ITEM 1. Business
The following description of our business should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance. These risks and other factors include, among others, those listed under “Statement Regarding Forward-Looking Information.”
Company Overview
The Company is in its development stage and is focused on being a provider of: (i) cellulosic biomass derived from municipal solid waste, also known as MSW, as a feedstock for producing energy and other chemical products and (ii) recyclables (metals, plastics, glass) from the MSW. We are the exclusive licensee in the United States and Canada of patented technology, which we refer to as our Biomass Recovery Process, that cleans and separates MSW and generates a clean, homogeneous biomass feedstock that we believe can be converted into various energy products. Our license permits us to use the biomass we derive from MSW to produce all energy products. In addition, we own the patent for a pressurized steam classification technology originally developed by the University of Alabama in Huntsville that we refer to as our PSC technology. The PSC technology is the underlying technology upon which the Biomass Recovery Process is based. Prior to March 2011, we had licensed the PSC technology to Bio-Products International, Inc. (“Bio-Products”). However, pursuant to a settlement agreement with Bio-Products in March 2009, we had the right to use the Biomass Recovery Process technology worldwide, for any product that we desired and with no royalty due to Bio-Products. We terminated the license to Bio-Products in March 2011 as further described in the section entitled “Intellectual Property Terms.”
We are a Delaware corporation. We were originally incorporated in 1996 as Long Road Entertainment, Inc., and were formed to operate as a holding company for businesses in the theater, motion picture and entertainment industries. We ceased conducting that business in 2005 and were dormant until the fall of 2006, at which time our founder and then controlling stockholder decided to pursue the sale of the company. In anticipation of that sale, we changed our name to Alternative Ethanol Technologies, Inc.
On March 27, 2007, we entered into an Agreement and Plan of Merger and Reorganization in which we agreed to acquire SRS Energy, Inc., a Delaware corporation that at that time was seeking to commercialize various technologies for the processing of waste materials into usable products. We consummated the merger on May 31, 2007 resulting in SRS Energy becoming our wholly-owned subsidiary. Effective August 2, 2007, we changed our name to CleanTech Biofuels, Inc.
We have no operating history as a producer of biomass feedstocks or any energy products and have not constructed any operating plants to date. We have not earned any revenues to date and our current capital and other existing resources are not sufficient to fund the implementation of our business plan or our required working capital. We will require substantial additional capital to implement our business plan and we may be unable to immediately obtain the capital required to continue operating.
Plan of Operation
Our focus is to secure sufficient capital to fund our current working capital requirements and the construction of a commercial plant as described further in this section. We have had an ongoing lack of liquidity. Currently, we do not have sufficient capital to continue to fund our proposed operations, and are relying on the minimal assets on hand to fund our limited operations and corporate existence. All of our on-going and proposed developments/projects require a significant amount of capital that we currently do not have. While we continue to pursue outside sources of funding, we have not had success securing meaningful amounts of outside capital in recent years. As a result, we can provide no assurance that we will secure any source of funding in the immediate time frame required and the failure to do so will likely result in an inability to continue operations.
Our company was initially conceived as a fully-integrated producer of cellulosic ethanol from MSW. Based on our investigation and acquisition of new technologies and research and development of our existing technologies in 2008, we re-focused our business to the commercialization of our Biomass Recovery Process technology for cleaning and separating MSW into its component parts and initiated a plan to consolidate the ownership and/or rights to use intellectual property around this technology. The technology is currently in commercial use in Coffs Harbor, Australia by an operator not owned by the Company (the “Third-Party Operator”). As a result, we believe this technology could be implemented commercially in the United States and elsewhere. In furtherance of our focus, we are continuing our ongoing search for an outside source of financing that will provide the capital for us to design, build, and operate a commercial biomass recovery plant that will allow us to produce biomass feedstock for customer evaluation, trial purchases, and/or to be used in equipment selection for power generation and possibly combined heat and power ("CHP"). Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, and biofuel research firms for evaluation. In addition to seeking a source of funding for plant development, the Company hopes to license and/or develop potential commercial projects as they present themselves. All of our developments plan to focus on cleaning and separating MSW into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics). Our plans may also include possibility of operating a MSW transfer station where we could install our technology.
Biomass Feedstock Production
The Company strives to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation, trial purchases, and/or power generation. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, power and CHP equipment suppliers, and biofuel and chemical research firms for evaluation. In addition to research and development, the Company also plans to license and/or develop potential commercial projects.
We hope to develop a plant in a major metropolitan area. We are working to develop one or more locations where waste collected would be processed using our technology and the biomass produced used to create heat and/or power.
In addition to the developments we are currently contemplating, from time to time other development opportunities are presented to us and we evaluate those potential developments. If we are able to operate a plant, and thereafter refine our know-how with respect to implementation of the technology, we intend to seek to partner with waste haulers, landfill owners and municipalities to implement the technology across the United States and internationally.
Any development of commercial plants and/or implementation of the licensing of our technology described above will require significant additional capital, which we currently do not have. To date, we have not been successful in raising the amount of capital necessary to implement our business plan and we cannot provide any assurance that we will be able to raise sufficient additional capital. While we anticipate that financing for the commercial biomass recovery plant and these other potential projects could also be provided in part via tax exempt bond financing or through the use of loan guarantees from local, state and federal authorities, we have not secured any such financing and there can be no assurance that we will be able to secure any such financing.
In October 2014, we entered into a nonbinding Memorandum of Understanding (“MOU”) with various parties (combined, the “Parties”) which memorializes the Parties’ intent for CleanTech to develop and operate a MSW transfer station and biomass recovery plant on land in Jersey City, NJ not owned by CleanTech. Under the terms of the MOU, Parties agree to work towards Definitive Agreements, as soon as reasonably practicable, including but not limited to: an escrow agreement whereby CleanTech would fund engineering and legal expenses incurred during the permitting application process, an option agreement providing CleanTech the right to purchase the permit applicant, a lease agreement for a period of not less than 20 years, including two 5 year options to extend the term of the lease to 30 years, and non-compete agreements from the parties. This MOU will terminate upon the earlier of: (i) execution of the Definitive Agreements, (ii) mutual agreement between the Parties, and (iii) 5 PM (EST) on June 29, 2015. While this MOU has expired, we continue to work towards a Definitive Agreement.
25 Van Keuren LLC
On June 23, 2016, CleanTech entered into an Acquisition Agreement with 25 Van Keuren LLC, a New Jersey Limited Liability Company (“Van Keuren”) pursuant to which the Company acquired 99% of the outstanding membership interests in Van Keuren and the former members of Van Keuren retained a 1% interest. As payment for the acquisition, the Company issued in the aggregate 1,000,000 shares of restricted Common Stock of the Company (par value $0.001) to certain holders of membership interests in Van Keuren. As of the close of business on June 23, 2016, the Company stock quote was $0.05. Van Keuren has had no operations or revenue since inception and has solely been working towards obtaining the permits required to operate a municipal solid waste transfer station and material recovery facility (“TS/MRF”). The total assets of Van Keuren at the time of the acquisition were $51,000 (2.3% of the Company’s assets). The liabilities and equity consisted of accounts payable of $27,000 and member equity of $24,000. As of August 29, 2018, the Company’s investment in Van Keuren was divested pursuant to a Settlement Agreement and Release among the Company and the former members of Van Keuren (the “Van Keuren Settlement Agreement”), and the related intangible assets were written off. For more information, see Part I - Item 3. Legal Proceedings.
The Solid Waste Management Plan of the New Jersey Department of Environmental Protection (“DEP”), following certification of an amendment to the New Jersey Sports and Exposition Authority, includes the proposed operation of a TS/MRF at a site located in Jersey City, New Jersey. CleanTech and Van Keuren intend to seek the necessary permits and approvals from the New Jersey DEP to build, own and operate the TS/MRF. As part of the Van Keuren Settlement Agreement, CleanTech acquired a one-year option to lease certain property located in Jersey City within 30 days after the final permit issues from the New Jersey DEP, which expires on August 29, 2019. The Company intends to: (1) install its Biomass Recovery Process on the site, and (2) operate the TS/MRF. Costs incurred towards obtaining the required permits were recorded as an intangible asset on our consolidated financial statements. These costs were removed from the consolidated financial statements as a part of the divestiture of CleanTech’s interest in Van Keuren.
On December 6, 2016, the Company entered into a non-binding Memorandum of Understanding (“MOU”) with Mercer Group International, Inc. which memorializes the parties intent for CleanTech to lease 4 acres inside of Mercer Groups’ solid waste transfer station facility where CleanTech intends to install its Biomass Recovery Process technology. The MOU also includes a provision for Mercer Group to supply MSW and pay a tipping fee to the CleanTech operation. This MOU was for an initial term of 90 days and expired on March 6, 2017. The Parties continue to work toward a definitive lease and supply agreement.
Bio-Fuel and Bio-Chemical Joint Testing/Research
If we are able to process MSW into biomass through our potential future biomass recovery plant and/or in future commercial vessels, we hope to enter into joint research agreements with companies looking to process biomass in their system(s) for various types of energy and chemical production. We believe that this testing and research could provide possible revenue streams, projects and additional opportunities for use of our biomass.
In February 2012, we entered into a Confidentiality Agreement and Material Transfer Agreement with Sweetwater Energy, Inc. (“Sweetwater”), a renewable energy company with patent-pending technology to produce sugars from several types of biomass for use in the biofuel, biochemical and bioplastics markets. We agreed and coordinated with the Third-Party Operator in Australia to ship 10 pounds of biomass produced at the Third-Party Operator’s facility to the Sweetwater lab for testing. The shipment arrived in May 2012 and Sweetwater has completed their initial testing. In June 2011, we entered into a Confidential Disclosure and Sampling Agreement with Novozymes North America, Inc., a developer of industrial enzymes, microorganisms, and biopharmaceutical ingredients for conversion into a variety of energy and chemical products. In July 2011, we supplied a sample of our biomass product for testing in their enzymatic hydrolysis process. Some initial testing was completed during the 3rd Quarter of 2011. We expect further testing to occur for both of these companies and for possible additional companies upon securing the requisite financing to build a biomass recovery plant to process MSW.
New Technologies; Commercializing Existing Technologies
Because of our ability to produce a clean, homogenous biomass feedstock, we are frequently presented with the opportunity to partner with or acquire new technologies. In addition to developing our current technologies, we intend to continue to add technologies to our suite of solutions that complement our core operations. We believe that our current technologies and aspects of technologies in development or contemplation will enable us to eventually expand our business to use organic material from other waste streams such as municipal bio-solids from waste water facilities and animal waste for fuel production.
To commercialize our technology, we anticipate we will need to:
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construct and operate a commercial plant that: (i) processes MSW into cellulosic biomass for conversion into energy or chemical products and (ii) separates recyclables (metals, plastics, glass) for single-stream recycling;
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identify and partner with landfill owners, waste haulers and municipalities to identify locations suitable for our technology; and
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pursue additional opportunities to implement our technology in commercial settings at transfer stations and landfills in our licensed territories.
Our ability to implement this strategy is heavily dependent on our ability to raise significant amounts of additional capital and to hire appropriate managers and staff. Our success will also depend on a variety of market forces and other developments beyond our control.
Industry Overview
There are two types of MSW Disposal:
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Municipal Solid Waste Landfills (“MSWLFs”) - includes municipal solid waste, commercial waste, industrial waste, construction and demolition debris, and bioreactors, and
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Mass Burn/Incineration Plants
Municipal Solid Waste Landfills
MSWLFs primarily receive household waste and commercial waste. MSWLFs can also receive non-hazardous sludge, industrial solid waste, and construction and demolition debris. All MSWLFs must comply with various federal, state and local laws and regulations.
Disposing of waste in a landfill involves burying waste, and this remains a common practice in most countries. Historically, landfills were often established in disused quarries, mining voids or borrow pits. A properly-designed and well-managed landfill can be a hygienic and relatively inexpensive method of disposing of waste materials. Older, poorly-designed or poorly-managed landfills can create a number of adverse environmental impacts such as wind-blown litter, attraction of vermin, and generation of liquid leachate. Another common byproduct of landfills is gas (mostly composed of methane and carbon dioxide), which is produced as organic waste breaks down anaerobically. This gas can create odor problems, kill surface vegetation, and contributes to global warming.
Waste haulers or municipalities pay tipping fees, or gate rates, on a per ton basis to dispose of garbage at a landfill. Gate rates operate in a manner similar to the published prices for airline tickets or hotels, before discounts or contract prices (which could be higher or lower) are considered. The gate rate is the true daily market value of the tipping fee.
Mass Burn/Incineration Plants
Mass Burn - Mass burn is combusting MSW generally without any pre-processing or separation. The resulting steam is employed for industrial uses or for generating electricity. Mass burn facilities are sized according to the daily amount of solid waste they expect to receive. Most mass burn plants can remove non-combustible steel and iron for recycling before combustion using magnetic separation processes. Other non-ferrous metals can be recovered from the leftover ash.
Waste-to-Energy (WTE) Plants - Current operating WTE plants burn MSW in a controlled environment to create steam or electricity. Through this process the volume of solid waste is reduced by about 90%.
Modular Incinerators - Modular incinerators are small mass burn plants, with a capacity of 15 to 100 tons per day. The boilers for modular incinerators are built in a factory and shipped to the WTE site, rather than being built on the WTE site itself. The advantage of a modular WTE incinerator is flexibility. If more capacity is needed, modular WTE units can be added. These facilities are used primarily by small communities and industrial sites. Costs limit the use of this technology because the return on investment in terms of energy produced over time is much lower than in mass burn plants.
Refuse-Derived Fuel (RDF) Plants - RDF plants process solid waste before it is burned. A typical plant will remove non-combustible items, such as glass, metals and other recyclable materials. The remaining solid waste is then shredded into smaller pieces for burning. RDF plants require significantly more sorting and handling than mass burn, but can recover recyclables and remove some potentially environmentally harmful materials prior to combustion. RDF can be burned in power boilers at factories or even at large housing complexes. Sometimes RDF materials are "densified" (compacted at high pressure) to make fuel pellets. The "pellet fuel" may also include various sludges, by-products of municipal or industrial sewage treatment plants.
MSW contains a diverse mix of waste materials, some benign and some very toxic. Effective environmental management of MSW plants aims to exclude toxics from the MSW-fuel and to control air pollution emissions from the WTE plants. Toxic materials include trace metals such as lead, cadmium and mercury, and trace organics, such as dioxins and furans. Such toxins pose an environmental problem if they are released into the air with plant emissions or if they are dispersed in the soil and allowed to migrate into ground water supplies and work their way into the food chain. The control of such toxics and air pollution are key features of environmental regulations governing MSW fueled electric generation.
U.S. EPA rules are among the most stringent environmental standards for WTE facilities in the world. These rules mandate that all facilities use the most modern air pollution control equipment available to ensure that WTE smokestack emissions are as clean as possible, and are safe for human health and the environment.
