Lease		7,304			—
Due to Investors		77,000			—
Series A Convertible Debentures		140,000			1,400,000
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; 61,090,153 and 49,343,680 shares issued and outstanding at September 30, 2008 and December 31, 2007, respectively		61,090			49,344
Additional paid-in capital		3,786,884			364,260
Notes receivable — restricted common shares issued to Directors		(90,000	)		(90,000	)
Deficit accumulated during the development stage		(2,126,585	)		(1,135,219	)
Total Stockholders’ Equity (Deficit)		1,631,389			(811,615	)
Total Liabilities and Stockholders’ Equity (Deficit)	$	2,217,942		$	777,406

See accompanying notes to financial statements.

3

CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)

STATEMENTS OF OPERATIONS (Unaudited)

													July 14, 2004
	Three months ended						Nine months ended						(inception) to
	September 30,						September 30,						September 30,
	2008			2007			2008			2007			2008
Costs and expenses:
General and administrative	$	99,204		$	175,635		$	400,534		$	408,986		$	900,169
Professional fees		90,284			62,152			281,176			218,995			609,819
Research and development		40,271			41,533			277,187			41,533			409,417
		229,759			279,320			958,897			669,514			1,919,405
Other expense (income):
Interest		3,314			21,466			27,201			42,563			93,969
Amortization of technology license		3,750			16,250			11,250			16,250			31,250
Deposit forfeiture		—			—			—			—			(25,000	)
Interest income		(3	)		(9,038	)		(5,982	)		(14,058	)		(27,387	)
		7,061			28,678			32,469			44,755			72,832
Net loss applicable to common stockholders	$	236,820		$	307,998		$	991,366		$	714,269		$	1,992,237
Basic and diluted net loss per common share		**		$	0.01		$	0.02		$	0.02		$	0.04
Weighted average common shares outstanding		58,708,851			49,043,680			55,427,109			43,784,232			45,850,570

** — less than $.01 per share

See accompanying notes to financial statements.

4

CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)

Statements of Changes in Stockholders’ Equity (Deficit) (unaudited)

							Notes Rec —
							restricted
							common			July 14, 2004
					Additional		shares			(inception) to
	Common Stock				Paid-in		issued to			September 30,
	Shares		Amount		Capital		Directors			2008
Balances at December 31, 2007		49,343,680	$	49,344	$	364,260	$	(90,000	)	$	(1,135,219	)
Conversion of promissory notes in March 2008 at $.15 per share		4,433,067		4,433		660,527
Conversion of promissory notes in April 2008 at $.15 per share		4,455,844		4,456		663,921
Shares released from escrow to HFTA		962,562		962		499,570
Shares issued in accordance with Biomass North America Licensing, Inc. merger		1,895,000		1,895		1,419,355
Discount on Note Payable						2,525
Stock-based compensation						176,726
Net loss											(991,366	)
Balances at September 30, 2008		61,090,153	$	61,090	$	3,786,884	$	(90,000	)	$	(2,126,585	)

See accompanying notes to financial statements.

5

CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
(A Development Stage Company)

STATEMENTS OF CASH FLOWS (unaudited)

							July 14, 2004
	For the nine months ended						(inception) to
	September 30,						September 30,
	2008			2007			2008
OPERATING ACTIVITIES
Net loss applicable to common stockholders	$	(991,366	)	$	(714,269	)	$	(1,992,237	)
Adjustments to reconcile net loss applicable to common stockholders to net cash used by operating activities:
Common stock issued for organizational costs		—			—			100
Amortization		11,250			16,250			31,250
Depreciation		20,684			—			20,940
Share-based compensation expense		176,726			11,413			215,855
Fair value of RAM warrant settlement		—			125,027			125,027
Changes in operating assets and liabilities:
Interest receivable		(5,475	)		(12,525	)		(24,900	)
Prepaids and other current assets		14,132			(55,913	)		(57,894	)
Technology license		—			(15,000	)		(132,500	)
Accounts payable		138,298			50,899			230,286
Accrued interest and other financing charges		26,196			36,528			86,629
Accrued liabilities		—			(30,132	)		36,600
Cash used by operating activities		(609,555	)		(587,722	)		(1,460,844	)
INVESTING ACTIVITIES
Acquisition of Biomass North America Licensing, Inc., net		(20,000	)					(20,000	)
Expenditures for equipment		(40,798	)		—			(44,153	)
Cash used by investing activities		(60,798	)		—			(64,153	)
FINANCING ACTIVITIES
Advances — related parties		—			(111,165	)		—
Capital lease		11,900			—			11,900
Series A Convertible Debentures		474,900			950,000			1,424,900
Cash from investors		77,000						77,000
Sale of common stock		—			—			25,000
Cash provided by financing activities		563,800			838,835			1,538,800
(Decrease) increase in cash and cash equivalents		(106,553	)		251,113			13,803
Cash and cash equivalents at beginning of period		120,356			20			—
Cash and cash equivalents at end of period	$	13,803		$	251,133		$	13,803
Supplemental disclosure of cash flow information:
Cash paid for interest	$	—		$	6,334		$	6,334
Supplemental disclosure of noncash investing and financing activities:
Promissory notes receivable	$	—		$	450,000		$	450,000
Series A Convertible Debentures	$	—		$	450,000		$	450,000
Restricted common stock issued to Directors	$	—		$	90,000		$	90,000
Common stock issued for organizational costs	$	—		$	—		$	100
Common stock issued for promissory notes	$	—		$	133,596		$	133,596
Common stock issued for Debentures converted	$	1,333,337		$	—		$	1,333,337
Common stock issued for acquistion of Biomass	$	1,521,250		$	—		$	1,521,250
Common stock issued for HFTA	$	500,532		$	—		$	500,532

See accompanying notes to financial statements.

6

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. 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. As a result, the historical information of the Company prior to the merger disclosed in this report is that of SRS Energy. In addition, historical share amounts have been restated to reflect the effect of the merger.

The Company is a development stage company that has been engaged in technology development and pre-operational activities since its formation, however the Company intends to commence construction of its first commercial development in the near-term future. Its business strategy is to develop, own and operate renewable energy facilities with a primary focus on cleaning and separating municipal solid waste into its component parts in order to obtain a homogenous feedstock of cellulosic biomass and plastics for energy production. The Company initially licensed technology for cleaning and separating municipal solid waste, but on October 22, 2008, the Company acquired the underlying patent for this technology.

The Company is also developing a technology for the conversion of cellulose feedstocks to fuel ethanol. The Company has limited exclusive licenses to technology designed to convert cellulosic feedstocks, including municipal solid waste (also referred to as MSW), into ethanol and other combustible sources of energy. The Company has no operating history as a producer of ethanol or other energy sources and has not constructed any energy plants to date. It has no revenues to date and expects that its current capital and other existing resources will be sufficient only to provide a limited amount of working capital. 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.

Note 2 — Interim Financial Statements

The accompanying unaudited, 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 Article 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, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the Company’s audited financial statements and notes thereto included in our Annual Report on Form 10-KSB for the year ended December 31, 2007, filed with the Securities and Exchange Commission on March 28, 2008.

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 patent pending technology owned by Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate municipal solid waste (the “Technology”).

7

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 due December 10, 2008. If the amount due under the Note is not paid during the term of the Note, the holder has a right to receive 123,000 shares of the Company’s common stock, par value $.001 per share (“Common Stock”), in addition to receiving the principal and interest due on the Note. 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 Technology. The Company recorded a long-term asset of approximately $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, 2008, it would result in an approximate increase of approximately $2.2 million 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 utilitzation.

Note 4 — Technology Licenses

Brelsford Engineering, Inc.