Burning any fuel, including MSW, can produce a number of pollutants, such as carbon monoxide, sulfur dioxide, and fine particles containing heavy metals. Other toxic organic compounds, such as dioxins, are also potential emissions from any combustive activity where certain chemical compounds are present, a situation that could take place in the WTE process. Air emission control devices in a WTE facility usually include:
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Dry Scrubbers - these "wash" the air emissions from the WTE process (called the gas stream) and remove any acidic gases by passing the gas stream through a liquid.
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Electrostatic Precipitators (ESP) - these use high voltage electricity to remove up to 98% of all particles remaining in the gas stream after passing through the scrubbers, including any heavy metal particles.
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Fabric Filters (baghouses) - these consist of a series of nearly two thousand fabric bags made of heat-resistant material which filter remaining particles from the gas stream. This includes any large concentrations of condensed toxic organic compounds (such as dioxins) and heavy metal compounds.
Incinerators and RDF processors are paid tipping fees for the garbage that they accept. Typically, these fees are costlier than the fees paid to landfill operators, largely because of the high capital and operating costs at combustion facilities.
Competition
Competition in our industry will primarily come from Mass Burn, RFD, and/or WTE plants if we produce power and steam. All of these types of plants use MSW for their feedstock.
Many of these plants are operational and have been operating for years in the United States, and thus have substantially more operating experience than our company. We believe our Biomass Recovery Process may produce a cleaner, more homogenous fuel for boilers and gasifiers.
Environmental Matters
We believe our operations will be subject to international, federal, state and local laws and regulations with regard to air and water quality, hazardous and solid waste disposal and other environmental matters upon operation. There is always a risk that the federal agencies may enforce certain rules and regulations differently than state and local environmental administrators. Federal, state and local rules and regulations are subject to change, and any such changes could result in greater regulatory burdens on plant operations. We could also be subject to environmental or nuisance claims from adjacent property owners or residents in the areas arising from possible foul smells, noise or other air or water discharges from the plant. We do not know the potential cost of these requirements or potential claims. Environmental laws and regulations that may affect us in the future may include, but are not limited to:
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The Clean Air Act, as well as state laws and regulations impacting air emissions, including State Implementation Plans related to existing and new National Ambient Air Quality Standards for ozone and particulate matter. Owners and/or operators of air emission sources are responsible for obtaining permits and for annual compliance and reporting.
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The Clean Water Act which requires permits for facilities that discharge wastewaters into the environment.
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The Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, which requires certain solid wastes, including hazardous wastes, to be managed pursuant to a comprehensive regulatory regime.
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The National Environmental Policy Act, which requires federal agencies to consider potential environmental impacts in their decisions, including siting approvals.
Government Approvals
The Company is not currently subject to any government approvals or oversight for its current operations other than normal corporate governance and taxes. However, if we are able to begin developing commercial production facilities, we will be subject to multiple federal, state and local environmental laws and regulations, such as those described above and for employee health and safety. In addition, some of these laws and regulations will require our prospective facilities to operate under permits that are subject to renewal or modification. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns.
Our Technology
We believe we can convert MSW into cellulosic material using our Biomass Recovery Process, which can then be used by a variety of third party technologies as a feedstock to process that cellulosic material into a variety of energy and chemical products.
Biomass Recovery Process
MSW contains valuable resources if they can be recovered economically. Waste haulers often bring unsorted waste by truck to material recovery facilities, also known as MRFs, for sorting and removal of selected materials prior to disposal in sanitary landfills. In addition, certain customers of waste haulers separate recyclables prior to collection. Per a February 2016 U.S. Environmental Protection Agency (“EPA”) update on MSW, approximately 34.3% of MSW was recycled or composted in 2013.
The PSC technology was developed at the University of Alabama in Huntsville and improved by Anthony Noll into the technology we refer to as the Biomass Recovery Process. The process separates curbside MSW into organic and inorganic materials using a patented and proprietary process that involves a unique combination of steam, pressure and agitation. The separation is accomplished by placing waste material in a rotating pressure vessel, or autoclave. In the autoclave, the material is heated to several hundred degrees, which sterilizes the waste material, while the pressure and agitation cause a pulping action. This combination is designed to result in a large volume reduction, yielding the following two sterilized resource streams for further manufacturing of new products:
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Cellulosic biomass, a decontaminated, homogeneous feedstock that we expect will represent approximately 50 to 60 percent of the incoming MSW and will be suitable for conversion to multiple energy or chemical products, and
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Separated recyclables (steel cans and other ferrous materials, aluminum cans, plastics, and glass), which we expect will represent about 25 percent of the MSW input and are sorted and can be sold to recyclers.
The process also creates residual waste (fines, rocks, soil, textiles and non-recyclable fractions), which we expect will represent the remaining 15 to 25 percent of the MSW input. We do not expect to be able to recover any value in this residual waste. We will be required to deliver this waste to landfills, and will accordingly incur tipping fee expenses.
The process is currently used in a commercial plant operated by the Third-Party Operator in Coffs Harbor, Australia which has been in operation for over ten years. We believe that our process represents significant improvement over other autoclave technologies currently in use because of:
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the relationship between agitation of the waste material, moisture, and the temperature and pressure of steam in the vessel uses less energy while obtaining a cleaner biomass resource;
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the method of introduction of steam into the autoclave vessel, the pressure range, along with the method of full depressurization, and treatment of the steam being vented from the process to prevent air pollution make our process more environmentally friendly than any other means to handle MSW;
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the method of mixing the heat and steam with the waste uniformly throughout the vessel creates a homogenous feedstock for fuel production; and
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the direct and critical correlation between the length and diameter of the vessel, internal flighting and the total tonnage of waste to be processed for proper mixing and product yield.
If we are able to continue to develop our business and pursue opportunities, we may incur research and development costs. We incurred no costs in 2018 and 2017 for research and development.
Principal Products or Services and their Markets
If we determine that our licensed technologies are commercially viable and we are able to raise a significant amount of additional capital, we may be in a position to begin to license and/or enter into long-term contracts with municipalities, solid waste haulers, and operators of landfills and materials recovery facilities to process a large portion of their waste streams into biomass and recyclable materials.
Energy/Chemicals
We expect the primary product we will sell will be biomass from our Biomass Recovery Process to be used for conversion to energy or chemical products. We believe our potential biomass product can be used in multiple varieties of energy production systems. We expect the uses for our biomass product to potentially expand as new energy production technologies are developed.
MSW Processing Services
We believe that the opportunity to help communities, haulers and landfill managers reduce the amount of material transported and deposited in landfills is large and growing. The Resource Conservation and Recovery Act of 1991, referred to as RCRA, requires landfills to install expensive liners and other equipment to control leaching toxics. Due to the increased costs and expertise required to manage landfills under RCRA, many small, local landfills closed during the 1990’s. Larger regional landfills were built requiring increased transportation costs for the waste haulers. As a result, landfill space is increasingly scarce and disposal costs have been increasing.
Currently, landfill operators charge a tipping fee to deliver MSW to a landfill, waste-to-energy facility, recycling facility, transfer station or similar facility. Tipping fees vary widely based on geographic location and the number of available places to dispose of MSW in a given location. Because of the increasing cost pressures on waste haulers and based on current tipping fee pricing, we believe we will be able to negotiate a payment of part of their tipping fee from waste haulers who deliver MSW to us for processing that would range from as low as $35 per ton in some central parts of the country to over $110 per ton in the Northeast and parts of the Southeast. The availability of tipping fees at favorable rates will be a key component of our business.
Recyclable Byproducts
We anticipate that our Biomass Recovery Process will generate other recyclable byproducts from the processing of MSW, such as aluminum, metals, tin, steel, glass and plastic (typically 20 to 25 percent of the total waste stream). The markets for these recovered products are volatile and subject to rapid and unpredictable market changes making it impossible at this time to provide estimated per ton cost to revenue information.
Sources and Availability of Raw Materials
We believe the emergence of technologies to convert MSW to energy or chemicals is opening new opportunities. What was once perhaps the greatest sanitation and health challenge for communities may eventually become an economic and environmental asset. Instead of adding to landfills already nearing capacity limits, converting MSW into biomass may provide one of the building blocks to a more sustainable energy future.
Americans produce more than 250 million tons of MSW annually. About 35% of this waste is currently recovered and recycled. We estimate that approximately up to an additional 45-50% could potentially be recovered. As various waste processing technologies are refined, competition for this future resource will likely intensify. As a result, it will be important for us to attempt to secure access to as much MSW as possible through long-term feedstock supply agreements with operators of materials recovery facilities and landfills.
Intellectual Property Terms
Biomass North America Licensing, Inc.
On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc., an Illinois corporation (“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 the patented technology that cleans and separates MSW that we refer to as the Biomass Recovery Process, which is owned by Biomass North America, LLC, the former parent of Biomass (the “Licensor”). In July 2010, the United States Patent and Trademark Office issued US patent number 7,745,208 for this process (the “BRP Patent”). The BRP Patent expires in June 2028.
In accordance with a November 2013 amendment, the Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process which includes no performance requirements on the Company; the license agreement is for a term of 21 years from the date of the amendment or the life of any patent issued for the Biomass Recovery Process, including any amendments, modifications or extensions; the license requires that the Company pay a royalty in the amount of $2.00 per ton of MSW used in the Biomass Recovery Process to the Licensor; and the Company released the 4,000,000 shares of common stock to the Licensor previously held in escrow since the merger.
PSC Patent
The Company owns U.S. Patent No. 6,306,248 (the “PSC Patent”), which is the underlying technology upon which the BRP Patent is based. The Company acquired the PSC Patent on October 22, 2008, pursuant to a Patent Purchase Agreement with World Waste Technologies, Inc. (“WWT”). The Patent is the basis for the pressurized steam classification technology that cleans and separates MSW into its component parts, which we refer to as the PSC technology.
Employees
The Company currently has one full-time employee, its Chief Executive Officer and Interim Chief Financial Officer, Edward P. Hennessey, Jr., and two part-time employees, its Chief Technology Officer, David Fenton and its VP-Business Development, Scott Fenton. Both David and Scott Fenton are continuing their engineering consulting business, Fenton Engineering International, on a full-time basis and are available to the Company as needed. Neither David nor Scott Fenton receive a salary from the Company, but they are eligible for stock awards.
Access to SEC Filings
We electronically file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
Interested readers can access, free of charge, all of our filings with the SEC and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, through the About Us/Investor Relations/SEC Filings section of our website at www.cleantechbiofuels.net as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the SEC. We will also provide a copy of these documents, free of charge, to any stockholder upon written request addressed to: CleanTech Biofuels, Inc., 7386 Pershing Ave, St. Louis, MO 63130.
ITEM 1A.
ITEM 1A. Risk Factors
You should carefully consider the following risk factors and other information contained in this annual report on Form 10-K when evaluating our business and financial condition. Additional risks not presently known to us and risks that we currently deem immaterial may also impair our business operations and prospects.
Risks Related to Our Business
We need to obtain significant additional capital to fund our current and planned operations and complete the implementation of our business plan, and the failure to secure additional capital will prevent us from commercializing our technology and executing our plan of operation.
We have a history of losses and working capital deficits. We do not currently have enough cash or other liquid assets to fund our proposed business operations, although to date we have been able to fund our basic corporate obligations. If we are not able to obtain additional financing in the immediate future, we will be required to further delay our development until such financing becomes available and may be required to cease operations. In order to fund the development of our business plan, we will be required to identify and execute upon some form of outside funding, such as to:
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obtain additional debt or equity financing,
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secure significant government grants, and/or
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enter into a strategic alliance with a larger energy or chemical company to provide funding.
The amount of funding needed to complete the development and implementation of our business plan will be very substantial and may be in excess of the amount of funding we may be able to obtain. We are continuing to attempt to identify the sources for additional financing that we will require, but currently do not have binding commitments from any third parties to provide this financing. Our ability to obtain additional funding will be subject to a number of factors, including market conditions, acceptance of our business plan, the quality of our biomass and investor sentiment. These factors may make the timing, amount, terms and conditions of additional funding unattractive. For these reasons sufficient funding, whether on terms acceptable to us or not, may not be available. If we are unable to obtain sufficient financing on a timely basis, the development of our technology, facilities and/or products will be further delayed and we could be forced to limit or terminate our operations altogether. Further, any additional funding that we obtain in the form of equity will reduce the percentage ownership held by our existing stockholders.
We have no operating experience and may not be able to implement our business plan.
As a company in the development stage, there is no material operating history upon which to evaluate our business and prospects. We do not expect to commence any significant operations until we test and refine information from a commercial plant for biomass production and/or develop or license an operating facility. As a result, we expect to sustain losses without corresponding revenues, which could result in the Company incurring a net operating loss that will increase continuously for the foreseeable future. We cannot provide any assurance that we will be profitable in any given period or at all.
In addition, we currently have only one full-time employee, our Chief Executive Officer who is acting as the Company’s Interim Chief Financial Officer, who spends at least 40 hours a week on our business. Collectively, he has less experience in operating an alternative energy company compared to many of our competitors. Moreover, given the rapid changes in the industry, we face challenges in planning and forecasting accurately. Our lack of expertise and resources may have a negative impact on our ability to implement our strategic plans, which may result in our inability to commence meaningful operations, achieve profitable operations or otherwise succeed in other aspects of our business plan.
Our consolidated financial statements reflect a “going concern” qualification.
Because of our lack of revenues, lack of working capital, and lack of any assured financing sources, our consolidated financial statements raise doubt about our ability to continue as a going concern because of our financial condition, and substantial losses. The opinion of our auditors for the year ended December 31, 2018 expressed a qualification about our ability to continue as a going concern. This condition has continued since those consolidated financial statements, and we expect that these conditions will continue for the foreseeable future unless we are able to raise a substantial amount of additional financing. In view of the matters described, our ability to continue to pursue our plan of operations as described herein is dependent upon our ability to raise the capital necessary to meet our financial requirements on a continuing basis.
Our Biomass Recovery Process technology may have design and engineering issues that may increase the costs of using the technology.
The Biomass Recovery Process technology involves the use of a rotating pressure vessel, or autoclave, to combine heat, pressure and agitation to convert MSW into biomass. Although technologies that involve the separation and processing of MSW using large-scale autoclaves have not been widely adapted in commercial applications, two vessels using this process are currently operating in Australia. We have completed a small-scale research and testing vessel that initially processed MSW for testing purposes.
Although we believe the autoclaves will operate properly on a commercial scale, we may encounter design and engineering problems when we try to implement this technology on a large-scale for biomass and energy production. Any design, engineering or other issue may cause delays, increase production and development costs and require us to shut down our operation.
We may not have sufficient legal protection of our technologies and other proprietary rights, which could result in the loss of some or all of our rights or the use of our intellectual properties by our competitors.
Our success depends substantially on our ability to use our owned and/or licensed technologies and to keep our licenses in full force, and for us and our technology licensor to maintain our patents, maintain trade secrecy and not infringe the proprietary rights of third parties. There can be no assurance that the patents of others will not have an adverse effect on our ability to conduct our business. Further, we cannot be sure that others will not independently develop similar or superior technologies, duplicate elements of our technologies or design around them. Even if we are able to obtain or license patent protection for our process or products, there is no guarantee that the coverage of these patents will be sufficiently broad to protect us from competitors or that we will be able to enforce our patents against potential infringers. Patent litigation is expensive, and we may not be able to afford the costs. Third parties could also assert that our process or products infringe patents or other proprietary rights held by them.
We also rely on trade secrets, proprietary know-how and technology that we will seek to protect, in part, by confidentiality agreements with our prospective joint venture partners, employees and consultants. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
We will be dependent on our ability to negotiate favorable feedstock supply and biomass off-take agreements.
In addition to proving and commercializing our technology, the viability of our business plan will depend on our ability to develop long-term supply relationships with municipalities, municipal waste haulers, MRF operators, and/or landfills to provide us with the necessary waste streams on a long-term basis. We also will depend on these haulers, operators and facilities to take residual waste streams from our plants and to deliver or accept these streams for land filling. Additionally, we will need to develop off-take agreements with conversion technology companies and/or energy companies for the consumption of our biomass. We currently have no such relationships or agreements and there can be no assurance that we will be able to enter into any such relationships or agreements. If we are unable to create these relationships and receive supply agreements and/or off-take agreements on terms favorable to us, we may not be able to implement our business plan and achieve profitability.
We may not be able to attract and retain management and other personnel we need to succeed.
We currently have one full-time employee, our Chief Executive Officer who is also the Company’s Interim Chief Financial Officer. If we are able to implement our business plan, part of our success is expected to depend on our ability to recruit senior management and other key technology development, construction and operations employees. Especially given our lack of financial resources, we cannot be certain that we will be able to attract, retain and motivate such employees. The inability to hire and retain one or more of these employees could cause delays or prevent us from implementing our business strategy. The majority of our new hires could be engineers, project managers and operations personnel. There is intense competition from other companies and research and academic institutions for qualified personnel in the areas of our activities. If we cannot attract and retain, on acceptable terms, the qualified personnel necessary for the development of our business, we may not be able to commence operations or grow at an acceptable pace.
We incur significant costs as a result of being a public company.
As a public company, we are incurring significant legal, accounting and other expenses and our corporate governance and financial reporting activities are more time-consuming. These costs and obligations divert resources from developing and furthering our business plan and operations. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, has required changes in corporate governance practices of public companies. For example, as a public company, we are required to adopt policies regarding internal controls and disclosure controls and procedures. In addition, we are incurring additional costs associated with our public company reporting requirements. These rules and regulations could make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
The Company has incurred significant indebtedness and has various obligations to satisfy or repay that indebtedness.
The Company has issued various forms of debt instruments to raise capital and certain of these obligations have matured and are due. The Company has obligations to repay or otherwise satisfy its debt obligations. This indebtedness could limit the Company’s ability to incur additional indebtedness for capital raising purposes, securing a line of credit, or otherwise. A significant portion of the Company’s resources may need to be dedicated to the repayment of such indebtedness which would reduce the amount of funds available for other corporate purposes. The Company’s ability to meet its expected debt obligations and reduce its indebtedness will be dependent upon the Company’s future performance, which will be subject to the success of its business strategy, general economic conditions, and other factors affecting the Company’s operations, many of which are beyond the Company’s control.
Our senior management’s limited experience managing a publicly traded company diverts management’s attention from operations and could harm our business.
Our management team has limited experience managing a publicly traded company and complying with federal securities laws, including compliance with disclosure requirements on a timely basis. Our management is required to design and implement appropriate programs and policies in response to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our business.
Our failure to adequately adhere to the established corporate governance practices or the failure or circumvention of our controls and procedures could seriously harm our business.
Compliance with the evolving corporate governance practices takes a significant amount of management time and attention, particularly with regard to disclosure controls and procedures and internal control over financial reporting. Although we have reviewed our disclosure and internal controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.
Risks Related to our Industry
As a small company with minimal financial resources, we are at a competitive disadvantage to our competitors, which include larger, established companies that have substantially greater financial, technical, manufacturing, marketing, distribution and other resources than us.
The alternative energy and waste hauling/landfill industries in the United States are highly competitive and continually evolving as participants strive to distinguish themselves. Competition is likely to continue to increase with the emergence and commercialization of new alternative energy technologies. Even if we are successful in implementing our business plan, we may not be able to compete within these industries. Moreover, the success of alternative energy generation technologies may cause larger, conventional energy companies with substantial financial resources to enter the alternative energy industry. These companies, due to their greater capital resources and substantial technical expertise, may be better positioned to develop and exploit new technologies. Our inability to respond effectively to our competition could result in our inability to commence meaningful operations, achieve profitable operations or otherwise succeed in other aspects of our business plan.
Our success may be dependent on continued high energy prices.
Prices for energy can vary significantly over time and decreases in price levels could adversely affect our profitability and viability. Worldwide energy prices are subject to a myriad of factors almost all of which are completely beyond our ability to control. Frequently, unforeseen events can have a dramatic impact on the price paid for energy. If the prices for more traditional sources of energy remain relatively low, such a pricing environment could cause our business model to be unviable and our technology worthless.
Waste processing and energy production is subject to inherent operational accidents and disasters from which we may not be able to recover, especially if we have only one or a very small number of facilities.
Our anticipated operations would be subject to significant interruption if any of our potential facilities experience a major accident or are damaged by severe weather or other natural disasters. In particular, processing waste and producing energy products is subject to various inherent operational hazards, such as equipment failures, fires, explosions, abnormal pressures, blowouts, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Currently we do not have any insurance to cover those risks. We intend to seek insurance appropriate for our business before we commence significant operations. The insurance that we plan to obtain, if obtained, may not be adequate to cover fully the potential operational hazards described above.
Alternative technologies could make our business obsolete.
Even if our technology proves to be commercially feasible, there is extensive research and development being conducted in alternative energy sources. Technological developments in any of a large number of competing processes and technologies could make our technology obsolete and we have little ability to manage that risk.
Risks Related to Government Regulation
Enforcement of energy policy regulations could change.
Energy policy in the United States is subject to ongoing change. Over the last few decades, the United States Congress has passed separate major pieces of legislation addressing energy policy and related regulations. We anticipate that energy policy will continue to be a very important legislative priority on a national, state and local level. As energy policy continues to evolve, the existing rules and regulations that benefit our industry may change. It is difficult, if not impossible, to predict changes in energy policy that could occur on a federal, state or local level in the future. The elimination of or a change in any of the current rules and regulations could create a regulatory environment that prevents us from developing a commercially viable or profitable business.
Costs of compliance may increase with changing environmental and operational safety regulations.
As we implement our business plan, we will become subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground, the generation, storage, handling, use, transportation and disposal of hazardous materials, and the health and safety of our employees. In addition, some of these laws and regulations require our contemplated facilities to operate under permits that are subject to renewal or modification. These laws, regulations and permits can often require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damages, criminal sanctions, permit revocations and/or facility shutdowns.
Furthermore, we may become liable for the investigation and cleanup of environmental contamination at any property that we would own or operate and at off-site locations where we may arrange for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under CERCLA, or other environmental laws for all or part of the costs of investigation and/or remediation, and for damages to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from those properties. Some of these matters may require expending significant amounts for investigation, cleanup, or other costs.
In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws, or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at any future production facility. Present and future environmental laws and regulations applicable to MSW processing and energy production, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial expenditures that could have a material adverse effect on the results of our contemplated operations and financial position.
The hazards and risks associated with processing MSW and producing and/or transporting various energy or chemical products (such as fires, natural disasters, explosions, and abnormal pressures and blowouts) may also result in personal injury claims or damage to property and third parties. As protection against operating hazards, we intend to maintain insurance coverage against some, but not all, potential losses. We could, however, sustain losses for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. Events that result in significant personal injury or damage to our property or third parties or other losses that are not fully covered by insurance could have a material adverse effect on the results of our contemplated operations and financial position.
Risks related to our Common Stock and Stock Price Fluctuation
Our stock is thinly traded, so you may be unable to sell at or near ask prices or at all.
Our common stock trades on the OTCQB. Shares of our common stock are thinly-traded, meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including:
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we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and
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stock analysts, stock brokers and institutional investors may be risk-averse and be reluctant to follow an unproven, early stage company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.
Consequently, our stock price may not reflect an actual or perceived value. Also, there are periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer that has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. A broader or more active public trading market for our common shares may not develop or if developed, may not be sustained. Due to these conditions, you may not be able to sell your shares at or near ask prices or at all if you need money or otherwise desire to liquidate your shares.
Even if an active trading market develops, the market price for our common stock may be highly volatile and could be subject to wide fluctuations.
We believe that newer alternative energy companies and companies that effect reverse mergers, such as our company, are particularly susceptible to speculative trading that may not be based on the actual performance of the company, which increases the risk of price volatility in a common stock. In addition, the price of the shares of our common stock could decline significantly if our future operating results fail to meet or exceed the expectations of market analysts and investors. Some of the factors that could affect the volatility of our share price include:
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significant sales of our common stock or other securities in the open market;
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speculation in the press or investment community;
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actual or anticipated variations in quarterly operating results;
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changes in earnings estimates;
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publication (or lack of publication) of research reports about us;
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increases in market interest rates, which may increase our cost of capital;
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changes in applicable laws or regulations, court rulings and other legal actions;
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changes in market valuations of similar companies;
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additions or departures of key personnel;
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actions by our stockholders; and
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general market and economic conditions.
Trading in our common stock is subject to special sales practices and may be difficult to sell.
Our common stock is subject to the SEC's “penny stock” rule, which imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. Penny stocks are generally defined to be an equity security that has a market price of less than $5.00 per share. For purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth or a joint net worth with the person’s spouse, in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of our shareholders in this offering to sell their securities in any market that might develop.
Stockholders should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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“boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons;
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excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our common stock.
Substantial future sales of our common stock shares in the public market could cause our stock price to fall.
If our stockholders sell substantial amounts of our common stock, or the public market perceives that stockholders might sell substantial amounts of our common stock, the market price of our common stock could decline significantly. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that our management deems appropriate. As of December 31, 2018, we had: (i) 99,333,409 shares of our common stock outstanding, and (ii) outstanding convertible notes (including accrued interest) with warrants convertible into approximately 68.0 million shares of our common stock, and warrants, immediately exercisable and representing the right to purchase approximately 8.8 million shares of our common stock. An additional 14,000,000 shares of our common stock have been reserved for issuance pursuant to our 2007 Stock Option Plan.
Potential issuance of additional common and preferred stock could dilute existing stockholders.
We are authorized to issue up to 240,000,000 shares of common stock. To the extent of such authorization, our board of directors has the ability, without seeking stockholder approval, to issue additional shares of common stock in the future for such consideration as the board of directors may consider sufficient. We are also authorized to issue up to ten million shares of preferred stock, the rights and preferences of which may be designated in series by the board of directors. Such designation of new series of preferred stock may be made without stockholder approval, and could create additional securities which would have dividend and liquidation preferences over the common stock offered hereby. Preferred stockholders could adversely affect the rights of holders of common stock by:
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exercising voting, redemption and conversion rights to the detriment of the holders of common stock;
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receiving preferences over the holders of common stock regarding a surplus of funds in the event of our dissolution or liquidation;
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delaying, deferring or preventing a change in control of our company; and
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discouraging bids for our common stock.
In all the situations described above, the issuance of additional common stock in the future will reduce the proportionate ownership and voting power of our current stockholders.
ITEM 1B.
ITEM 1B. Unresolved Staff Comments
Not applicable.
ITEM 2.
ITEM 2. Properties
We currently occupy 1,800 square feet of office space in St. Louis, Missouri. The initial term of the lease has expired, however, we are continuing to lease on a month-to-month basis (current term ended December 2016). The monthly lease payment is $1,800, plus utilities. We took possession of the leased space in January 2008.
ITEM 3.
ITEM 3. Legal Proceedings
As previously disclosed, on February 27, 2018, Gary Giordano, Thomas Giordano, and James Avenue, LLC, the minority members of Van Keuren (the “Plaintiffs”), filed a complaint (the “Complaint”) against the Company and Mr. Hennessey in the Chancery Division of the Superior Court of Hudson County, New Jersey arising out of the Acquisition Agreement with Van Keuren (the “Van Keuren Agreement”). The Complaint asserted, among other things, that the Company failed to take reasonable actions to effectuate certain of its obligations under the Van Keuren Agreement within a reasonable time, such as (i) acquiring approval of the New Jersey Department of Environmental Protection to establish a transfer station and material recovery facility (“TS/MRF”) on property owned by James Avenue, LLC (the “James Avenue Property”), (ii) acquiring the other governmental approvals needed to operate the TS/MRF, and (iii) entering a lease with James Avenue, LLC to operate the TS/MRF, and also that the Company never delivered 1,000,000 shares of restricted common stock due to the plaintiffs as consideration under the Van Keuren Agreement. Additionally, the Complaint included a brief requesting the Court to grant Plaintiffs certain injunctive relief. See Item 1 - Business-Plan of Operation-Biomass Feedstock Production and Notes to Consolidated Financial Statements-Note 3-Merger/Acquisitions-25 Van Keuren LLC for additional information regarding the Van Keuren Agreement. On April 9, 2018, CleanTech filed, and on May 2, 2018 amended, an answer to the Complaint (the “Answer and Counterclaim”), both denying the allegations and asserting a counter claim against each of the Plaintiffs including, among other things, breach of contract, in particular the Van Keuren Agreement and related contracts; interference with a prospective economic advantage, specifically regarding operation of the TS/MRF; negligence with an economic advantage regarding the operation of the TS/MRF; common law fraud; unjust enrichment; claims under the New Jersey Racketeer Influenced and Corrupt Organizations Act; and that the Complaint asserted frivolous claims.
On August 29, 2018, the Company entered into a Settlement Agreement and Release with the Plaintiffs, pursuant to which, among other things, (i) the Company divested its ownership of Van Keuren to the Plaintiffs; (ii) the Company and the Plaintiffs each released all claims and counterclaims under the Claim and the Answer and Counterclaim; and (iii) the Company and the Plaintiffs agreed to dismiss all such claims and counterclaims with prejudice. Additionally, the Company and the Plaintiffs entered into a New Lease Option Agreement granting the Company a one-year option to lease the James Avenue Property exercisable upon the issuance of a final permit to operate a TS/MRF on the James Avenue Property from New Jersey DEP, which expires on August 29, 2019.
ITEM 4.
ITEM 4. Mine Safety Disclosures
Not applicable.
PART II
ITEM 5.
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our Common Stock (“Common Stock”) (symbol: CLTH) is currently posted on the OTCQB Market.
On March 29, 2019, the closing price of our Common Stock was $0.018 per share. As of March 29, 2019, we had approximately 128 stockholders of record.
Dividend Policy
We have no material operating history and therefore have had no earnings to distribute to stockholders. We do not anticipate paying any cash dividends in the foreseeable future. Rather, we currently intend to retain our earnings, if any, and reinvest them in the development of our business. Any future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, restrictions under any existing indebtedness and other factors the board of directors may deem relevant.