On April 1, 2005, the Company entered into a license agreement with Brelsford Engineering, Inc. (“Brelsford”) giving the Company the exclusive right to use Brelsford’s technology (Patent No. 5,411,594) to convert cellulosic biomass into fuel grade ethanol in the United States. This agreement was amended in November 2005 to extend the initial evaluation period for the technology. Under the terms of the license with Brelsford, the Company paid an initial fee of $50,000 and monthly fees for the trial option premium totaling $67,500 (recorded as a long-term asset in the aggregate on the balance sheet). The Company also pays a minimum annual fee of $15,000 and a project fee of $30,000 for each project that commences for the manufacture of a plant. On August 30, 2007, the Company paid the first project fee in the amount of $30,000 to Brelsford with the respect to the commencement of the design of our pilot plant and Brelsford simultaneously acknowledged that the Company had met all requirements to maintain the exclusivity of its license. In addition, the Company will pay a royalty fee equal to 4 percent of sales resulting from use of the licensed product less any applicable taxes. Brelsford may terminate the license agreement on sixty days’ notice if the Company fails to make any payment due under our license agreement. Commencing with the first project payment, the Company began amortizing costs previously capitalized over the remaining term of the license. Amortization expense for the three and nine months ended September 30, 2008 is $3,750 and $11,250, respectively. Amortization expense for the three and nine months ended September 30, 2007 was $16,250. The license, issued by Brelsford, terminates simultaneously with the expiration of the patent, in May 2015.

Bio-Products International, Inc.

On August 17, 2005, the Company entered into a license agreement with Bio-Products International, Inc. (“Bio-Products”) giving the Company limited exclusive rights to use Bio-Products technology (Patent No. 6,306,248) to process MSW and convert the cellulosic component of that waste to a homogenous feedstock to produce ethanol in the United States, subject to the right of Bio-Products to request five sites to construct MSW to ethanol plants in the United States. The Company’s license with Bio-Products is for a period of twenty years. Under the license, Bio-Products is paid a process royalty of $1.50 for every ton of waste received and processed at each facility to be constructed and operated under the agreement. The Company also is required to pay a by-product royalty of 2.5 percent of the gross sales price in excess of $10 per ton obtained from the sale of recyclable byproducts, excluding the cellulosic biomass. Bio-Products will also be paid a monthly fee for technical services to be provided by Bio-Products for each facility to be constructed and operated which initially will be $10,000 per month and will increase to $20,000 per month when vessels for processing waste are ordered for the facility. The $20,000 per month fee continues until construction of the facility is completed. On October 22, 2008, the Company completed the purchase of this patent — see Note 11 — Subsequent Events for further information.

HFTA, Inc.

On March 20, 2008, the Company entered into a license agreement with HFTA, Inc. (“HFTA”) granting the Company the exclusive worldwide right to use the HFTA technology for the production of ethanol from MSW. The terms set out in the agreement required us to pay an initial license fee of $25,000 to HFTA on execution of the agreement and a second license fee in the amount of $150,000 on September 1, 2009 if we are using the technology at that time.

8

Additionally, we deposited 2,887,687 shares of our common stock into an escrow account on May 12, 2008. The shares held in escrow will be released to HFTA as follows: one-third upon the earlier of six months from the date of the license agreement or the completion of the proof of concept phase if at that time we elect to continue to use the HFTA technology in the demonstration phase and two-thirds upon completion of the demonstration phase if at that time we elect to incorporate the HFTA technology into the small commercial plant. The first third of the shares (962,562 shares) were released from escrow on September 20, 2008. As a result, the Company recorded an asset for the value of this share payment of approximately $500,000 and will begin amortizing this asset upon use of the technology. For accounting purposes, the shares remaining in escrow are not considered issued and outstanding as the Company has the option to use or not use the technology and the shares are not deemed issued or vested until that time as described above. As of September 30, 2008, the approximate license to be recorded upon issuing the remaining shares, based on the market value of our common stock at September 30, 2008, would be approximately $1.1 million.

In addition, we are required to pay a process royalty of 4% of the sales price of ethanol less taxes and applicable fees if the sales price is in excess of $1.50 per gallon, 3% of the sales price if it is between $1.50 and $1.30 per gallon, and 2% of the sales price if it is less than $1.30 per gallon. We are also required to pay certain minimum royalties, less the amount of any process royalties paid, commencing in the calendar year ending December 31, 2010 and in subsequent years as follows: (i) 2010 -$25,000; (ii) 2011 — $25,000; (iii) 2012 — $60,000; (iv) increasing by $20,000 per year for each year thereafter until it reaches $120,000 per year; and (v) $120,000 per year thereafter.

Biomass North America Licensing, Inc. (“Biomass”)

On September 15, 2008, in connection with the acquisition of Biomass described in Note 3 - Mergers/Acquisitions, we acquired a license in the United States and Canada to use patent pending technology owned by Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate municipal solid waste. As mentioned in Note 3 — Mergers/Acquisitions, as a result of the merger, a long-term asset of approximately $1.5 million was recorded for the value of this license. Amortization of this asset will begin upon commencement of the use of the Biomass technology. The Company also deposited an additional 4,000,000 shares of the Company’s Common Stock into an escrow account. For accounting purposes, the shares remaining in escrow are not considered issued and outstanding as a project has not started using the Biomass technology. The shares are not deemed issued or vested until that time as described above. As of September 30, 2008, the approximate additional license value to be recorded upon issuing the remaining shares, based on the market value of our common stock at September 30, 2008, would be approximately $2.2 million. Any future increase in the value of the asset would depend on the market value of our Common Stock at the time of utilitzation.

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 technology. The license agreement is for a term of 21 years or the life of any patent issued for the Biomass technology. The Company has an exclusive license in the United States and Canada to use the Biomass technology, 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 Biomass and Licensor will work in good faith to complete a commercial development in the City of Chicago using the Biomass technology.

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 5 — Series A Convertible Debentures

In April 2007, the Company sold $1,400,000 of Series A Convertible Debentures (“Debentures”), due April 16, 2010, that convert into shares of the Company’s common stock at $.15 per share. The Company filed a registration statement with regard to the sale of these shares of common stock, which was declared effective by the Securities and Exchange Commission on January 2, 2008. The debentures accrue interest at 6% per annum. The interest is payable in cash or shares of the Company’s common stock at the Company’s option. The Debenture Holders can convert their amount into shares at any time until the due date. The maximum number of shares that would be issued at the due date is 11,013,333.

9

The Company received cash of $950,000 and Promissory Notes (“Notes”) with an aggregate principal amount of $450,000 that accrue interest at 6.0%. Effective with the listing of our common stock on the OTCBB on March 13, 2008 (previously traded on Pink Sheets) we received full payment on all principal and accrued interest on the Notes totaling approximately $475,000 on March 14, 2008.

During March 2008, various debenture holders converted an aggregate amount of $630,000 of our Debentures, plus interest earned, into 4,433,067 shares of our common stock. During April 2008, various debenture holders converted an aggregate amount of $630,000 of our Debentures, plus interest earned, into 4,455,844 shares of our common stock. These transactions converted in the aggregate $1,260,000 of our Debentures, leaving $140,000 remaining to be converted. As of September 30, 2008, $140,000 of our Debentures remained outstanding and eligible for conversion.

Note 6 — Stockholders’ Deficit

In May 2007, the Company acquired SRS Energy through a reverse merger. Pursuant to the merger, the Company issued 38,624,784 shares of the Company’s common stock and a warrant exercisable until August 31, 2009 to purchase 1,923,495 shares of common stock at $.13 per share to the former stockholders of SRS Energy in exchange for the cancellation of all of the outstanding capital stock of SRS Energy and cancellation of an option to acquire 5% of the outstanding capital stock of SRS Energy. The Company affected a reverse split of its common stock at a ratio of 100 to 1 in January 2007. 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. As such, the historical information prior to the merger of the Company disclosed in the report is that of SRS Energy. Historical share amounts have been restated to reflect the effect of the merger.

In May 2007, the Company issued 9,366,800 shares of common stock ($.014 per share) upon the conversion of three promissory notes totaling $114,681 and accrued interest of $18,915.

In March 2008, the Company issued 4,433,067 shares of common stock ($0.15 per share) upon the conversion of an aggregate amount of $630,000 of the Company’s Debentures and accrued interest of approximately $35,000.

In April 2008, the Company issued 4,455,844 shares of common stock ($0.15 per share) upon the conversion of an aggregate amount of $630,000 of the Company’s Debentures and accrued interest of approximately $38,000.

Note 7 — Related Party Transactions

For the three and nine months ended September 30, 2007, the Company incurred corporate and administrative fees of approximately $-0- and $4,000, respectively, for expenses paid by its president on behalf of the Company. The Company had been using the office of its president for corporate and administrative purposes until entering into a lease for office space which we occupied and began paying rent in January 2008.