Recent Sales of Unregistered Securities
In March 2018, the Company issued 250,000 shares of restricted Common Stock to a consultant for legal / corporate finance services provided to the Company. This offering of securities was exempt from registration under the the Securities Act of 1933, as amended (the “Securities Act”) in accordance with Section 4(a)(2) thereof, as a transaction by the issuer not involving a public offering.
In March 2018, the Company issued the remaining 1,000,000 shares of restricted Common Stock granted in August of 2017, to a consultant for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets. This offering of securities was exempt from registration under the Securities Act in accordance with Section 4(a)(2) thereof, as a transaction by the issuer not involving a public offering.
In April 2018, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company. This offering of securities was exempt from registration under the Securities Act in accordance with Section 4(a)(2) thereof, as a transaction by the issuer not involving a public offering.
In September 2018, a note receivable from a Board of Directors member matured and was not paid. The note was originally issued in September 2009 to purchase shares of our Common Stock. As a result, 150,000 shares of restricted Common Stock, issued at $0.10 per share were forfeited and cancelled.
In October 2018, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company. This offering of securities was exempt from registration under the Securities Act in accordance with Section 4(a)(2) thereof, as a transaction by the issuer not involving a public offering.
ITEM 6.
ITEM 6. Selected Financial Data
Not applicable.
ITEM 7.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our plan of operation should be read in conjunction with the consolidated financial statements and related notes to the consolidated financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance. These risks and other factors include, among others, those listed under “Statement Regarding Forward-Looking Statements” and “Risk Factors” and those included elsewhere in this report.
As a result of the limited operating history of our company, prior years’ consolidated financial statements provide little information and virtually no guidance as to our future performance (except to the extent we continue to incur net losses). In order to finance our business beyond this stage, we will be required to raise additional capital or identify another source of outside funding. All of our potential developments/projects will require a significant amount of capital. While we continue to pursue outside sources of funding, we have not had success securing meaningful amounts of financing. As a result, we can provide no assurance that we will secure any funding in the immediate time frame required and the failure to do so will likely result in an inability to continue operations. Management hopes to secure additional funds through equity or debt financing, government grants, or project financings, until such time as the Company begins to generate revenue and the Company’s revenues and cash flow are sufficient to meet its cost structure and ultimately achieve profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We may not be able to secure financing on favorable terms, or at all. If we are unable to obtain acceptable financing on a timely basis, our business will likely fail, and our common stock may become worthless.
Overview
Our focus is to secure sufficient capital to fund our current working capital requirements and the construction of a commercial plant as described previously in Item 1 of this report - Plan of Operations.
Results of Operations
The company’s activities and related primary expenses are in the following categories: General and administrative - stock grants, general office expenses, travel, and business insurance; Professional fees - consulting, accounting and legal fees; Interest - interest on convertible notes.
The following tables set forth the amounts of expenses and changes in our consolidated statements of operations:
Year ended December 31, 2018 compared to the year ended December 31, 2017
Costs and expenses:
General and administrative - The decrease was primarily due to a decrease in insurance premiums of $29,000 and a decrease in travel expenses of $9,000, offset by an increase in corporate filing fees of $6,000 and in restricted stock grants of $4,000.
Professional fees - The increase in 2018 was due primarily to an increase of $50,000 in consulting and legal fees.
Other expense - The increase in 2018 was due to the divestiture in the Van Keuren investment.
Interest expense - The increase in 2018 was due to the compounding effect of interest on our notes payable, interest on five new notes payable in 2018 and a full years’ worth of interest for the January 2017 and October 2017 notes.
Year ended December 31, 2017 compared to the year ended December 31, 2016
Costs and expenses:
General and administrative - The decrease in 2017 was due primarily to decreases of $49,000 related to stock grants, $17,000 in travel and entertainment, and $90,000 in payroll, offset by an increase in insurance of $7,000.
Professional fees - The increase in 2017 was due primarily to an increase of $25,000 in consulting fees.
Interest expense - The increase in 2017 was due to the compounding effect of interest on our notes payable, interest on two new notes payable issued in January and October of 2017 and a full years’ worth of interest for certain notes issued in June 2016 and October 2016.
Liquidity and Capital Resources
As a development-stage company, we have no revenues and will be required to obtain an outside source of capital in order to execute our business plan and commercialize our products. Beginning in September 2008 and as of March 29, 2019, we have raised an aggregate of: (i) approximately $3.7 million in separate offerings of units comprised of notes payable and warrants in separate offerings from 2008 through 2018 and (ii) $763,500 in an equity offering of restricted Common Stock pursuant to Subscription Agreements conducted during August of 2013. We are continuing to explore opportunities to raise cash through the issuance of these units and other financing opportunities, however to date we have not been successful in doing so. As of March 29, 2019, our current cash and other assets are not sufficient to fund our operations. As of December 31, 2018, we had a significant working capital deficit. Our liabilities are substantially greater than our current assets. Our only significant assets are our intellectual property rights, which are intangible and not readily convertible into liquid assets.
We are attempting to identify one or more potential sources of additional financing, such as through the sale of additional equity, various government funding opportunities and/or possibly through strategic alliances with larger energy or waste management companies. The Company will continue to explore, and if identified, evaluate financing alternatives and/or other transactions, including potentially retaining a financial advisor. However, we may not be successful in securing additional financing. If we are not able to obtain additional financing in the immediate future, we will be required to further delay our development until such financing becomes available. Further, even assuming that we secure additional funds, we may never achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, we will not have sufficient capital resources to implement our business plan or to continue our operations.
Debt
Convertible Notes Payable - Since September 2008, the Company has conducted six offerings of units comprised of a convertible promissory note and a warrant, and one offering of a convertible note (with no warrant), having the terms set forth below:
Each note holder retains the option of cash repayment of the note plus interest, or can convert the note at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million) into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the consolidated financial statements, net of discounts for the conversion and warrant features (except for the 11/10, 5/12, 2/14, and 2015 Offerings which carried no discounts). The discounts have been amortized on a straight-line basis over the term of each note and were fully amortized as of December 31, 2011.
2008 Offering - During September 2008, the Company commenced an offering of units and raised a total of $642,000 of investment proceeds through March 31, 2009. As of March 31, 2010, all of these notes had either been converted to shares of our common stock or exchanged into our 2009 Offering (resulting in new notes with a total face value of $539,829, which included the original principal and interest through the date of exchange).
2009 Offering - During April 2009, the Company commenced an offering of units and raised a total of $1,198,500 of investment proceeds through August 2010. Four notes have been converted to shares of Common Stock (one each in 2009, 2010, 2014 and 2017). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering or a convertible note payable. As a result, as of December 31, 2018, we had $189,185 face value of notes outstanding in connection with to this offering, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.
6/10 Offering - During June 2010, the Company commenced an offering of units and raised a total of $75,000 of investment proceeds in one note. Upon maturity in June 2011, this note was exchanged into our 11/10 Offering. As a result, the balance due in connection with this offering is $-0-.
11/10 Offering - During November 2010, the Company commenced an offering of units, and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of common stock in 2011 and four notes were converted to common stock in 2012. As of December 31, 2018, we had $1,877,162 face value of these notes outstanding, which includes the exchanged notes from our 2009 Offering. As of December 31, 2018, all of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.
5/12 Offering - During May 2012, the Company commenced an offering of units and raised a total of $583,510 of investment proceeds. As of December 31, 2018, all of these notes are outstanding and have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.
2/14 Offering - During February 2014, the Company commenced an offering of units and raised a total of $100,000 of investment proceeds in one note. As of December 31, 2018, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.
2015 Offering - During September 2015, the Company commenced an offering of units and, as of December 31, 2018, raised a total of $85,000 of investment proceeds. As of December 31, 2018, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.
WL Meyer Legacy Trust (formerly CMS Acquisition, LLC) Note Payable - In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note was due the earlier of: (i) April 26, 2018 pursuant to an amendment on April 26, 2017 or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and was fully amortized (interest expense) as of February 28, 2011 (the original due date). As consideration in these amendments, the Company has: (i) paid $30,000 towards accrued interest to date and principal on the note, (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to April 26, 2017, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until April 26, 2022, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until April 26, 2022, and (vi) approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust per the March 17, 2015 amendment. As of December 31, 2018, $72,696 face value of this note is outstanding. We plan to work with the note holder to renew or repay the note.
The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the number of shares of Common Stock (these warrants have not been exercised or converted to common shares):
(a)
Warrants issued to investors under these Subscription Agreements can be exercised anytime within three years from date of Agreement. These warrants expire at various dates from January 2019 to April 2022.
Summary of Cash Flow Activity
Net cash used by operating activities
During 2018, 2017 and 2016, cash used by operating activities was impacted primarily by increases in accrued interest and other accrued liabilities.
Net cash provided by financing activities
During 2018, cash provided by financing activities was attributable to the issuance of convertible notes payable totaling $152,000.
During 2017, cash provided by financing activities was primarily due to the continuance of our equity offerings and the issuance of equity and notes payable for a total of $140,000, offset by note payable payments of $5,000.
During 2016, cash provided by financing activities was primarily due to the continuance of our equity offerings and the issuance of equity and notes payable for a total of $195,000, offset by note payable payments of $17,377.
Contractual Obligations and Commitments
In the table below, we set forth our obligations as of December 31, 2018. Some of the figures we include in this table are based on our estimates and assumptions about these obligations, including their durations, anticipated actions by third parties and other factors. The obligations we may pay in future periods may vary from those reflected in this table because of estimates or actions of third parties as disclosed in the notes to the table.
(1) Amount represents value of principal amount of notes and estimates for interest. These notes are with various individuals, carry one-year terms and are convertible into shares of the Company's Common Stock at the noteholders' option. The first of these notes came due in April 2010. If the noteholders do not convert their notes into shares of Common Stock, the notes will have to be repaid or refinanced.
(2) Amount represents value of principal amount of note and interest. Final payment on this note was due April 26, 2018.
(3) Amount represents value of principal amount of note and interest. Final payment on this note was due March 20, 2017.
(4) Amount represents value of principal amount of note and interest. Final payment on this note was due October 18, 2018.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements. We have not entered into any transaction, agreement or other contractual arrangement with an unconsolidated entity under which we have:
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a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit;
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liquidity or market risk support to such entity for such assets; or
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an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.
Critical Accounting Estimates
Long-Lived Assets - Our acquisition and merger activities have resulted in aggregate licensing and patent assets of approximately $2.2 million as of December 31, 2018. We are required to conduct impairment tests of long-lived assets on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset below its carrying value. As we have not commenced commercial operations, these assets have not yet been placed in service.
Deferred Taxes - We recognize deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company has incurred no income taxes to date. Any benefits are the result of temporary differences (start-up costs, stock compensation and other items) and operating loss carryforwards. The difference between the expected income tax benefit and non-recognition of an income tax benefit in each period is the result of a valuation allowance applied to deferred tax assets. A valuation allowance in the same amount of the benefit has been provided to reduce the deferred tax asset, as realization of the asset is not assured.
Stock-Based Compensation - We account for stock-based compensation in accordance with accounting guidance that requires measuring all stock-based compensation awards at fair value and recognizing an expense in the consolidated financial statements. We compensate certain employees, officers, directors and consultants with share-based payment awards and recognize compensation costs for these awards based on their fair values and expense is recognized over the requisite service period. The fair values of certain awards are estimated on the grant date using the Black-Scholes-Merton option-pricing formula, which incorporates certain assumptions including the expected term of an award and expected stock price volatility.
Convertible Notes Payable and Warrants - The Company has issued various Convertible Promissory Notes (“Notes”). These Notes may be converted at the option of the note holder into shares of the Company’s common stock. Additionally, these Notes carry warrants for shares of the Company’s common stock. These promissory notes have been recorded as debt (notes payable) in the consolidated financial statements, net of discounts, if any, for the conversion and warrant features. The discounts have been amortized on a straight-line basis over the term of each note.
Fair Value Measurement - We use fair value accounting and reporting to specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
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Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
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Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
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Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As of and during the years ended December 31, 2018 and 2017, we utilized Level 1 inputs to determine the fair value of cash equivalents and we utilized Level 2 inputs to determine the fair value of certain long-lived assets.
Restricted Stock Compensation - From time to time, we issue restricted Common Stock to employees, directors, and consultants as compensation. The cost of these grants is recorded in general and administrative expense. The cost is determined using the number of shares granted at a discount to the market value on the date of the grant. The discount is applied for a Lack of Marketability due to: (i) shares issued are unregistered shares and subject to Rule 144 of the Securities Act, (ii) minimal trading activity in our shares, only about 1/3rd of which are registered and free-trading shares, and (iii) the Company has yet to begin operations and has had no revenue.
Contingent Liabilities - We are, from time to time, subject to litigation to our business. Assessments regarding the ultimate cost of lawsuits require judgments concerning matters such as the anticipated outcome of negotiations, the number and cost of pending and future claims, and the impact of evidentiary requirements. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. We regularly review the valuation of these liabilities and account for changes in circumstances for ongoing and emerging issues. The Company intends to defend itself vigorously in all litigation.
ITEM 7A.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
As of December 31, 2018, all of our debt instruments (Notes Payable) carry fixed interest rates. We do not have any arrangements for borrowings under a credit facility. We currently have no operations and are not subject to any currency fluctuations or credit risk.
ITEM 8.
ITEM 8. Consolidated Financial Statements and Supplemental Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CleanTech Biofuels, Inc.
St. Louis, Missouri
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CleanTech Biofuels, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of CleanTech Biofuels, Inc. and subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company and its subsidiaries will continue as a going concern. As discussed in Note 15 to the financial statements, the Company’s significant operating losses and recent inability to secure additional capital to implement its business plan raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company and its subsidiaries are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
MILHOUSE & NEAL, LLP
Certified Public Accountants
We have served as the Company’s auditor since 2010
Maryland Heights, Missouri
April 1, 2019
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
The accompanying notes are an integral part of these consolidated financial statements.
CLEANTECH BIOFUELS, INC.
(formerly Alternative Ethanol Technologies, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
CLEANTECH BIOFUELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Business
Alternative Ethanol Technologies, Inc. (the “Company”), was incorporated in Delaware on December 20, 1996. Effective August 2, 2007, the Company changed its name to CleanTech Biofuels, Inc. Except where otherwise noted, the words “we,” “us,” “our,” and similar terms, as well as “CleanTech” or the “Company,” refer to CleanTech Biofuels, Inc. and its subsidiaries, collectively.
On March 27, 2007, the Company acquired SRS Energy, Inc., a Delaware corporation (“SRS Energy”), pursuant to an Agreement and Plan of Merger and Reorganization. In accordance with the merger agreement, SRS Acquisition Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, merged with and into SRS Energy. The merger was consummated on May 31, 2007 and resulted in SRS Energy becoming a wholly-owned subsidiary of the Company. As a result of the merger, the stockholders of SRS Energy surrendered all of their issued and outstanding common stock and received shares of the Company’s common stock, $.001 par value per share (“Common Stock”). The former parent of SRS Energy, Supercritical Recovery Systems, Inc., immediately prior to the merger, distributed 78.8% of its 96% ownership in SRS Energy to its shareholders on a pro rata basis. For accounting purposes, because the Company had been a public shell company prior to the merger, the merger was treated as an acquisition of the Company and a recapitalization of SRS Energy.
The Company is in its development stage and has been engaged in technology development and pre-operational activities since its formation. The Company is currently seeking outside sources of funding to design and build a commercial biomass recovery plant to provide biomass feedstock for customer evaluation and trial purchases. Initially, the biomass feedstock output is expected to be sold or provided to electric utilities, power and steam producers, and biofuel and chemical research firms for evaluation. In addition to research and development, the Company is also working towards licensing and/or developing potential commercial projects. These projects plan to focus on cleaning and separating municipal solid waste (also referred to as MSW) into its component parts in order to obtain: (i) a homogenous feedstock of cellulosic biomass for producing energy and other chemical products and (ii) recyclable products (metals, plastics, aluminum).
The Company has no operating history as a producer of biomass or energy sources and has not constructed any plants to date. We have no revenues and will be required to secure outside funding in order to execute our business plan and commercialize our products. Our current cash is not sufficient to fund our current operations. Our liabilities are substantially greater than our current available funds and current assets. Although we continue to seek additional financing through the sale of additional equity, various government funding opportunities and/or possibly through strategic alliances with larger energy or waste management companies, we have not had recent success securing meaningful amounts of financing. The Company will require substantial additional financing to implement its business plan and it may be unable to obtain the capital required to do so. If we are not able to immediately and successfully raise additional capital and/or achieve profitability or positive cash flow, we may not be able to continue operations.
Note 2 - Summary of Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.
Consolidation - The consolidated financial statements include the accounts of CleanTech Biofuels, Inc. and its wholly owned subsidiaries, SRS Energy, Inc. and CTB Licensing, LLC. Prior to its divestiture on August 29, 2018, the accounts of 25 Van Keuren LLC were also included in the consolidated financial statements. As a result of the 25 Van Keuren LLC divestiture the Company recognized a loss of $16,000, which was recorded in other expense on the Consolidated Statement of Operations. All significant intercompany transactions and balances are eliminated in consolidation.
Research and Development Costs - Research and development expenditures (which are comprised of costs incurred in performing research and development activities including wages and associated employee benefits, facilities and overhead costs), including payments to collaborative research partners are expensed as incurred.
Impairment of Long-Lived Assets - The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable primarily through reviewing changes in business plans and use of such assets. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews long-lived assets to assess future use or recoverability of such asset. Impairments are recognized in earnings to the extent that the carrying value exceeds fair value.
Intellectual Property - Intellectual property, consisting of our licensed/owned patents and other proprietary technology, are stated at cost and will be amortized on a straight-line basis over their economic estimated useful life. Costs and expenses incurred in creating intellectual property are expensed as incurred. The cost of purchased intellectual property is capitalized. Amortization of these assets has not yet begun as the assets have not been placed in service as we have not yet commenced operations.
Property, plant and equipment - Newly acquired property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets, on the straight-line method for financial reporting purposes. Expenditures for maintenance and repairs are charged to expense as incurred.
Income Taxes - The Company accounts for income taxes in accordance with accounting guidance, which requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between financial statement and tax accounting methods and any available operating loss or tax credit carry forwards. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses and tax credits that are available to offset future taxable income.
The standards on accounting for uncertainty in income taxes (incorporated into the FASB Accounting Standards Codification (Codification) Topic 740, Income Taxes) clarify the accounting and recognition for income tax positions taken or expected to be taken in the Company’s income tax returns. The Company’s income tax filings are subject to audit by various taxing authorities. The Company’s open audit periods are 2015 - 2018. In evaluating the Company’s tax provisions and accruals, future taxable income, and the reversal of temporary differences, interpretations and tax planning strategies are considered. The Company believes their estimates are appropriate based on facts and circumstances.
The Company’s policy is to classify income tax related interest and penalties in interest expense and general and administrative expenses, respectively.
Convertible Notes Payable and Warrants - The Company has issued various Convertible Promissory Notes (the “Notes”). These Notes may be converted at the option of the note holder into shares of the Company’s common stock. Additionally, some of these Notes carry warrants for shares of the Company’s common stock. These Notes have been recorded as debt (notes payable) in the consolidated financial statements, net of discounts, if any, for the conversion and warrant features. The discounts have been amortized on a straight-line basis over the term of each note.
Stock-based compensation - The Company accounts for stock-based compensation in accordance with accounting guidance that requires measuring all stock-based compensation awards at fair value and recognizing an expense in the consolidated financial statements. In March 2007, the Company adopted the 2007 Stock Option Plan (“Stock Plan”) for its employees, officers, directors and consultants. The Company has reserved a maximum of 14,000,000 shares of common stock to be issued for stock options or shares of restricted stock under the Stock Plan. We compensate certain employees, officers, directors and consultants with stock-based payment awards and recognize compensation costs for these awards based on their fair values and expense is recognized over the requisite service period. The fair values of certain awards are estimated on the grant date using the Black-Scholes-Merton option-pricing formula, which incorporates certain assumptions including the expected term of an award and expected stock price volatility. Our key assumptions are described in further detail in the Share-Based Payments Note to the Consolidated Financial Statements.
Fair Value Measurement - We use fair value accounting and reporting to specify a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources or reflect our own assumptions of market participant valuation. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
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Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
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Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets, or financial instruments for which significant inputs are observable, either directly or indirectly; and
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Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
As of December 31, 2018, and 2017, and during the years ended December 31, 2018, 2017, and 2016, we utilized Level 1 inputs to determine the fair value of cash equivalents and we utilized Level 2 inputs to determine the fair value of certain long-lived assets.
Restricted Stock Compensation - From time to time, we issue restricted Common Stock to employees, directors, and consultants as compensation. The cost of these grants is recorded in general and administrative expense for employees and directors and professional fees for consultants. The cost is determined using the number of shares granted at a discount to the market value on the date of the grant. The discount is applied for a Lack of Marketability due to: (i) shares issued are unregistered shares and subject to Rule 144 of the Securities Act of 1933, (ii) minimal trading activity in our shares, only about 1/3rd of which are registered and free-trading shares, and (iii) the Company has yet to begin operations and has had no revenue. The Company issued shares in 2016, 2017 and 2018 as detailed further in Note 10.
Contingent Liabilities - We are, from time to time, subject to litigation to our business. Assessments regarding the ultimate cost of lawsuits require judgments concerning matters such as the anticipated outcome of negotiations, the number and cost of pending and future claims, and the impact of evidentiary requirements. A significant amount of judgment and use of estimates is required to quantify our ultimate exposure in these matters. We regularly review the valuation of these liabilities and account for changes in circumstances for ongoing and emerging issues. The Company intends to defend itself vigorously in all litigation.
Dividends - We have no material operating history and therefore have had no earnings to distribute to stockholders. We currently intend to retain our earnings, if any, and reinvest them in the development and growth of our business and do not foresee payment of a dividend in any upcoming fiscal period.
Net Loss per Common Share - The Company calculates basic loss per share ("EPS") and diluted EPS. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS would reflect the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities. As of December 31, 2018, 2017 and 2016, the Company had options, warrants and convertible notes to purchase an aggregate of approximately 86 million, 85 million and 86 million shares of common stock, respectively, that were excluded from the calculation of diluted loss per share as their effects would have been anti-dilutive. Therefore, the Company only presents basic loss per share on the face of the statements of operations and in its disclosure of unaudited quarterly financial data in Note 14.
Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." ASU 2018-13 modified the disclosure requirements in Topic 820, "Fair Value Measurement," based on the FASB Concepts Statement, "Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements," including consideration of costs and benefits. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718).” This ASU addresses share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.
In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815).” This ASU changes the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. The standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting.” This ASU, which amends the scope of modification accounting for share-based payment arrangements, provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. Specifically, an entity would not apply modification accounting if the fair value, vesting conditions, and classification of the awards are the same immediately before and after the modification. The standard is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, “Intangibles -Goodwill and Other (Topic 350) Simplifying the Test for Goodwill Impairment.” This ASU simplifies several aspects of the accounting for goodwill impairment. The guidance requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The standard is effective for annual periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing the impact the guidance will have on our consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This ASU requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The ASU requires adoption based upon a modified retrospective approach. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” This ASU will supersede most of the existing revenue recognition requirements in U.S. GAAP and will require entities to recognize revenue at an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer. The new standard also specifies new accounting for costs associated with obtaining or fulfilling contracts with customers and expands the required disclosures related to revenue and cash flows from contracts with customers. This new guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period and can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption, with early application not permitted. In August 2015, the FASB approved a one-year deferral of the effective date of this ASU. This standard now became effective beginning with the first quarter 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. We have adopted the guidance and currently it does not have a material impact on the financial statements as the Company does not have revenue. The requirements of the ASU will be followed when the Company does have revenue.
There were various other accounting standards updates recently issued, most of which represented technical corrections to the accounting literature or were applicable to specific industries and are not expected to have a material impact on the Company's financial position, results of operations or cash flows.
Note 3 - Mergers/Acquisitions
Biomass North America Licensing, Inc.
On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc. (“Biomass”) pursuant to a merger between Biomass and a wholly-owned subsidiary of the Company (with Biomass as the surviving subsidiary of the Company) in accordance with an Agreement and Plan of Merger by and between the Company and Biomass. By virtue of the merger, the Company acquired a license agreement pursuant to which the Company holds a license in the United States and Canada to use patented technology licensed from Biomass North America, LLC, the former parent of Biomass (the “Licensor”), to clean and separate MSW (the “Biomass Recovery Process”). In July 2010, the United States Patent and Trademark Office issued US patent number 7,745,208 for this process (the “BRP Patent”).
Upon consummation of the merger, the Company paid $20,000 in cash and issued a promissory note in the original principal amount of $80,000 bearing interest at an annual rate of 6% to a shareholder of the Licensor. This note has been paid in full. Additionally, the Company issued to the four shareholders of the Licensor a total of 1,895,000 shares of Common Stock and deposited an additional 4,000,000 shares of Common Stock into an escrow account (collectively, the “Shares”). The Shares were issued as part of the merger consideration received by the shareholders of the Licensor. In accordance with a November 2013 amendment, the Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process which includes no performance requirements on the Company; the license agreement is for a term of 21 years from the date of the amendment or the life of any patent issued for the Biomass Recovery Process, including any amendments, modifications or extensions; the license requires that the Company pay a royalty in the amount of $2.00 per ton of MSW used in the Biomass Recovery Process to the Licensor; and the Company released the 4,000,000 shares of common stock to the Licensor previously held in escrow since the merger. The Company has recorded a long-term asset of approximately $1.6 million which it will begin to amortize upon utilizing the license in our operations.
25 Van Keuren LLC
On June 23, 2016, the Company entered into an Acquisition Agreement with 25 Van Keuren LLC, a New Jersey Limited Liability Company (“Van Keuren”), pursuant to which the Company acquired 99% of the outstanding membership interests in Van Keuren with the former members of Van Keuren retaining a 1% interest. As payment for the acquisition, the Company issued in the aggregate 1,000,000 shares of restricted common stock of the Company (par value $0.001) to certain holders of membership interests in Van Keuren. As of the close of business on June 23, 2016, the Company stock quote was $0.05. Van Keuren has had no operations or revenue since inception and has solely been working towards obtaining the permits required to operate a municipal solid waste transfer station and material recovery facility (“TS/MRF”). The total assets of Van Keuren at the time of the acquisition were $51,000 (2.3% of the Company’s assets). The liabilities and equity consisted of accounts payable of $27,000 and member equity of $24,000. As of August 29, 2018, the Company’s investment in Van Keuren was divested pursuant to a Settlement Agreement and Release among the Company and the former members of Van Keuren (the “Van Keuren Settlement Agreement”), and the related intangible assets were written off. For more information, see Part I - Item 3. Legal Proceedings.
The Solid Waste Management Plan of the New Jersey Department of Environmental Protection (“DEP”), following certification of an amendment to the New Jersey Sports and Exposition Authority, includes proposed operation of a TS/MRF at a site located in Jersey City, New Jersey. CleanTech Biofuels intends to seek the necessary permits and approvals from the New Jersey DEP to build, own and operate the TS/MRF. As part of the Van Keuren Settlement Agreement, CleanTech acquired a one-year option to lease certain property in Jersey City within 30 days after the final permit issues from the New Jersey DEP, which expires on August 29, 2019. The Company intends to: (1) install its Biomass Recovery Process on the site, and (2) operate the TS/MRF. Costs incurred towards obtaining the required permits were recorded as an intangible asset on our consolidated financial statements. These costs were removed from the consolidated financial statements as a part of the divestiture of CleanTech’s interest in Van Keuren.
Note 4 - Property and Equipment
At December 31, our property and equipment consisted of:
For the years ended December 31, 2018 and 2017, we had no depreciation expense.
Note 5 - Patent
The Company owns US Patent No. 6,306,248 (the “PSC Patent”), which is the underlying technology upon which the BRP Patent is based. The Company acquired the PSC Patent on October 22, 2008 pursuant to a Patent Purchase Agreement (“Agreement”) with World Waste Technologies, Inc. (“WWT”). As part of the acquisition of the PSC Patent, we also became the licensor of such technology under the existing license agreement between Bio-Products International, Inc., the licensee (“Bio-Products”) and WWT. The Company has paid WWT $600,000 and issued warrants to purchase 1,800,000 shares of Common Stock at $0.10 per share and 500,000 shares of Common Stock at $0.11 per share. WWT assigned all of its rights, title and interest in the note, warrants, security agreement and purchase agreement to Vertex Energy, Inc. (“Vertex”) as a result of a merger in March 2009. The warrants had an exercisable term of five years which expired on October 22, 2014. The cost of the PSC Patent acquisition of $600,000 is recorded as a long-term asset on the Balance Sheet.
On September 1, 2010, the Company issued a promissory note to CMS Acquisition, LLC (“CMS”) in the amount of $100,000 and bearing interest at 6.0% per annum. The note is secured with a security interest in the PSC Patent. In connection with the financing, the Company issued a warrant to CMS to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The warrant is exercisable at any time for five years from the date of issuance or re-issuance. The note was originally to mature on February 28, 2011. The Company and CMS have entered into various amendments extending the due date, the most recent of which was April 26, 2017, which extended the due date to April 26, 2018. As consideration in these amendments, the Company has: (i) paid $30,000 towards accrued interest to date and principal on the Note, (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to April 26, 2017, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until April 26, 2022, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until April 26, 2022, and (vi) approved the assignment of the note by CMS to the WL Meyer Legacy Trust as of the March 17, 2015 amendment. As of December 31, 2018, $72,696 face value of this note is outstanding. For more information on this note, see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Debt.
Note 6 - Technology Licenses
Biomass North America Licensing, Inc.