The Company had a $72,103 advance from one of its board of director members at December 31, 2006 evidenced by a promissory note that accrued interest at 9.5% per annum. The promissory note also contained an option to acquire 5% of the outstanding capital stock of SRS Energy at a price of $250,000. In April 2007, the indebtedness under the promissory note was repaid and the promissory note was cancelled. Under its terms, the right to exercise the option to purchase shares survived after the repayment of the indebtedness under the note. As part of the merger consideration issued by the Company pursuant to the acquisition of SRS Energy, the Company issued a warrant exercisable until August 31, 2009 to purchase 1,923,495 shares of its common stock at $.13 per share to replace the option included in the promissory note on substantially similar terms as the option.

In August 2007, the Company entered into stock purchase agreements with certain members of the Board of Directors pursuant to which the members acquired shares of restricted stock. The directors issued notes to the Company in exchange for their stock purchases. See Note 8 — Share-based Payments, for further discussion. These notes are recorded as notes receivable in Stockholders’ Deficit.

10

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. For the three and nine months ended September 30, 2008, we incurred approximately $67,000 and $181,000, respectively, in legal fees with SSB. For the three and nine months ended September 30, 2007, we incurred approximately $20,000 and $125,000, respectively, in legal fees with SSB. As of September 30, 2008, all amounts have been paid to SSB except for approximately $110,000.

The Company uses Arthur J. Gallagher (“AJG”) as its broker for business and property insurance. Our CEO’s brother is employed by AJG and is involved in the negotiation of coverage and premiums related to policies placed for the Company. For the three and nine months ended September 30, 2008, the Company paid approximately $0 and $3,000, respectively, in commissions on policies placed by AJG. The Company placed no policies and paid no commissions in 2007.

Note 8 — Share-based Payments

The Company accounts for stock options and restricted stock issued to employees and directors under SFAS No. 123(R), in which share-based compensation cost to employees and directors 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, officers, 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 has reserved a maximum of 9,000,000 shares of common stock to be issued for the exercise of options or shares awarded under the Stock Plan. A proposal to increase the maximum share amount to 9,000,000 from 7,000,000 was approved by the Company’s stockholders at the Company’s Annual Stockholder Meeting, held on June 17, 2008.

In August 2007, the Company granted options under the Stock Plan to purchase an aggregate 3,850,000 shares of common stock to various employees that vest ratably over three years and options to purchase an aggregate 160,000 shares of common stock to directors that vest ratably over two years. All of these options have an exercise price of $0.15. The Company also issued an aggregate of 600,000 shares of restricted common stock to our directors. Under the agreements, each of our four directors agreed to purchase 150,000 shares of restricted common stock of the Company at a cost of $0.15 per share. The directors issued promissory notes to the Company in exchange for their stock purchases. The shares purchased by the directors under the agreements are restricted shares subject to a right, but not obligation, of repurchase by the Company. The Company may exercise its repurchase right only during the 60 day period following a director’s termination of service on the Board of Directors. Commencing on September 21, 2007, the Company’s repurchase rights lapse at the rate of 8,333 shares per month of continuous service by each director through September 21, 2008, when the Company’s repurchase rights lapse on 4,167 shares per month of continuous board service until the repurchase rights have lapsed on all restricted shares. At September 30, 2008, 183,348 shares remain subject to a right of repurchase. No outstanding options were cancelled or expired as of September 30, 2008. During the third quarter 2008, 1,363,334 options vested and were exercisable as of September 30, 2008.

Additionally, upon commissioning of the pilot plant, an option to purchase 1,200,000 shares of common stock will be issued to our Chief Executive Officer. This option has not yet been granted, but if and when granted, will vest ratably over three years beginning on August 31, 2009.

The estimated fair value of stock option grants is computed using the binomial option-pricing model. Generally, expected volatility is based on historical periods commensurate with contractual term of options. However, since we have no history of stock price volatility as a public company at the time of the grants, we calculated volatility by considering historical volatilities of public companies in our industry. Due to the short history of our industry, the historical period used in our calculations is shorter than the contractual term of the options. The fair value for options granted during 2007 was determined at the date of grant. The average fair value was $0.084 per share, assuming an expected term of 5.0 years, as estimated by management, a risk-free interest rate of approximately 4.27% based upon Daily Treasury Yield Curve Rates, expected volatility of 61.49% and no expected dividends. 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. We currently use a forfeiture rate of zero percent for all existing share-based compensation awards since we have no historical forfeiture experience under our share-based payment plans. Our options have characteristics significantly different from those of traded options and changes in the assumptions can materially affect the fair value estimates.

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The following table presents the components of share-based compensation recorded as general and administrative expense.

	Three months ended				Nine months ended
	Sept 30, 2008		Sept 30, 2007		Sept 30, 2008		Sept 30, 2007
Stock options:
Pre-tax compensation expense	$	42,365	$	11,413	$	176,726	$	11,413
Tax benefit, net		—		—		—		—
After-tax compensation expense	$	42,365	$	11,413	$	176,726	$	11,413

Related to these grants, the Company will record future compensation expense for stock options of approximately $23,500 for the remaining three months of 2008.

The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payment arrangements totaled approximately $90,000 at September 30, 2008. However, due to the uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently.

As of September 30, 2008, there was approximately $121,000 of unrecognized compensation cost related to 4,010,000 nonvested stock options that we expect to ultimately vest. These options have a weighted average exercise price of $0.15. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 1.96 years.

			Weighted		Aggregate
	Shares Under		Average		Intrinsic
	Option		Exercise Price		Value
Adoption of Stock Plan in March 2007		—
Granted		4,010,000	$	0.15
Exercised		—
Forfeited		—
Options outstanding at December 31, 2007		4,010,000		0.15	$	1,604,000
Granted		—
Exercised		—
Forfeited		—
Options outstanding at September 30, 2008		4,010,000			$	1,604,000
Options exercisable at September 30, 2008		1,363,333

Pursuant to a settlement agreement, RAM Resources, L.L.C. obtained the right to acquire an aggregate of 1,923,495 shares of our common stock at a price of $0.13 per share. This warrant is exercisable during a two year term that started on August 29, 2007 and ends on August 29, 2009. RAM Resources, L.L.C. agreed to terminate the Letter Agreement and release all claims to acquire any shares of our stock. The fair value of $125,027 has been recorded in the Company’s general and administrative expenses for the year ended December 31, 2007 and additional paid in capital at December 31, 2007.

Note 9 — Due to Investors

During September 2008, the Company commenced an offering of units comprised of a convertible promissory note and a warrant. As of September 30, 2008, the Company raised a total of $77,000 of investment proceeds. Each convertible promissory note carries a one-year term and a 6% interest rate. In addition, each note can be converted into shares of the Company’s common stock, par value $0.001per share (the “Common Stock”), at $0.25 per share, at the Note holder’s option. Each note was issued with a warrant to purchase additional shares of Common Stock equal to the principal amount of the Note at a price of $0.45 per share. The Company continued the offering of units and received additional investment proceeds subsequent to the financial statement date — see Note 11 - Subsequent Events, for further information.

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Note 10 — Commitments and Contingencies

Project management - The Company entered into an engagement agreement with Merrick & Company to develop a complete project management plan for the pilot development plan. For the three and nine months ended September 30, 2008, we incurred approximately $28,000 and $102,000, respectively, for engineering, design and consulting services. After completing the project management plan, we engaged Merrick & Company to construct, test, and evaluate the HFTA equipment and the demonstration plant. As part of the testing and evaluation, Merrick & Company will provide construction observation of the demonstration unit in conjunction with Hazen Research, Inc. The system will demonstrate the efficacy of using biomass derived from municipal waste to produce ethanol using our licensed technologies and will allow us to develop the engineering data to design and construct a small commercial plant. Our engagement calls for further payments to Merrick & Company on an as billed basis as they proceed with the engineering review and testing of our technology.

In December 2007, the Company entered into an agreement with Hazen Research, Inc. (“Hazen”) to install and operate the HFTA equipment at Hazen’s facility in Golden, Colorado. The agreement also contemplates the expansion of the scope of work to include the construction and operation of the demonstration plant. We are billed at an hourly rate for time used by Hazen employees in connection with our projects. For the three and nine months ended September 30, 2008, we incurred approximately $3,000 and $119,000, respectively, for the proof of concept phase with Hazen. We are currently working with Hazen to develop an estimate of the costs to construct and operate the demonstration unit at their facility.