We own an exclusive license in the United States and Canada to use the Biomass Recovery Process (See Note 3 - Mergers/Acquisitions). We have recorded a long-term asset of approximately $1.6 million for the value of this license. Amortization of this asset will begin upon commencement of the use of the Biomass Recovery Process.
In accordance with a November 2013 amendment, the Company has an exclusive license in the United States and Canada to use the Biomass Recovery Process and includes no performance requirements on the Company; the license agreement is for a term of 21 years from the date of the amendment or the life of any patent issued for the Biomass Recovery Process, including any amendments, modifications or extensions; and the license requires that the Company pay a royalty in the amount of $2.00 per ton of MSW used in the Biomass Recovery Process to the Licensor.
Bio-Products International, Inc.
As disclosed in Note 5 - Patent, the Company acquired the PSC Patent in 2008 and as a result, became the licensor to Bio-Products for the PSC Patent pursuant to a Master License Agreement dated as of August 18, 2003 (the “PSC License Agreement”). Pursuant to the terms of the PSC License Agreement, Bio-Products (a wholly-owned subsidiary of Clean Earth Solutions, Inc., “CES”) is the exclusive licensee of the PSC Patent and has the right to sublicense the technology that is part of the PSC Patent (but not the BRP Patent) to any party. In addition, we are entitled to be paid 5% of any revenue derived by Bio-Products from the use of the technology and 40% of any sublicensing fees paid to Bio-Products for the use of the technology. The Master License Agreement is for a term of 20 years that commenced on August 18, 2003. On September 22, 2010, the Company sent a Notice of Breach to Bio-Products, which included removing the exclusivity of the license. We received a response from Bio-Products on November 5, 2010 disputing our claims. In February 2011, we became aware that Bio-Products effected a transfer of the license in violation of the PSC License Agreement. As a result, on March 21, 2011, we sent a notice of termination to Bio-Products and the transferee terminating the License Agreement. In June 2011, Steve Vande Vegte, a shareholder in CES, filed a lawsuit against various parties, including the Company. The only Cause of Action against the Company is for Declaratory Relief seeking to avoid our March 2011 termination of the license to which Mr. Vande Vegte is not a party. On August 5, 2011, the Company filed a demurrer requesting that the court dismiss the case on the grounds that Mr. Vande Vegte lacks standing to pursue a claim concerning the license and that the claim raised in the complaint is not ripe. The court granted our demurrer to dismiss Cleantech from this lawsuit on December 8, 2011.
25 Van Keuren LLC
As discussed in Note 3 - Mergers/Acquisitions, the Company entered into an Acquisition Agreement with 25 Van Keuren LLC (“Van Keuren”). The total assets of Van Keuren at the time of the acquisition were approximately $51,000. The assets were recorded as an intangible asset in our consolidated financial statements; however, as of August 29, 2018, the Company’s investment in Van Keuren was divested and the related intangibles were written off.
All intangible assets are reviewed for impairment whenever events or other changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognized if the carrying amount of an intangible asset exceeds its implied fair value.
Note 7 - Debt
Convertible Notes Payable - Since September 2008, the Company has conducted six offerings of units comprised of a convertible promissory note and a warrant, and one offering of a convertible note (with no warrant), having the terms set forth below:
Each note holder retains the option of a cash repayment of the note plus interest, or the note can be converted at any time during the term of the note or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million), into shares of Common Stock at the conversion price noted above. All notes have been recorded as debt (notes payable) in the consolidated financial statements, net of discounts for the conversion and warrant features (except for the 11/10, 5/12, 2/14, and 2015 Offerings which carried no discounts). See Subsequent Event footnote for further disclosure regarding our notes.
2008 Offering - During September 2008, the Company commenced an offering of units and raised a total of $642,000 of investment proceeds through March 31, 2009. As of March 31, 2010, all of these notes had either been converted to shares of our common stock or exchanged into our 2009 Offering (resulting in new notes with a total face value of $539,829, which included the original principal and interest through the date of exchange).
2009 Offering - During April 2009, the Company commenced an offering of units and raised a total of $1,198,500 of investment proceeds through August 2010. Four notes have been converted to shares of Common Stock (one each in 2009, 2010, 2014 and 2017). Beginning in March 2011, certain notes were exchanged into our 11/10 Offering or a convertible note payable. As a result, as of December 31, 2018, we had $189,185 face value of notes outstanding, which includes the exchanged notes from our 2008 Offering. All of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.
6/10 Offering - During June 2010, the Company commenced an offering of units and raised a total of $75,000 of investment proceeds in one note. Upon maturity in June 2011, this note was exchanged into our 11/10 Offering. As a result, the balance due in connection with this offering is $-0-
11/10 Offering - During November 2010, the Company commenced an offering of units, and raised a total of $451,713 of investment proceeds. Three notes were converted to shares of common stock in 2011 and four notes were converted to common stock in 2012. As of December 31, 2018, we had $1,877,162 face value of these notes outstanding, which includes the exchanged notes from our 2009 Offering. As of December 31, 2018, all of these notes have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes
5/12 Offering - During May 2012, the Company commenced an offering of units and raised a total of $583,510 of investment proceeds. As of December 31, 2018, all of these notes are outstanding and have matured. We plan to work with each remaining note holder to exchange, convert or repay these notes.
2/14 Offering - During February 2014, the Company commenced an offering of units and raised a total of $100,000 of investment proceeds in one note. As of December 31, 2018, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.
2015 Offering - During September 2015, the Company commenced an offering of units and, as of December 31, 2018, raised a total of $85,000 of investment proceeds. As of December 31, 2018, this note is outstanding and has matured. We plan to work with the note holder to exchange, convert or repay this note.
WL Meyer Legacy Trust (formerly CMS Acquisition, LLC) Note Payable - In September 2010, the Company issued a note in the amount of $100,000 (interest at 6.0% per annum through May 15, 2011 and 10.0% thereafter and secured by a security interest in the PSC Patent) and issued warrants to purchase 2,000,000 shares of Common Stock at a price of $0.05 per share. The note was due the earlier of: (i) April 26, 2018 pursuant to an amendment on April 26, 2017 or (ii) the date on which $500,000 or more in the aggregate is raised by the Company in future offerings. The warrants are exercisable at any time for five years from the date of issuance or reissuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and was fully amortized (interest expense) as of February 28, 2011 (the original due date). As consideration in these amendments, the Company has: (i) paid $30,000 towards accrued interest to date and principal on the note, (ii) increased the interest rate to 10% as of May 15, 2011, (iii) re-dated the original warrants to April 26, 2017, (iv) issued new warrants for 300,000 shares of Common Stock with an exercise price of $0.05 and exercisable at any time until April 26, 2022, (v) issued new warrants for 150,000 shares of Common Stock with an exercise price of $0.10 and exercisable at any time until April 26, 2022, and (vi) approved the assignment of the note by CMS Acquisition LLC to the WL Meyer Legacy Trust per the March 17, 2015 amendment. As of December 31, 2018, $72,696 face value of this note is outstanding. We plan to work with the note holder to exchange, convert or repay this note.
June and October 2016 Note Payable - The Company issued two notes payable, with no conversion feature, to a current Board of Directors member, in the amounts of $50,000 and $35,000, respectively. In March 2018, both notes were replaced with a convertible note payable with a face value of $97,599, and a 6% interest rate, due March 2019.
January 2017 Note Payable - The Company issued a note payable, with no conversion feature, to William Meyer in the amount of $15,000, with a 6% interest rate, which was due March 20, 2017. We are currently working with the note holder to renew or repay the note.
October 2017 Note Payable - The Company issued a note payable, with no conversion feature, to a current Board of Directors member, in the amount of $25,000, with a 6% interest rate, which was due October 2018. We are currently working with the note holder to renew or repay the note.
March 2018 Notes Payable - The Company issued two convertible notes payable to a current Board of Directors member in the amounts of $50,000 and $17,000, respectively, with a 6% interest rate, due March 2019. As of December 31, 2018, the notes were outstanding.
May 2018 Note Payable - The Company issued a convertible note payable to a current Board of Directors member in the amount of $30,000, with a 6% interest rate, due May 2019. As of December 31, 2018, the note was outstanding.
August 2018 Note Payable - The Company issued a convertible note payable to a current Board of Directors member in the amount of $20,000, with a 6% interest rate, due August 2019. As of December 31, 2018, the note was outstanding.
November 2018 Note Payable - The Company issued a convertible note payable to a current Board of Directors member in the amount of $35,000, with a 6% interest rate, due November 2019. As of December 31, 2018, the note was outstanding.
The discounts on all notes payable have been amortized on a straight-line basis over the original term of each note. All discounts were fully amortized and expensed as of June 30, 2011. The following is a summary of warrants issued and outstanding as of the dates below, at the exercise price and the number of shares of Common Stock (these warrants have not been exercised or converted to common shares):
(a)
Warrants issued to investors under these Subscription Agreements can be exercised anytime within three years from date of Agreement. These warrants expire at various dates from January 2019 to April 2022.
Note 8 - Stockholders' Equity (Deficit)
In August 2013, the Company commenced an offering of units, under a Subscription Agreement, at a purchase price of $1,000 per unit (Equity Offering 8/13). Each unit consists of: (i) 10,000 shares of the Company’s authorized but unissued restricted Common Stock and (ii) warrants to purchase 30,000 additional shares of Common Stock for a three-year period from the date of issuance of the units at an initial exercise price of $0.15 per share. As of December 31, 2018, the Company had issued 7,635,000 restricted shares (at $0.10 per share) of our Common Stock in exchange for $763,500 in investment in this offering. See Subsequent Event footnote for further updates to this offering and other share grants affecting Stockholders Equity.
In January 2014, the Company issued 500,000 restricted shares (at $0.012 per share) of our Common Stock per the consulting agreement with GWS Environmental Consultants. GWS has certain expertise and contacts in the collection, recycling, transfer, and disposal of MSW and provided the Company consulting for a three-year period regarding these items.
In February 2016, the Board approved a grant to certain Board members and management for an aggregate of 4,000,000 shares of restricted Common Stock (at $0.013 per share). The Board granted these awards in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company. Based on the foregoing, the Board determined such grants were in the best interest of the Company and its stockholders.
In June 2016, the Company completed an acquisition of Van Keuren, as previously disclosed in Note 3, and issued in the aggregate 1,000,000 shares of restricted Common Stock of the Company (at $0.05 per share) to certain holders of membership interests in Van Keuren. Pursuant to the Van Keuren Settlement Agreement, as of August 29, 2018, the Company’s investment in Van Keuren was divested and the restrictions on the shares of Company Common Stock issued as part of the Van Keuren acquisition were lifted.
In August 2016, a note receivable from a former director matured and was not paid. The note was originally issued in August 2007 to purchase shares of our Common Stock. As a result, 150,000 shares of restricted Common Stock, issued at $0.15 per share were forfeited and cancelled.
In September 2016, the Company issued 750,000 shares of restricted Common Stock to a consultant for business transactions and financing services to be provided over a one-year term.
In May 2017, the Company issued 100,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In July 2017, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In August 2017, the Company granted 3,000,000 shares of restricted Common Stock to consultants for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets to be provided over a two-year term. Of the 3,000,000 shares of restricted Common Stock granted, 2,000,000 were issued.
In September 2017, the Company issued 204,996 shares of Common Stock ($0.08 per share) to an investor on conversion of a Convertible Note.
In December 2017, a note receivable from an employee matured and was not paid. The note was originally issued in December 2008 to purchase shares of our Common Stock. As a result, 60,000 shares of restricted Common Stock, issued at $0.36 per share were forfeited and cancelled.
In March 2018, the Company issued 250,000 shares of restricted Common Stock to a consultant for legal / corporate finance services provided to the Company.
In March 2018, the Company issued the remaining 1,000,000 shares of restricted Common Stock granted in August 2017, to a consultant for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets.
In April 2018, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In September 2018, a note receivable from a Board of Directors member matured and was not paid. The note was originally issued in September 2009 to purchase shares of our Common Stock. As a result, 150,000 shares of restricted Common Stock, issued at $0.10 per share were forfeited and cancelled.
In October 2018, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
Note 9 - Related Party Transactions
The Company has entered into stock purchase agreements with its executive officers and certain members of the Board of Directors. The executive officers and directors issued notes to the Company in exchange for their stock purchases. These notes and accumulated interest are recorded as notes receivable in Stockholders’ Deficit.
In September 2013, the Company hired, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals maintain their engineering firm Fenton Engineering International (FEI) on a full-time basis and receive no salary in their part-time positions but are eligible for grants of stock options. We have used and continue to use their services. As of December 31, 2018, all amounts have been paid to FEI except for approximately $48,000.
Beginning in 2009, the Company has provided advances to two employees - Ed Hennessey and Mike Kime. Mr. Kime resigned from his position with the Company effective June 21, 2010. As of December 31, 2018 and 2017, the aggregate balance of Mr. Hennessey’s advances totaled approximately $14,000 and $14,000, respectively. Mr. Kime’s advances were netted against monies due and paid to him in 2016 pursuant to a settlement agreement following his departure from the Company. The balance of Mr. Hennessey’s advances is included in Prepaids and Other Current Assets on the Balance Sheet.
One member of our current Board of Directors, James Russell is party to investments made in our convertible note offerings. As of December 31, 2018 and 2017, the aggregate amount due on these investments, including interest, is approximately $1,049,000 and $745,000, respectively.
In June and October of 2016, the Company issued notes payable, with no conversion feature, to a current Board of Directors member, in the amounts of $50,000 and $35,000, respectively. In March 2018, both notes were replaced with a convertible note payable with a face value of $97,599, and a 6% interest rate, due March 2019.
In February of 2017, the Company received $50,000 form a Board Member in exchange for 500,000 shares of common stock.
In June 2017, the Company received $50,000 from a Board Member in exchange for 500,000 shares of common stock.
In October 2017, the Company issued a note payable, with no conversion feature, to a current Board of Directors member, in the amount of $25,000. As of December 31, 2018, the note was outstanding.
In March 2018, the Company issued two convertible notes payable to a current Board member in the amounts of $50,000 and $17,000, respectively, with a 6% interest rate, due March 2019. As of December 31, 2018, the notes were outstanding.
In May 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $30,000, with a 6% interest rate, due May 2019. As of December 31, 2018, the note was outstanding.
In August 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $20,000, with a 6% interest rate, due August 2019. As of December 31, 2018, the note was outstanding.
In November 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $35,000, with a 6% interest rate, due November 2019. As of December 31, 2018, the note was outstanding.
Note 10 - Share-based Payments
The Company recognizes share-based compensation expense for all share-based payment awards including stock options and restricted stock issued to employees, directors and consultants and is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period. The Company has no awards with market or performance conditions.
In March 2007, the Company assumed and adopted the 2007 Stock Option Plan (“Stock Plan”) for its employees, directors and consultants, which includes an equity compensation plan for non-employee directors pursuant to which stock options and shares of restricted stock may be granted. The Company currently has reserved a maximum of 14,000,000 shares of common stock to be issued for stock options or restricted shares awarded under the Stock Plan.
In February 2015, the Company granted options under the Stock Plan to purchase an aggregate of 350,000 shares of Common Stock to a consultant in which one-half vested immediately and the remaining options vested in February 2016, with an exercise price of $0.10. As of December 31, 2018, none of these options were cancelled or expired and all 350,000 shares of these options were vested.
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.
In February 2016, the Board approved common stock grants to a member of management, and certain board members, for 4.0 million shares, in the aggregate, of restricted common stock. Additionally, the Board approved the issuance of stock option agreements to a member of management and certain consultants for the purchase of 3.5 million shares, in the aggregate, of common stock. The Board granted these awards in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company. Based on the foregoing, the Board determined the grants were in the best interest of the Company and its stockholders. All of the share grant awards vest immediately and were issued pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”), or Section 4(a)(2) of the Act, and will therefore be “restricted securities” as such term is used in Rule 144 of the Act. The value of this share grant, $52,800, was recorded as general & administrative expense for the year ended December 31, 2016. The option agreements were issued outside of the Company’s 2007 Stock Option Plan and carry the following terms: seven year agreements, vesting in thirds ratably over three years, and are exercisable at the Company’s closing stock price as of the date of the grant. These options were calculated to have no value. Accordingly, there was no share-based compensation expense recorded in general and administrative expense.
In February 2016, the Company issued a stock option agreement to a consultant for the purchase of 100,000 shares of common stock. The option agreement was issued outside of the Company’s 2007 Stock Option Plan and carries the following terms: seven-year agreement, vesting in thirds ratably over three years, and are exercisable at the Company’s closing stock price as of the date of the grant. These options were calculated to have no value. Accordingly, there was no share-based compensation expense recorded in general and administrative expense.
In May 2017, the Company issued 100,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In July 2017, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In August 2017, the Company granted 3,000,000 shares of restricted Common Stock to consultants for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey markets to be provided over a two-year term. Of the 3,000,000 shares of restricted Common Stock granted, 2,000,000 were issued as of December 31, 2017. In March 2018, the Company issued the remaining 1,000,000 shares of restricted Common Stock granted in August of 2017.
In March 2018, the Company issued 250,000 shares of restricted Common Stock to a consultant for legal / corporate finance services provided to the Company.
In April 2018, the Company issued 200,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
In October 2018, the Company issued 400,000 shares of restricted Common Stock to a consultant for accounting services provided to the Company.
As of December 31, 2018, there was $24,500 in prepaids for compensation costs related to all share-based payment arrangements. There were 3,600,000 options granted outside of the Company’s 2007 Stock Option Plan with 2,400,000 shares vested as of December 31, 2018 with a weighted-average exercise price of $0.15. The remaining 1,200,000 options vested in February 2019.
The fair value for options granted was determined at the date of grant. The following assumptions were used for options granted in the corresponding year.
Stock option expense is recognized in the statements of operations ratably over the vesting period based on the number of options that are expected to ultimately vest. Our options have characteristics significantly different from those of traded options and changes in the assumptions can materially affect the fair value estimates. The Company has recorded no compensation expense for stock options for each of the years ended December 31, 2016, 2017 and 2018.
Related to all grants, the Company currently has no compensation expense for stock options for 2018. The potential tax benefit realizable for the anticipated tax deductions of the exercise of share-based payments pertaining to stock options totaled approximately $216,000 at December 31, 2018. However, due to the uncertainty that the tax benefits will be realized, these potential benefits were not recognized currently.
A summary of the Company's stock option activity and related information for options granted under the Company’s 2007 Stock Option Plan as of and for the three years ended December 31, 2018, is set forth in the following table:
(1)
The weighted-average exercise price at December 31, 2018, 2017 and 2016 for all options was greater than the fair value of the Company’s common stock on that date, resulting in an intrinsic value of $-0-.
In February 2016, the Company issued to members of management and a consultant an aggregate of 3,600,000 options outside of the Stock Plan. The options granted were in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company.
The following table summarizes information about the Company's issuances of restricted stock as of and for the three years ended December 31, 2018:
The Company issued the following grants outside of the Stock Plan: (1) restricted Common Stock: (i) in January 2015 for 500,000 shares to a member of management, (ii) in January 2014 for 500,000 shares to a consultant to provide services regarding the collection, recycling, transfer, and disposal of MSW, (iii) in April 2014, to certain Board members and management for 4,250,000 shares in the aggregate, (iv) in February 2016, to certain Board members and a member of management for 4,000,000 shares in the aggregate, (v) in May 2017 for 100,000 shares to a consultant for accounting services provided, (vi) in July 2017 for 200,000 shares to a consultant for accounting services provided, (vii) in August 2017 for 3,000,000 shares to a consulting group for business consulting services regarding the collection and disposal of MSW in the New York and New Jersey, (viii) in March 2018 for 250,000 shares to a consultant for legal services provided, (ix) in April 2018 for 200,000 shares to a consultant for accounting services provided, and (x) in October 2018 for 400,000 shares to a consultant for accounting services provided, and (2) in February 2016, the Board approved the issuance of stock option agreements to a member of management and certain consultants for the purchase of 3,600,000 shares, in the aggregate, of Common Stock. The shares and options issued to Board members and management were in recognition of the efforts of the recipients towards the furtherance and implementation of the Company’s strategic plan and to induce the recipients to continue those efforts on behalf of the Company. Total expense related to these grants for the year ended December 31, 2018 and 2017, was $47,800 and $26,900, respectively (included in our general and administrative expense).
Note 11 - Income Taxes
The Company recognizes deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
On December 22, 2017, the U.S. enacted legislation referred to as the "Tax Act". Among other things, the Tax Act reduces the U.S. corporate federal income tax rate from 35% to 21%, adds base broadening provisions which limit deductions and address excessive international tax planning, imposes a Toll Charge on accumulated earnings of certain non-U.S. subsidiaries and enables repatriation of earnings of non-U.S. subsidiaries free of U.S. federal income tax. Other than the base broadening provisions and the Toll Charge the provisions are generally applicable to the Company in 2018 and beyond.
The Company remeasured its deferred tax assets and liabilities based on the reduced U.S. federal income tax rate of 21% and Missouri state tax rate of 6%. The amount related to the remeasurement of the Company’s deferred tax balance was a decrease of $1,100,000 in the deferred tax asset.
The Company incurred no income taxes for the years ended December 31, 2018, 2017 and 2016. The expected income tax benefit and resulting deferred tax asset for the years ended December 31, 2018, 2017 and 2016 is approximately $180,000, $165,000 and $194,000, respectively. These benefits are the result of temporary differences (start-up costs, stock compensation and other items) and operating loss carryforwards. The difference between the expected income tax benefit and non-recognition of an income tax benefit in each period is the result of a valuation allowance applied to deferred tax assets. A valuation allowance in the same amount of the benefit has been provided to reduce the deferred tax asset, as realization of the asset is not assured.
At December 31, 2018, the Company has the following net operating loss (“NOL”) carryforwards which are available to offset future taxable income.
The Company has approximately $2.0 million in United States federal net operating loss carryforwards, of which $23,000 may be carried forward indefinitely and $1,961,000 is limited by Section 382 of the Internal Revenue Code, with expirations between 2026 and 2037. This NOL results in a net deferred tax asset of approximately $585,000 for which the Company has recorded a full valuation allowance. Temporary differences which give rise to net deferred tax assets are:
Note 12 - Commitments and Contingencies
Commitments
Lease - The Company leases approximately 1,800 square feet of office space for use as our corporate office, located at 7386 Pershing Ave. in St. Louis, Missouri. The original lease term expired, however, we are continuing to lease on a month-to-month basis (current term ended December 2016). Our monthly rent under the lease is $1,800 plus the cost of utilities.
Contingencies
The Company currently has no open litigation or claims.
Note 13 - Subsequent Events
All of the promissory notes in our 2009, 5/12, 2/14 and 11/10 Offerings are now due. As of March 29, 2019, approximately $3.0 million is currently due, including interest. We are working with each remaining note holder to exchange, convert or repay these promissory notes.
In January 2019, the Company issued a promissory note to a current note holder in the amount of $95,385, which replaced past notes issued on January 7, 2011 and January 28, 2011, plus accrued interest. The new note carries an interest rate of 9% and is due August 1, 2020.
In March 2019, the Company issued a convertible note payable to a current Board of Directors member in the amount of $60,000, with a 6% interest rate, due March 2020.
Note 14 - Quarterly Financial Data (Unaudited)
The results of operations by quarter were as follows:
** - less than $.01 per share
** - less than $.01 per share
Note 15 - Going Concern
During the year ended December 31, 2018, the Company had a net loss of $667,000, negative cash flow from operations of $143,000, and negative working capital of $7.0 million. Additionally, the Company has significant debt currently due. Management has performed its evaluation of the entity’s ability to continue as a going concern, however was not able to alleviate the substantial doubt about the Company’s ability to continue as a going concern within one year after March 29, 2019, the date these consolidated financial statements were available for issue.
Note 16 - Reclassification
Certain reclassifications have been made to the third quarter 2018 results of operations to conform to the presentation of the prior years’ financial statements. The reclassifications have no effect on the net loss applicable to common stockholders for the current year.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A.
ITEM 9A. Controls and Procedures
EVALUATION OF DISCLOSURE 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 (the “Exchange Act”), as amended, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and regulations. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and interim chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management does not expect that our disclosure controls and procedures will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving the objectives outlined above. Based on their most recent evaluation, our chief executive officer and interim chief financial officer concluded that our disclosure controls and procedures (as defined in Rule 15d-15(e) promulgated under the Exchange Act) are effective at that reasonable assurance level at December 31, 2018. Further, the design of a control system must reflect the fact that there are resource constraints, including, but not limited to having one total full-time employee (chief executive officer and interim 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.
Management’s Report on Internal Control Over Financial Reporting - Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 15d-15(f) of the Exchange Act. Internal control over financial reporting provides reasonable assurance of the reliability of our consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Internal control involves maintaining records that accurately represent our business transactions, providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization, and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our consolidated financial statements would be detected or prevented on a timely basis.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in condition, or that the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2018.
Changes in Internal Control Over Financial Reporting - During the three months ended December 31, 2018, 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.
ITEM 9B.
ITEM 9B. Other Information
None.
PART III
ITEM 10.
ITEM 10. Directors, Executive Officers and Corporate Governance
As of the date of the filing of this Form 10-K, we have not held an annual meeting of our stockholders since December 29, 2015, a period that exceeds the window of thirteen months between annual meetings established by Delaware law, but we anticipate an annual meeting of stockholders will be held sometime in 2019. As a result, our Class III directors were not submitted for election by our stockholders in 2017 or 2018 as planned. However, the current Class III directors continue to serve as directors until their respective successors are elected and qualified pursuant to the provisions of the Company’s Amended and Restated Bylaws.
The Company’s Restated Articles of Incorporation, as amended, and Amended and Restated By-laws provide for a division of the Board of Directors into three classes. One of the classes is elected each year to serve a three-year term. The Company’s Amended and Restated By-Laws currently specify that the number of directors shall be not less than three nor more than nine, subject to amendment by the Board of Directors. Currently, the Company has two members of the Board of Directors as detailed below. There are no family relationships between any of the persons serving as the directors and/or executive officers of the Company.
The following table sets forth for each director and officer, such director’s or officer’s age, principal occupation for at least the last five years, present position with the Company, the year in which such director or officer was first elected or appointed (each director serving continuously since first elected or appointed), directorships with other companies whose securities are registered with the SEC, and the class of such director.
Class III Directors: Terms expired in 2016
Name
Age
Principal Occupation
Service as
Director Since
Edward P. Hennessey
Mr. Hennessey currently is Chief Executive Officer and President of the Company, and serves as Chairman of the Board of Directors, all since 2007. Mr. Hennessey has been the President and CEO of SRS Energy since 2003 and served as President of Supercritical Recovery Systems, Inc. prior to that time since 2002. Mr. Hennessey began his career in Finance with Shearson Lehman Brothers in 1986 and worked in the securities industry from 1986 until 2000.
James E. Russell Mr. Russell served for over 30 years as Senior Vice President at Science Applications International Corporation (SAIC). Subsequently, from 2004 to present, he has served as a consultant to SAIC/Leidos and as an independent consultant, private investor, and advisor to over 100 technology companies. He has a BS in Electrical Engineering and continued graduate studies in mathematical statistics. He was inducted to the University of Idaho Academy of Engineers in 2012.
Class II Director
Name
Age
Principal Occupation
Service as
Director Since
None.
Class I Director
Name
Age
Principal Occupation
Service as
Director Since
None.
Involvement in Certain Legal Proceedings
During the past ten years, no present director or executive officer of the Company has been the subject matter of any of the following legal proceedings that are required to be disclosed pursuant to Item 401(f) of Regulation S-K including: (a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (b) any criminal convictions; (c) any order, judgment, or decree permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; (d) any finding by a court, the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud; or (e) any sanction or order of any self-regulatory organization or registered entity or equivalent exchange, association or entity. Further, no such legal proceedings are believed to be contemplated by governmental authorities against any director or executive officer.
Code of Ethics
All directors, officers and employees of the Company, including our Chief Executive Officer and Chief Financial Officer, are required to comply with the Company’s Code of Ethics to ensure that the Company’s business is conducted in a legal and ethical manner. The Code of Ethics covers all areas of business conduct, including employment policies and practices, conflict of interest and the protection of confidential information, as well as strict adherence to all laws and regulations applicable to the conduct of our business. Directors, officers and employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of our Code of Ethics. The Company, through the Audit Committee, has procedures in place to receive, retain and treat complaints received regarding accounting, internal accounting control or auditing matters and to allow for the confidential and anonymous submission of concerns regarding questionable accounting or auditing matters. The Company’s Code of Ethics was filed as Exhibit 14 in its December 31, 2007 Form 10-KSB filed with the SEC on March 28, 2008 and can be obtained free of charge by written request to the attention of the Secretary of the Company at 7386 Pershing Ave, St. Louis, MO 63130 or by telephone at (314) 802-8670. Any changes to or amendments of the Code of Ethics will be filed as a future exhibit in our filings with the SEC.
Audit Committee
The Audit Committee is currently comprised of Mr. Russell (Chairman) who is “independent” in accordance with the definition of “independent” as set forth in Rule 5605(a)(2) of the Nasdaq Listing Rules, as well as the independence requirements for audit committee members under Rule 10A-3 promulgated under the Exchange Act. The Company has determined that Mr. Russell qualifies as an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K. The Company has determined that this member understands fundamental financial statements and has substantial business experience that results in that member's financial sophistication. While we intend to add an "audit committee financial expert" in the future, we believe our current member provides financial understanding given the early stages of our development and the fact that we have not generated any revenues to date. The Audit Committee evaluates significant matters relating to the audit and internal controls of the Company, reviews the scope and results of the audits conducted by the Company’s independent public accountants, confers with the independent public accountants regarding the adequacy of our financial controls and fiscal policy and performs other functions or duties provided in the Audit Committee Charter.