Leases — We entered into a lease on October 16, 2007 (and took occupancy in January 2008) 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 for a term of three years. Our monthly rent under the lease is $1,800 plus the cost of utilities. We entered into a lease for office furniture in January 2008. The lease payments are approximately $420 plus applicable taxes per month for 36 months. This lease is accounted for as a capital lease for accounting purposes.

Note 11 — Subsequent Events

During October and November 2008, the Company continued its offering of units comprised of a convertible promissory note and a warrant. As of November 7, 2008, the Company has received an additional $280,000 in investment proceeds. Each convertible promissory note carries a one-year term and a 6% interest rate. In addition, each note can be converted into shares of the Company’s common stock, par value $0.001per share (the “Common Stock”), at $0.25 per share, at the Note holder’s option. Each note was issued with a warrant to purchase additional shares of Common Stock equal to the principal amount of the Note at a price of $0.45 per share.

On October 22, 2008, the Company completed the purchase of Patent No. 6,306,248 (the “Patent”) pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”). The Patent is the basis for the pressurized steam classification technology that cleans and separates municipal solid waste into its component parts, which the Company currently licenses from Bio Products International, Inc. Upon signing the Agreement, the Company paid WWT $150,000, issued a Note in the amount of $450,000 and issued a warrant to purchase 900,000 shares of Common Stock at a price of $0.45 per share. The note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by a security interest in the Patent. The warrants are exercisable at any time for five years from the date of issuance. In addition, the Company issued a contingent warrant to purchase 900,000 shares of Common Stock at a price of $0.45 per share. The contingent warrant becomes exercisable if the Company defaults on its obligations under the note and remains exercisable for five years from that date.

In October 2008, we paid $3,500 to Hicks Equipment towards a total estimated cost of approximately $37,000 to construct a vessel for the purpose of processing a sufficient amount of waste to provide biomass to utilities and other mass consumers of energy operating in the Chicago area in sufficient quantities to permit them to test the ability to handle our biomass in their existing material handling operations.

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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-KSB for the year ended December 31, 2007, filed with the Securities and Exchange Commission on March 28, 2008, 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:

• the commercial viability of our technologies,

• our ability to maintain and enforce our exclusive rights to our technologies,

• our ability to raise additional capital on favorable terms to continue developing our technologies,

• our disputes and resulting litigation with the licensor of our PSC technology,

• the demand for and production costs of ethanol,

• competition from other alternative energy technologies, and

• other risks and uncertainties detailed from time to time in our filings with the SEC.

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

We are a development stage company that intends to process municipal solid waste into energy products through our licensed or owned technologies:

• the Pressurized Steam Classification technology, which we refer to as our “PSC” technology that uses a pressurized steam classification vessel to convert municipal solid waste, also known as MSW, into cellulosic material while simultaneously segregating and eliminating any inorganic materials in the solid waste and cleaning recyclable materials in the MSW;

• the sulfuric acid hydrolysis process, which we refer to as our “Brelsford” technology, developed by Brelsford Engineering, Inc., that employs an acid hydrolysis process to convert cellulosic material into fermentable sugars, which can then be fermented into ethanol; and

• the nitric acid hydrolysis process, which we refer to as our “HFTA” technology, developed by scientists working at the University of California, Berkeley, that incorporates anticipated improvements in chemical reaction by which acid hydrolysis occurs.

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As we investigate and acquire new technologies and research and develop our existing technologies, we continue to refine our development plan. In addition to developing our ethanol conversion technology, we are now also focusing on the commercialization of our technology for cleaning and separating municipal solid waste into its component parts, which is currently in use in a commercial setting in Australia. As a result, we believe this technology is ready for commercial implementation in the United States and elsewhere. To commercialize this technology, we intend to:

• construct and operate a commercial plant that processes municipal solid waste into cellulosic biomass for combustion in existing co-fired boilers for electricity production in Chicago, Illinois;

• identify and partner with landfill owners, waste haulers and municipalities to identify locations suitable for our PSC technology; and

• pursue additional opportunities to implement our technology in commercial settings at transfer stations and landfills in the United States and elsewhere in the world.

Our ethanol conversion technology, like all other cellulosic ethanol conversion technologies in development, has not been proven on a commercial level. To develop our technology for converting our biomass into ethanol and other biofuels, we intend to:

• complete the research and development of our licensed technologies, which we believe when combined can convert municipal solid waste into ethanol; and

• explore, develop and/or license additional technologies for processing waste into energy products as opportunities to do so present themselves.

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 (“SRS Energy”), which is the holder of the technology licenses. Pursuant to the merger agreement, SRS Acquisition Sub Inc. our wholly-owned subsidiary, merged into SRS Energy with SRS Energy as the surviving corporation. We consummated the merger on May 31, 2007 resulting in SRS Energy becoming our wholly-owned subsidiary. Today, SRS Energy is our principal operating company. Effective August 2, 2007, we changed our name to CleanTech Biofuels, Inc.

SRS Energy was originally formed, in July 2004, as a wholly-owned subsidiary of Supercritical Recovery Systems, Inc., a Delaware corporation. At that time, Supercritical Recovery Systems was a licensee of various technologies for the processing of waste materials into usable products. While investigating different technologies, Supercritical Recovery Systems, Inc. was introduced to the PSC and Brelsford technologies and secured licenses to the technologies in SRS Energy. Prior to our acquisition of SRS Energy, Supercritical Recovery Systems, Inc. distributed approximately 80% of its ownership of SRS Energy to the stockholders of Supercritical Recovery Systems, Inc. Since our acquisition of SRS Energy, Supercritical Recovery Systems, Inc. has ceased its business activities with respect to licensing other technologies.

Recent Developments

Beginning in September 2008, the Company commenced an offering of units comprised of a convertible promissory note and a warrant. As of November 7, 2008, the Company has raised approximately $350,000 in investment proceeds. Each convertible promissory note carries a one-year term and a 6% interest rate. In addition, each note can be converted into shares of the Company’s common stock, par value $0.001per share (the “Common Stock”), at $0.25 per share, at the Note holder’s option. Each note was issued with a warrant to purchase additional shares of Common Stock equal to the principal amount of the Note at a price of $0.45 per share.

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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 patent pending technology owned by Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate municipal solid waste (the “Technology”). 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 due December 10, 2008. If the amount due under the Note is not paid during the term of the Note, the holder has a right to receive 123,000 shares of the Company’s common stock, par value $.001 per share (“Common Stock”), in addition to receiving the principal and interest due on the Note. 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 Technology. The Company recorded a long-term asset of approximately $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 asset will be recorded at that time. Based on the market value of Common Stock as of September 30, 2008, it would result in an approximate increase of approximately $2.2 million 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 utilitzation.

On October 22, 2008, the Company completed the purchase of Patent No. 6,306,248 (the “Patent”) pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”). The Patent is the basis for the pressurized steam classification technology that cleans and separates municipal solid waste into its component parts, which the Company currently licenses from Bio Products International, Inc. Upon signing the Agreement, the Company paid WWT $150,000, issued a note in the amount of $450,000 and issued a warrant to purchase 900,000 shares of Common Stock at a price of $0.45 per share. The note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by a security interest in the Patent. The warrants are exercisable at any time for five years from the date of issuance. In addition, the Company issued a contingent warrant to purchase 900,000 shares of Common Stock at a price of $0.45 per share. The contingent warrant becomes exercisable if the Company defaults on its obligations under the note and remains exercisable for five years from that date.

Plan of Operation

The following discussion of our 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 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 expect that our current capital and other existing resources will be sufficient only to complete a portion of the testing of our technologies and to provide a limited amount of working capital. We will require substantial additional capital to implement our business plan and we may be unable to obtain the capital required to build any commercial plants. Our plan of development is to proceed on two parallel paths — biomass feedstock production and ethanol production.

Biomass Feedstock Production

We are currently negotiating a lease for a facility to construct an operating commercial plant in Chicago, Illinois. The site we intend to lease currently has a commercial waste transfer station in operation by a third party. In anticipation of completing the lease, the owner of the property has commenced the permitting process to obtain the permits necessary for us to convert the commercial waste transfer station into a residential municipal solid waste transfer station and install our vessels for processing the waste delivered to the transfer station into cellulosic biomass. We will be required to pay the expenses incurred to date for permitting at the site upon completing our lease. The biomass we expect to produce will be sold to utilities operating near the plant for combustion in existing co-fired boilers. We have provided our biomass to different utility owners for testing the BTU value and emissions profile and universally have been advised by the utilities that our biomass can be used as a feedstock for combustion together with coal.

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We have substantially completed construction of a vessel that we believe can process a sufficient amount of waste at the site in Chicago to provide biomass to utilities and other mass consumers of energy operating in the Chicago area in sufficient quantities to permit them to test the ability to handle our biomass in their existing material handling operations. Upon completing this stage of our testing, we intend to seek long-term off-take contracts for the purchase of our biomass and begin construction of a larger scale plant to process sufficient biomass to the requirements of our agreements and any other market opportunities to sell the biomass in the Chicago area.

After operating our plant in Chicago and 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.

Although we have substantially completed the construction of our test vessel for the site in Chicago, the further implementation of our commercial plant described above would 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.

Ethanol Production

Proof of Concept/Demonstration Phase

In our current stage of our development, we are seeking to prove that biomass derived using the PSC technology does not include any contaminants or residue that prohibit the chemical or biologic reactions necessary to complete the sacchrification and fermentation processes required to produce fuel grade ethanol. We believe that the HFTA technology may prove useful as a pretreatment for a variety of other hydrolysis technologies being developed to separate hemicelluloses and then using commercially available enzymes to separate the remaining cellulose and lignin. In order to determine whether this is true, we also are testing the HFTA equipment as a first-stage to separate hemicellulose and then using commercially available enzymes to separate the cellulose. In addition to using the HFTA technology for hydrolyzing biomass, we are using the HFTA equipment to test a variety of other feedstocks, including corn stover, switch grass and wood waste using these same methods of hydrolyzing biomass. We believe the hydrolsate derived from these various processes and feedstocks can be fermented into alcohol.

Concurrent with the proof of concept, we are completing the design and engineering of a demonstration unit that would incorporate all of our technologies for sacchrification and fermentation into a continuously operating unit. We project that this unit will process approximately four tons of MSW, or about one ton of dry biomass per operating day, which on average is eight hours. The purpose of the unit is to demonstrate the complete system for converting biomass derived from MSW into ethanol. Final details of the demonstration plant design will depend on results of the proof of concept phase; however, we believe we have substantially completed these designs and further believe we will be able to move to fabrication, procurement and construction of the demonstration unit upon completing the proof of concept testing provided we are able to obtain the financing necessary to do so. After completing construction of the demonstration unit, we intend to operate the unit for a period of time, currently anticipated to be two to three months, in order to conduct testing and evaluation necessary to complete the design of a small commercial plant. While we have not yet completed the project management plan for the demonstration phase of the project, we anticipate the demonstration phase of the project will require nine to twelve months following the end of the testing phase to complete.

Commercialization Phase

Before we attempt to implement our ethanol conversion technology on a larger scale, we anticipate building and operating a small commercial plant that will process a minimum of 100 tons of MSW per operating day. The final size of this small scale commercial plant will be determined based on a number of factors that we are currently evaluating. The purpose of building a small scale commercial plant is to demonstrate at a small commercial level the workings of the integrated system, including the PSC technology, in order to have sufficient information with respect to materials handling and operation of the technology to enable us to utilize more traditional project financing for the implementation of the technology on a larger scale.

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Replication and Rollout Phase

We intend to follow a systematic evaluation process in identifying and selecting additional sites for the construction of full-scale operating plants in order to focus on those with the best near-term and long-term potential. If market conditions are not favorable for the construction of new plants, we may consider licensing our technology to third parties with existing waste-to-energy facilities. To date, we have not identified any sites for a full-scale facility or commenced any material discussions with any party regarding building a full-scale operating plant and/or licensing our technology to a third-party. We have only preliminarily begun to explore these possibilities.

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 table sets forth the amounts of expenses and changes represented by certain items reflected in our consolidated statements of operations for the three and nine months ended September 30, 2008 and 2007:

	Three months ended
	Sept 30, 2008			Sept 30, 2007			$ Change			% Change
Costs and expenses:
General and administrative	$	99,204		$	175,635		$	(76,431	)		-43.5	%
Professional fees		90,284			62,152			28,132			45.3	%
Research and development		40,271			41,533			(1,262	)		-3.0	%
		229,759			279,320			(49,561	)
Other expense (income):
Interest		3,314			21,466			(18,152	)		-84.6	%
Amortization of technology license		3,750			16,250			(12,500	)		-76.9	%
Interest income		(3	)		(9,038	)		9,035			-100.0	%
Net loss applicable to common stockholders	$	236,820		$	307,998		$	(71,178	)

	Nine months ended
	Sept 30, 2008			Sept 30, 2007			$ Change			% Change
Costs and expenses:
General and administrative	$	400,534		$	408,986		$	(8,452	)		-2.1	%
Professional fees		281,176			218,995			62,181			28.4	%
Research and development		277,187			41,533			235,654			567.4	%
		958,897			669,514			289,383
Other expense (income):
Interest		27,201			42,563			(15,362	)		-36.1	%
Amortization of technology license		11,250			16,250			(5,000	)		-30.8	%
Interest income		(5,982	)		(14,058	)		8,076			-57.4	%
Net loss applicable to common stockholders	$	991,366		$	714,269		$	277,097

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General

Prior to April 2007, we had limited operations. In April 2007, we raised $1,400,000 and commenced implementing our plan of operation. In particular, we experienced the following specific changes in our operations:

Three months ended September 30, 2008 compared to the three months ended September 30, 2007

Costs and expenses:

General and administrative — Expense in 2007 included the fair value of the RAM settlement warrant of approximately $125,000, which was a one-time expense, and salary paid to the Company’s CEO. The decrease in 2008 was partially offset by increased expenses due to our office lease which commenced in January 2008 and an increase of approximately $31,000 in share-based compensation expense (FAS 123R).

Professional fees — The increase in 2008 is due primarily to costs incurred for legal fees related to litigation and arbitration matters.

Other expense (income):

Interest expense — The decrease in 2008 is due primarily to the conversion of $1.26 million of our $1.4 million Series A Convertible Debentures, which were originally issued in April 2007. Subsequent to these conversions during the second quarter of 2008, interest no longer accrues on the debentures which were converted. Interest continues to accrue at 6.0% per annum on the remaining $140,000 of debentures outstanding. Interest on the debentures for the three months ended September 30, 2008 and 2007 is approximately $2,000 and $21,000, respectively.

Interest income — The income in 2007 is primarily interest on $450,000 of promissory notes issued to us as part of the consideration for the issuance of the Series A Convertible Debentures. We received the $450,000 plus accrued interest on March 14, 2008 and thus no longer earn interest at 6% per annum on those notes.

Nine months ended September 30, 2008 compared to the nine months ended September 30, 2007

Costs and expenses:

General and administrative — The decrease in 2008 is due to an increase of approximately $165,000 in share-based compensation expense (FAS 123R), salary paid to our Chief Executive Officer and expenses for our office lease in 2008, partially offset by the one-time expense of the fair value of the RAM settlement warrant and higher marketing expenses in 2007.

Professional fees — The increase in 2008 is due primarily to costs incurred for legal fees related to litigation and arbitration matters.

Research and development — The increase in 2008 is due to payments made to Merrick & Company, Hazen Research, Inc. and HFTA as we continue to progress through our proof of concept/demonstration phase which began during the third quarter of 2007.

Other expense (income):

Interest expense — The decrease in 2008 is due primarily to the conversion of $1.26 million of our $1.4 million Series A Convertible Debentures, which were originally issued in April 2007. Subsequent to these conversions during the second quarter of 2008, interest no longer accrues on the debentures which were converted. Interest continues to accrue at 6.0% per annum on the remaining $140,000 of debentures outstanding. Interest on the debentures for the nine months ended September 30, 2008 and 2007 is approximately $25,000 and $39,000, respectively.

Interest income — The income in 2007 is primarily interest on $450,000 of promissory notes issued to us as part of the consideration for the issuance of the Series A Convertible Debentures. We received the $450,000 plus accrued interest on March 14, 2008 and thus no longer earn interest at 6% per annum on those notes.

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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 8, 2008, we raised approximately $350,000 from investors in exchange for units comprised of a convertible note and a warrant. We are continuing to explore opportunities to raise cash through the issuance of these units and other financing opportunities. As of November 8, 2008, our current cash will be sufficient to fund approximately the next one to two months. Thereafter, we anticipate requiring additional capital to continue our plan of operation. These costs will be substantially greater than our current available funds. We currently expect attempting to obtain additional financing through the sale of additional equity and/or possibly through strategic alliances with larger energy or waste management companies. However, we may not be successful in securing additional capital. If we are not able to obtain additional financing in the near-term future, we will be required to delay our development until such financing becomes available. We anticipate that the current dispute with Bio-Products will make it significantly more difficult for us to raise capital. 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.

On July 3, 2008, the Company entered into a letter agreement (the “Agreement”) with Concord Business Development (“Concord”) to commence an offering of our common stock pursuant to and in reliance upon the exemption from securities registration afforded by the provisions of Regulation S as promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended. This agreement expired in November 2008 with no capital raised in the Offering.

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 research and development costs, 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-KSB for the year ended December 31, 2007, filed with the Securities and Exchange Commission on March 28, 2008. Our critical accounting policies and estimate assumptions have not changed during 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

None.

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 (the “Act”), is recorded, processed, summarized and reported within the time periods specified by the Security and Exchange Commission’s (the “SEC”) 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.

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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, 2008. Further, the design of a control system must reflect the fact that there are resource constraints, including, but not limited to having three total employees (chief executive officer, general counsel 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, 2008, 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

CleanTech Biofuels, Inc. v. Bioproducts International, Inc. On January 9, 2008, CleanTech Biofuels, Inc. and our wholly-owned subsidiary, SRS Energy, Inc. (“SRS Energy”), filed suit in Missouri Circuit Court seeking damages against Bio-Products International, Inc. (“Bio-Products”), the licensor of our PSC technology, Clean Earth Solutions, Inc., which we have asserted to be an affiliate of Bio-Products (“CES”), and various shareholders and officers of those companies for, among other things, fraudulent acts, civil conspiracies, and tortuous interference with our business. We also are seeking to rescind a sublicense with respect to the use of the PSC technology in five sites that we granted back to Bio-Products. The case was subsequently moved to the Federal District Court in St. Louis, Missouri and the claims against individuals associated with CES were dismissed and the remaining claims were consolidated with our ongoing arbitration.

In addition, we have filed a demand for arbitration seeking, among other things, a declaration that we are in full compliance with the terms of the License Agreement between SRS Energy and Bio-Products dated August 17, 2005 (the “License Agreement”). We filed the arbitration demand in response to what we believe was a baseless attempt by Bio-Products to terminate the License Agreement in violation of the terms of the License Agreement and are seeking damages against Bio-Products for its fraudulent attempt to terminate the License Agreement. The American Arbitration Association has determined that the arbitration will occur in St. Louis. In early April, an arbitrator was selected to hear this matter. We anticipate that the arbitration will occur in February 2009, at the earliest. On May 8, 2008, we filed a Temporary Restraining Order in the Arbitration seeking to require Bio-Products to provide us with biomass for testing purposes as required in the License Agreement. On July 3, 2008, we entered into a consent judgment pursuant to which Bio-Products agreed to provide us with biomass for testing purposes.

If we are not successful in our arbitration and lawsuit, that failure could have a materially adverse effect on our business. See the Risk Factors and previous disclosure of this legal proceeding in our Annual Report on Form 10-KSB for the year ended December 31, 2007, filed with the Securities and Exchange Commission (“SEC”) on March 28, 2008, our Form 10-Q for the three months ended March 31, 2008 filed with the SEC on May 15, 2008, our Form 10-Q for the three and six months ended June 30, 2008 filed with the SEC on August 13, 2008 and our Form 8-K filed with the SEC on January 10, 2008, all of which are incorporated herein by reference.

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 II, Item 6 in our Annual Report on Form 10-KSB for the year ended December 31, 2007, 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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds — During September 2008, the Company commenced an offering of units comprised of a convertible promissory note and a warrant. As of September 30, 2008, the Company raised a total of $77,000 in investment proceeds. Each convertible promissory note carries a one-year 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 $0.25 per share at the holder’s option. Each note was issued with a warrant to purchase additional shares of Common Stock equal to the principal amount of the associated note at a price of $0.45 per share. The issuance of units were exempt from the registration requirements of the Securities Act, pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and/or Section 4(2) of the Securities Act.

Item 3. Defaults Upon Senior Securities — None.

Item 4. Submission of Matters to a Vote of Security Holders — None.

Item 5. Other Information — None.

Item 6. Exhibits

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

EXHIBIT NO.		DESCRIPTION
	10.18	Technology License and Joint Development Agreement among Biomass North America Licensing, Inc., 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.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CLEANTECH BIOFUELS, INC.
Date: November 13, 2008	/s/ Edward P. Hennessey, Jr.
	Edward P. Hennessey, Jr.
	Chief Executive Officer
Date: November 13, 2008	/s/ Thomas Jennewein
	Thomas Jennewein
	Chief Financial Officer and Principal Accounting Officer

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INDEX TO EXHIBITS

EXHIBIT NO.		DESCRIPTION
	10.18	Technology License and Joint Development Agreement among Biomass North America Licensing, Inc., 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.

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EX-10.18

Exhibit 10.18

TECHNOLOGY LICENSE AND JOINT DEVELOPMENT AGREEMENT

This Technology License and Joint Development Agreement is made among Biomass North American Licensing, Inc. (herein called “BNAL”), Biomass North America, LLC (“Biomass North America”) and Anthony P. Noll (herein called “Noll” and collectively with Biomass North America, the “Licensors”), effective the  _____  day of July, 2008 (the “Effective Date”). The parties include any affiliate of a party; an “affiliate” is defined as the parent company of a party and any company that is controlled directly or indirectly by that party or its parent company through more than fifty percent (50%) ownership, provided such affiliate agrees to be bound by this agreement.

WHEREAS, Noll has filed those certain patent applications identified as United States Patent Application Serial Nos. 11/296,585 (Atty. Docket No. NOLT103), 11/296,586 (Atty. Docket No. NOLT102), and 10/713,557 (now abandoned) (Atty. Docket No. NOLT101) copies of which are attached hereto as Exhibit A (the “Noll Patents”) for the use of a pressurized steam vessel operating under lower temperature and pressure conditions as described in the Noll Patents and the Biomass Patent (as defined herein) (the “Technology”) to separate and clean municipal solid waste where the cellulosic material derived from the process is used to produce ethanol and other bio-fuels.

WHEREAS, Noll has filed that certain patent application identified as United States Patent Application Serial No. 11/355,632 (Atty. Docket No. NOLT104), a copy of which is attached hereto as Exhibit B, and subsequently licensed such patent to Biomass North America, LLC. (the “Biomass Patent” and together with the Noll Patents, the “Technology Patents”) to use the Technology for a broad range of uses including the production of energy products; and

WHEREAS, BNAL desires to obtain an exclusive license to use the Technology in North America.

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained hereinafter, the parties agree as follows:

1. LICENSE TO PRODUCE ETHANOL AND OTHER BIOFUELS.

(a) Licensors hereby grant to BNAL an exclusive license in North America (as defined herein) to use the Technology as described in the Technology Patents and any modifications, extensions or improvements to the Technology Patents subject to the further conditions set forth in this Agreement. “North America” shall include the United States and Canada. No other person, including the Licensors, shall be entitled to use the Technology for the purposes licensed to BNAL hereunder in North America during the term of this Agreement. The License shall include all know-how, data, designs, and other information developed by Licensors in connection with the Technology, now existing or developed at any time during this Agreement.

(b)	Consideration: In consideration therefore, upon signing this agreement BNAL shall pay Licensors $1.00 U.S.
(c)	Royalty: In addition to the above consideration, BNAL shall pay Licensors a Royalty equal to $1.00 for each dry ton of biomass produced using the Technology where the biomass is used for the production of energy products. BNAL shall not be required to pay a royalty if the biomass produced using the Technology is used for research or testing purposes. Within thirty days prior to the first use of the Technology by BNAL whereby a royalty shall be generated, BNAL and Licensors shall agree in writing as to a commercially reasonable method for determining the amount of biomass derived using the Technology; provided that if at such time the parties have not made such determination, either party may submit the matter to arbitration in accordance with Paragraph 16 of this Agreement and the determination of the arbitrator in such matter shall be final and binding on all parties hereto. BNAL shall retain all records relating to the use of the Technology for the production of biomass for a period of three years. Licensors shall be entitled to inspect such records at BNAL’s offices during regular office hours at any time during the term of this Agreement after five days written notice. If Licensors’ examination reveals a discrepancy of ten percent or more on any payments owed Licensors hereunder and such amount is agreed by the parties to be correct or ultimately determined to be correct by other means, BNAL shall be required to pay Licensors the costs of any examination or proceedings necessary to discover and collect such discrepancy.
	The Royalty payable hereunder shall be payable quarterly (based on calendar quarters) and shall be due and owing within thirty days after the end of each such quarter during the term of this Agreement. The amount due hereunder may be paid in cash or stock, which shall be determined by Licensors in their sole discretion. If Licensors desire to be paid in cash, Licensors shall so notify BNAL in writing at least ten days prior to the end of the quarter in which payment is due. If no such notice is received, payment shall be in the form of Common Stock, $0.001 par value per share of BNAL, provided that at such time such Common Stock is publicly tradable on a recognized exchange, quotation system or over the counter market. The value of such stock for determining the amount due Licensors shall be the price obtained by the average daily closing price for shares of such stock on the five days preceding the end of the applicable quarter for which payment is due. If on the last day of the quarter for which any payment hereunder is due, BNAL’s Common Stock is not publicly tradable on a recognized exchange, quotation system or over the counter market, BNAL shall be required to make payment for that quarter in cash.

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(d)

Enhancements. Each party shall own any and all improvements to the Technology made at its expense and costs, however, each party agrees to license to the other party any enhancements it makes to the Technology. (Such enhancements created by Licensors shall be subject to the terms of this Agreement.) Such enhancements shall be delivered promptly upon their development.

(e)

Term and Termination. This Agreement shall be for the later of a term of twenty one years from the date hereof or the date of expiration of the Technology Patents, including any extensions, modifications or amendments thereto, unless terminated sooner by a party. Either BNAL or Licensors, as the case may be, may terminate this Agreement upon breach by the other party of any covenant or representation or warranty in this Agreement by providing sixty days notice if the breaching party fails to cure such breach in the sixty day period after notice. Licensors may terminate this agreement in the event of the insolvency, bankruptcy, or dissolution of BNAL; BNAL’s failure or inability to commence construction of the Commercial Development within 2 years from the date hereof; or BNAL’s abandonment of any reasonable efforts to exploit the Technology.

2. JOINT DEVELOPMENT. Prior to the date of this Agreement, Noll and/or Biomass North America commenced discussions with Duke Energy, Inc. relating to a project whereby the Technology would be used to generate combustible biomass for the production of electricity on a commercial scale (the “Commercial Development”). To date no site has been selected for the Commercial Development, however a site owned and operated by an affiliate of Biomass North America located in Chicago, Illinois at                      (the “Proposed Site”) is currently being considered as the location for such. Licensors agree to provide BNAL with any and all contacts, data, correspondence or other information relating to the Commercial Development and work together with BNAL to complete the Commercial Development consistent with the terms of this Agreement.

3. ENGINEERING SUPPORT/DEVELOPMENT PROCESS/EXTENSIONS. The parties acknowledge and understand that the commercialization of the Technology is risky and they will encounter unforeseen obstacles. The description of the projected development of the Technology in this Agreement is based on BNAL’s current engineering plans. If at any time, BNAL is in good faith working to meet its obligations hereunder, but is unable to do so because of delays in engineering, permitting, obtaining governmental approvals, construction or financing, and at such time is using commercially reasonable efforts to resolve such issues, then BNAL may extend its time for complying with its obligation to commence the Commercial Development and release from the escrow the 4,000,000 shares by an additional 180 days by issuing to Licensors an additional 100,000 shares of BNAL Common Stock, provided BNAL may do so only once during the term of this Agreement.

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In order to complete the development of the Technology, Noll will be required to provide engineering support to BNAL, for the Technology, including meeting with BNAL’s engineers, traveling to Golden, Colorado to assist BNAL in producing biomass, providing any and all current or future test results, engineering data, designs, chemical analyses and other information relating to the Technology requested by BNAL or its engineers. Upon execution of this Agreement, Noll shall provide any such information in his possession to BNAL. BNAL will pay the reasonable costs associated therewith, including the travel, meals and lodging. In addition, to further assist in the foregoing, upon obtaining the financing necessary to construct the Commercial Development, Noll shall become a Consultant of BNAL for the remainder of the term of this Agreement subject to BNAL’s payment of compensation acceptable to Noll. Noll and the BNAL shall enter into a Consulting Agreement, satisfactory to both parties, whereby Noll will be required to devote his full time consulting efforts to advise BNAL on the construction and operation of the Commercial Development and any future construction and operation of plants undertaken by BNAL and BNAL shall pay Noll compensation for such services acceptable to Noll.

4. EXCLUSIVITY. Licensors agree that during the term of this Agreement, Licensors will not grant to any third party any licenses to use the Technology, or any portion thereof anywhere in North America; provided that if BNAL shall fail to commence construction of the Commercial Development or otherwise cause the shares held in escrow for Licensors to be released within eighteen months (subject to the 180 day extension for performance as set forth in paragraph 3 above), then the license granted hereunder shall become non-exclusive, provided all other terms shall continue to apply. Notwithstanding anything in this Agreement to the contrary, the parties agree that Biomass North America shall have an exclusive right of first refusal to provide waste hauling and plant management services to CBT for any project using the Technology that is initiated within 100 miles from the City of Chicago, Illinois (the “Reserved Operating Area”), provided such services are offered to CBT on commercially reasonable terms. CBT shall be required to notify Biomass North America in writing at least thirty days prior to the time that it intends to solicit any request or enter into any contract for waste hauling or plant management services in the Reserved Operating Area. If within the thirty days following such notice, Biomass North America indicates in writing that it is capable and desires to perform all or part of such services and submits a written agreement to do so at commercially reasonable rates and on commercially reasonable terms given the then-existing market conditions in Chicago, Illinois, CBT shall be required to accept such agreements, provided that Biomass North America performs the services set forth therein in accordance with the terms of such agreements.

5. WARRANTIES . Except as set forth on Schedule 5 hereto, Licensors own all rights in and to the Technology for the purposes set forth in this Agreement, free of any liens, claims, encumbrances or other restrictions that would impair BNAL’s rights under this Agreement. To the best of Licensors’ knowledge, the Technology does not infringe the intellectual property rights of any third party. Licensors represent and warrant that as of the effective date of this Agreement they have received no notice that the Technology infringes any patent, copyright, trade secret or other intellectual property right (collectively “Intellectual Property Rights”) of any third party. Licensors have full power and authority to grant BNAL the license set forth herein and has obtained the consent of any and all parties required to enter into this Agreement. Licensors will immediately advise BNAL of any such notice received in the future as it applies to Technology.

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6. PATENT PROSECUTION. Licensors shall be responsible for all costs associated with pursuing the Technology Patents or prosecuting any parties infringing on the Technology. Licensor shall provide BNAL copies of all correspondence from and to the United Sates Patent Office, or any other correspondence relating to the Technology Patents, to BNAL within three business days of receipt by Licensors. Licensors shall use all commercially reasonable efforts to obtain a grant of the patent set forth in the Technology Patents from the United States Patent and Trademark Office. If Licensors fail to diligently prosecute the Technology Patents or to prevent infringement on the Technology Patents, BNAL may do so at its cost and expense after providing Licensors thirty days written notice of its intent to do so and failure of Licensors to comply with its obligations under this Section. If BNAL incurs expenses prosecuting or protecting the Technology Patents after such notice, such expenses shall be deducted from future payments due Licensors hereunder in an amount equal to the expenses incurred by BNAL.

7. CONFIDENTIAL INFORMATION. The parties will keep confidential any information provided to it by the other party that is proprietary to the other party and marked confidential; provided such information shall not be considered proprietary once it is in the public domain by no fault of the other party. Such confidentiality will be maintained by the other party with the same care that such party would use for its own confidential information, but
in any event with reasonable care.

8. COMPLETE AGREEMENT. This is a complete agreement binding upon the parties, their heirs, successors and assigns. It may only be modified in writing signed by officers of both parties. The execution of this Agreement shall not invalidate or make void that certain Confidentiality Agreement between the parties dated as of                     , which shall stay in effect and apply to the parties during the term of this Agreement.

9. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Missouri, excluding its choice-of-law provisions.

10. PUBLIC STATEMENTS. The parties agree immediately to publish a joint press release stating that Licensee has licensed the Technology. Further, either party is free to file with the SEC any document required to be filed there on advice of counsel (redacted in a form advised by counsel). Other public statements and press releases related to this licensing agreement are subject to approval in advance by both parties; neither party shall use the name of the other party without advance approval.

11. INDEPENDENT CONTRACTORS. The parties are independent contractors, and nothing herein shall be deemed to create any agency, joint venture or partnership relationship between them. Neither party shall have the right to bind the other to any obligation, nor have the right to incur any liability on behalf of the other.

12. FORCE MAJEURE. Neither party shall be liable to the other for delay or failure to perform if and to the extent such delay or failure to perform is due to causes beyond the reasonable control of the party affected within the two year limit on the commencement of construction of the Commercial Development.

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13. ASSIGNMENT. Neither party shall assign this Agreement or its rights hereunder without the prior written consent of the other party, except to an affiliate of that party, which consent shall not be unreasonably withheld, conditioned or delayed, except that if BNAL desires to assign this agreement to an entity purchasing substantially all of its assets and the business of BNAL will continue to operate after such acquisition, BNAL shall be entitled to assign its rights under this Agreement without the consent of Licensors, if at the time of such acquisition all shares issuable to Licensors hereunder have been released to Licensors from escrow.

14. NON-WAIVER. No course of dealing or failure of either party to enforce strictly any term, right, obligation or provision of this Agreement shall be construed as a waiver of such provision.

15. SEVERABILITY. If any provision of this Agreement shall be held invalid or unenforceable, such provision shall be deemed deleted from the Agreement and replaced by a valid and enforceable provision that achieves, as much as possible, the same purpose, and the remaining provisions of the Agreement shall continue in full force and effect.

16. ARBITRATION. ANY DISPUTES ARISING UNDER THIS AGREEMENT SHALL BE SUBJECT TO ARBITRATION CONDUCTED PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ANY SUCH ARBITRATION SHALL BE HELD IN ST. LOUIS, MISSOURI. THE PARTIES HERETO SUBMIT TO EXCLUSIVE JURISDICTION IN ST. LOUIS, MISSOURI. THE DECISION OF THE ARBITRATODR SHALL BE FINAL AND SHALL BE ENFORCEABLE IN ANY COURT HAVING JURISDICTION OVER THE PARTY AGAINST WHOM ENFORCEMENT IS SOUGHT.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date written above.

THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION ENFORCEABLE AGAINST THE PARTIES.

BIOMASS NORTH AMERICA LICENSING, INC.		BIOMASS NORTH AMERICA, LLC
By:		By:
	Anthony Noll, President		Brian Boomsma — Manager
		By:
	Anthony P. Noll — individually		Anthony P. Noll — Manager

Version.8.6.08

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EXHIBIT A — NOLL PATENTS

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EXHIBIT B — BIOMASS PATENT

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Warranty Exceptions

The following information is based on the information and belief of Anthony Pius Noll and is true and accurate to the best of his present knowledge, information and belief:

1. On 11 November 2005 Anthony P. Noll granted Dutch Energy, Inc. exclusive rights for all of North America for “Future Licensed Patents” (as amended by the First Amendment to Agreement to License Future Patents dated 1 September 2006).

2. United States Patent Application Serial No. 11/296,585 entitled “BIOMASS ENERGY PRODUCT AND PROCESSING METHOD” was filed on 6 December 2005, naming Herbert A. Ligon and Anthony P. Noll as inventors.

3. United States Patent Application Serial No. 11/296,586 entitled “SOIL AMENDMENT PRODUCT AND METHOD OF PROCESSING” was filed on 6 December 2006 naming Herbert A. Ligon and Anthony P. Noll as inventors.

4. Both of the foregoing Application Nos. 11/296,585 and 11/296,586 were filed as continuation-in-part patent applications from a parent case which was United States Patent Application Serial No. 10/713,557, published 4 August 2005 under US2005/0166812 entitled “MSW PROCESSING VESSEL” naming as inventors Tony Noll, Herb Ligon and Scott Hicks. That application is now abandoned.

5. United States Patent Application Serial No. 10/713,557 was assigned to Horizon Fuel and Financial Management, LLLP, together with any continuation-in-part patent applications based thereon.

6. A partial one-third (1/3) right, title and interest to each of the foregoing Application Serial Nos. 10/713,557; 11/296,585 and 11/296,686 was assigned by Horizon Fuel and Financial Management LLLP on 26 April 2007 to Anthony P. Noll, together with the right to file, prosecute, enforce and maintain any and all of said applications. This Assignment was forwarded electronically for recording in the U.S. Patent and Trademark Office on 18 May 2007 and was recorded on that date.

7. United States Patent Application Serial No. 11/355,632 entitled “ANGLED REACTION VESSEL”, was filed on 15 February 2006 naming Anthony P. Noll as inventor. That application has not been assigned to anyone by Anthony P. Noll.

8. On 23 October 2006, Anthony P. Noll granted an exclusive license under United States Patent Application Serial No. 11/355,632 to BioMass Worldwide Ltd.

9. On or about 1 September 2006, BioMass Worldwide Ltd. and Dutch Energy, Inc. granted to BioMass USA an exclusive license under United States Patent Application Serial No. 11/355,632 for the United States and Canada.

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10. On 5 June 2008, Dutch Energy terminated the license of United States Patent Application Serial No. 11/355,632 for the United States and Canada to BioMass USA.

11. [On [        ] 2008 Noll terminated the license of United States Patent Application Serial No. 11/355,632 for the United States and Canada to BioMass USA.]

12.	Except as to Dutch Energy, Inc. Anthony P. Noll has not granted any assignment or license of any rights he holds in said United States Patent Application Serial Nos. 10/713,557 (now abandoned); 11/296,585, nor 11,296,586.
13.	[On [        ] 2008, Dutch Energy, Inc terminated the license detailed at point 1 above.]

14.	On 9 June 2008, Anthony P. Noll granted an exclusive license for North America and Canada of United States Patent Application Serial Nos. 11/355,632, 10/713,557 (now abandoned); 11/296,585, and 11,296,586 to Biomass North America, LLC.
15.	On [        ] 2008 Biomass North America, LLC granted exclusive license of United States Patent Application Serial Nos. 11/355,632, 10/713,557 (now abandoned); 11/296,585, and 11,296,586 to Biomass North America Licensing, Inc.
16.	On [        ] 2008, Anthony P. Noll and Biomass North America, LLC entered into a deed of termination to terminate the license listed at point 14 above.

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, Edward P. Hennessey, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of CleanTech Biofuels, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 13, 2008	/s/ Edward P. Hennessey, Jr.
	Edward P. Hennessey, Jr.
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas Jennewein, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CleanTech Biofuels, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 13, 2008	/s/ Thomas Jennewein
	Thomas Jennewein
	Chief Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CleanTech Biofuels, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edward P. Hennessey, Jr., Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 13, 2008	/s/ Edward P. Hennessey, Jr.
	Edward P. Hennessey, Jr.
	Chief Executive Officer

This certification is made solely for purposes of 18 U.S.C. Section 1350 and not for any other purpose.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CleanTech Biofuels, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas Jennewein, Chief Accounting Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 13, 2008	/s/ Thomas Jennewein
	Thomas Jennewein
	Chief Accounting Officer

This certification is made solely for purposes of 18 U.S.C. Section 1350 and not for any other purpose.