Nomination of Directors
The Board of Directors does not currently have a standing Nominating Committee or a charter or a similar policy in place regarding the nominating process and, as a result, the Board of Directors as a whole performs the functions of a nominating committee and directs and oversees the process by which individuals may be nominated to our Board of Directors. The Company does not believe that given the small size of the Company that designating a separate nominating committee is necessary, and does believe that the Board of Directors as a whole is the appropriate body to oversee the nomination of directors. The Board of Directors will give appropriate consideration to written recommendations from stockholders regarding the nomination of qualified persons to serve as directors of the Company, provided that such recommendations contain sufficient information regarding proposed nominees so as to permit the independent members of the Board of Directors to properly evaluate each nominee’s qualifications to serve as a director. Nominations must be addressed to the Secretary of the Company at 7386 Pershing Ave, St. Louis, MO 63130. The Board of Directors may also conduct their own search for potential candidates that may include candidates identified directly by a variety of means as deemed appropriate by the independent directors.
There are no established term limits for service as a director of the Company. In general, it is expected that each director of the Company will have the highest personal and professional ethics, integrity and values and will consistently exercise sound and objective business judgment. In addition, it is expected that the Board of Directors as a whole will be made up of individuals with significant senior management and leadership experience, a long-term and strategic perspective and the ability to advance constructive debate.
Section 16(a) Beneficial Ownership Reporting Compliance
We are not currently subject to the beneficial ownership reporting requirements of Section 16(a).
ITEM 11.
ITEM 11. Executive Compensation
Compensation Discussion and Analysis
Two key aspects of the duties and responsibilities of the Board of Directors are the administration of our compensation programs, including our equity incentive program, and the approval of compensation for our executive officers. The Board of Directors has the authority to retain outside counsel and/or such other experts or consultants as it deems necessary to discharge its duties.
Summary Compensation Table
The following table summarizes the total compensation paid or earned by the Company’s Principal Executive Officer and Principal Financial Officer, the only executive officer of the Company (the “Named Executive Officer”), who served these positions during 2018 and 2017.
(1)
The assumptions made when calculating the amounts in this column are found in footnote 10 to the Consolidated Financial Statements included in this report. The amounts represent the accounting cost in accordance with FASB ASC Topic 718 that the Company recorded in its Statements of Operations in each year.
(2)
In September 2013, we added, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals maintain their engineering consulting firm on a full-time basis and assist our company as needed. Neither receive salary but each receive stock options (the cost of these options is $-0- based on the same calculations and assumptions in (1) above).
Our Executive Compensation Policy
We believe that a critical factor in attracting and retaining talented and dedicated management that is necessary for our success is the establishment and fair implementation of a comprehensive executive compensation program. Accordingly, our overall compensation philosophy is to offer our executives and other members of our management team compensation and benefits that meet and enhance our goals of attracting, retaining and motivating highly skilled people to work together as a team to achieve our financial and strategic business objectives; provided however, that our ability to pay salaries and other benefits to our executive officers is significantly limited by our lack of financial resources and revenues. In furtherance of our compensation philosophy, and subject to our financial resources, our executive compensation program is designed to:
●
provide fair and reasonable compensation that meets the competitive environment for executive talent;
●
help motivate the members of our executive team for excellent performance; and
●
align the interests of our executive team members with those of our stockholders and the long-term success of our company.
While all decisions regarding executive compensation are ultimately made by our Board of Directors, they also rely on the recommendations of the Chief Executive Officer with respect to all of our executive officers (other than the Chief Executive Officer himself), particularly with regard to his assessment of each executive officer’s individual performance against achievement of strategic objectives, level of responsibility exercised and the level of specialized experience and knowledge required to do the job. Determinations by our Board of Directors are not made in accordance with strict formulas which measure weighted qualitative and quantitative factors. Rather, such determinations are more subjective in nature and take into account not only the recommendations of our Chief Executive Officer, but such other factors as deemed relevant in an effort to blend competitive ranges into our own internal policies and practices. The Board of Directors may also seek advice from a compensation consultant.
Our current executive officer entered into a three-year employment agreement with the Company effective as of August 31, 2007 that provides for, among other things, the base salary, if any, of such executive officer’s compensation package. This employment contract permits us to increase, but not decrease, base salary within the contract term. The contract expired on August 31, 2010 and by its terms, automatically renews for additional one-year periods, unless terminated by either the Company or the employee. This agreement is currently in effect.
Elements of our Executive Compensation Program
Our executive officer program consists of three basic elements: base salary, annual incentive bonus, and long-term incentive compensation. Currently, our executive officer is paid his approved salary as cash is available and was not paid a salary or bonus in 2018. Subject to our ability to identify and execute on an outside funding source, we expect in the future we will begin paying the remaining Named Executive Officer salary and bonuses consistent with his position and job performance. Consistent with our executive officer compensation philosophy, we have structured each element of our compensation package as follows:
Base Salary - In December 2008, an annual base salary of $144,000 was approved for Mr. Hennessey, (CEO and Interim CFO). Salaries are currently paid based on cash availability and therefore Mr. Hennessey was not paid his salary in 2018 or 2017. Salary that is not paid is accrued in our consolidated financial statements. Currently, the salaries paid to our executive officers as a group are substantially less than the salaries typically paid to executives with the experience and background of our executive officers.
Bonuses - Currently, we do not have a bonus plan for executive officers.
Long-Term Incentive Compensation - The long-term incentive awards for our executive officers can be made under our 2007 Stock Option Plan under which the Board of Directors may, among other things, grant or award stock options and other stock-based awards, subject to certain limitations and restrictions as set forth in the plan. Our use of stock-based awards for our executive officers is the primary means by which we provide our executive officers a long-term incentive that becomes more valuable to the executive to the extent our share value increases, thereby aligning each executive’s interest with the interest of our stockholders.
It is the policy of the Board of Directors that, with respect to all equity-based compensation for the executive officers, the award dates for each grant shall be specified by the Board of Directors at a duly convened meeting as of a date on or after the date of its action, and that the exercise price or value of the grant shall be determined by reference to the closing price of our common stock on the specified award date. See “Outstanding Equity Awards at Fiscal Year-End” table for additional information. Equity grants may also be made to new executive officers upon commencement of their employment and, on occasion, to executive officers and members of our Board of Directors in connection with a significant change in job responsibility, extraordinary performance, or other reasons.
Tax and Accounting Implications
Section 162(m) of the Internal Revenue Code generally precludes a public company from taking a federal income tax deduction for annual compensation in excess of $1 million per individual paid to its chief executive officer or the other named executive officers. Under Section 162(m), certain compensation, including “performance-based compensation,” is excluded from this deduction limitation. Our intent is to structure compensation paid to our executives to be deductible; however, from time to time, the Board of Directors may award compensation that may not be deductible if it determines that such awards are consistent with our compensation philosophy and in the best interest of our stockholders.
Under the Tax Cuts and Jobs Act and subject to certain grandfathering rules, effective 2018, the performance-based compensation exception described above has been eliminated and the definition of “covered employee” has been expanded (before 2018, the chief financial officer and individuals who were covered employees in past years were not treated as covered employees). As a result, the Company generally will not be able to obtain a tax deduction for compensation paid to a covered employee in excess of $1 million. However, we expect we will continue to structure our compensation to emphasize pay for performance, notwithstanding the elimination of the Section 162(m) performance-based compensation exception.
Outstanding Equity Awards at Fiscal Year-End - The following table provides information on stock options and restricted stock awards granted to the Named Executive Officer that were outstanding as of December 31, 2018. The market values in this table were computed using the closing price of the Company’s common stock on December 31, 2018, which was $0.02.
(1)
The options shown in this column are nonvested as of December 31, 2018.
Option Exercises and Stock Vested
(1)
Values reflect the market value of our common stock as of the vesting dates. These prices ranged from $0.02 to $0.36.
(2)
The price of our common stock on these vesting dates was less than or equal to the exercise price of the options.
(3)
Award was granted and vested on December 4, 2008. Each officer issued a promissory note with a $0.36 exercise price.
Pension Benefits - Our Named Executive Officer is not covered by a defined benefit pension plan or other similar benefit plan that provides for payments or other benefits.
Nonqualified Deferred Compensation - We do not have any nonqualified deferred compensation plans.
Potential Payments Upon Termination or Change-in-Control - The employment agreement with our Named Executive Officer was entered into for an initial term of employment that commenced as of August 31, 2007 and expired on August 31, 2010. By its terms, the employment agreement automatically renews for additional one-year periods, unless terminated by either the Company or the employee. This agreement is currently in effect.
The employment agreement may be terminated upon: (i) the Company’s dissolution, (ii) the death or permanent disability of the employee, (iii) by the Company upon the employee’s unsatisfactory performance of his duties under the agreement, (iv) ten days’ written notice by the Company upon breach or default of the terms of the agreement by the employee, or (v) by the employee upon 30 days’ written notice to us. The employment agreement also permits the Company to terminate the employee’s employment following an act of misconduct.
If, pursuant to a change in control of the Company, an employee’s employment agreement is involuntarily terminated, the employee will receive severance pay in an amount equal to his annual base salary for one year following the date on which he was terminated.
Director Compensation - For the year ending December 31, 2018, the following table summarizes compensation for non-employee members of our Board of Directors.
(1)
As of December 31, 2018, Mr. Russell had 40,000 options outstanding and they were 100% vested.
Each non-employee board member receives a grant of 40,000 options and 150,000 restricted shares of common stock upon joining as a director of the Company. In 2014, the Company’s non-employee directors at that time, received compensation in the aggregate of 3,500,000 restricted shares of the Company’s common stock. The Company’s non-employee directors received restricted shares totaling 3,500,000 in 2016.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information as of December 31, 2018 with respect to each person or group known by the Company to be the beneficial owner of more than five percent of its outstanding shares of Common Stock. Beneficial ownership of shares has been determined in accordance with Rule 13d-3 of the Exchange Act, under which a person is deemed to be the beneficial owner of securities if he or she has or shares voting or investment power with respect to such securities or has the right to acquire ownership thereof within 60 days. Accordingly, the amounts shown in the tables do not purport to represent beneficial ownership for any purpose other than compliance with the reporting requirements of the SEC.
(1)
Amount represents shares owned by Supercritical Recovery Systems, Inc., of which Mr. Hennessey serves as President and a Member of the Board of Directors.
(2)
SRS Legacy Trust is an irrevocable trust of which Edward P. Hennessey, Jr. is a beneficiary. Michael Hennessey, Mr. Hennessey’s brother, has sole voting power, and sole dispositive power with respect to these shares.
SECURITY OWNERSHIP OF MANAGEMENT
Under regulations of the SEC, persons who have power to vote or to dispose of our shares, either alone or jointly with others, are deemed to be beneficial owners of those shares. The following table sets forth, as of December 31, 2018, the beneficial ownership of the outstanding Common Stock of each current director, each of the executive officers named in the Summary Compensation Table set forth herein and the executive officers and directors as a group. Unless otherwise noted, the Company believes that all persons named in the table below have sole voting power and dispositive power with respect to all shares beneficially owned by them.
(1)
Includes the shares described in (1) to the “Security Ownership of Certain Beneficial Owners” table and the vested portion and the portion that will vest within 60 days hereof of shares of options and restricted stock.
In connection with the merger with SRS Energy, we assumed SRS Energy’s 2007 Stock Option Plan, which was adopted by the SRS Energy Board of Directors and approved by the SRS Energy shareholders on April 16, 2007. We currently have 14,000,000 shares of our common stock reserved under our 2007 Stock Option Plan.
Equity Compensation Plan Information
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions and Director Independence
From time to time, the Company has engaged in various transactions with certain of its directors, executive officers and other affiliated parties. The following paragraphs summarize certain information concerning certain transactions and relationships that have occurred during the past fiscal year or are currently proposed.
Beginning in 2009, the Company provided advances to partially cover for months with no payroll, to two employees - Ed Hennessey and Mike Kime (who resigned from the Company in June 2010) and as of December 31, 2018, the Hennessey balance of advances were approximately $14,000 and the Kime advance has been paid in full.
One member of our Board of Directors, James Russell is party to investments in our Convertible Note offerings - approximately $1.0 million in the aggregate, including principal and interest, as of December 31, 2018. No principal or interest has been paid on these notes. Interest accrues at 6% per annum.
In September 2013, the Company hired, on a part-time basis, a Chief Technology Officer (CTO) and a VP-Business Development (VP-BD). These individuals maintain their engineering firm Fenton Engineering International (FEI) on a full-time basis and receive no salary in their part-time positions but are eligible for grants of stock options. We have used and continue to use their services. As of December 31, 2018, all amounts have been paid to FEI except for approximately $48,000.
In June and October of 2016, the Company issued notes payable, with no conversion feature, to a current Board of Directors member, in the amounts of $50,000 and $35,000, respectively. In March 2018, both notes were replaced with a convertible note payable with a face value of $97,599, and a 6% interest rate, due March 2019.
In October 2017, the Company issued a note payable, with no conversion feature, to a current Board of Directors member, in the amount of $25,000.
In March 2018, the Company issued two convertible notes payable to a current Board member in the amounts of $50,000 and $17,000, respectively.
In May 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $30,000.
In August 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $20,000.
In November 2018, the Company issued a convertible note payable to a current Board of Directors member in the amount of $35,000.
Determination of Director Independence
The Company utilizes the definition of “independent” as set forth in Rule 5605(a)(2) of the NASDAQ Listing Rules. Nasdaq requires that a majority of the Board of Directors be “independent,” as defined in Nasdaq Marketplace Rule 5605(a)(2). Under the Nasdaq rules, the Board of Directors must make an affirmative determination that a director is independent by determining that the director has no relationships that, in the opinion of the Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board of Directors has reviewed the independence of its directors under the Nasdaq rules. During this review, the Board of Directors considered transactions and relationships between each director or any member of his family and the Company. The Board of Directors has determined that Mr. Russell is independent under Nasdaq Rule 5605(a)(2).
ITEM 14.
ITEM 14. Principal Accountant Fees and Services
The following table sets forth the amount of audit fees, audit-related fees, tax fees and all other fees billed or expected to be billed by Milhouse & Neal, LLP, the Company’s independent registered public accounting firm:
(1)
Includes annual financial statement audit. (2) Includes fees for the preparation of the Company's tax returns.
The Audit Committee is required to review and approve in advance the retention of the independent auditors for the performance of all audit and lawfully permitted non-audit services and the fees for such services. The Audit Committee may delegate to one or more of its members the authority to grant pre-approvals for the performance of non-audit services, and any such Audit Committee member who pre-approves a non-audit service must report the pre-approval to the full Audit Committee at its next scheduled meeting. The Audit Committee is required to periodically notify the Board of their approvals. The required pre-approval policies and procedures were complied with in 2018 and 2017.
PART IV
ITEM 15.
ITEM 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Changes in Stockholders Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
2. Exhibits: See Index to Exhibits on pages 61-62 for a list of exhibits filed with this Form 10-K. Management contracts and compensatory plans or arrangements are identified with asterisk on the Index to Exhibits.
ITEM 16. Summary of Form 10-K
Not applicable.
INDEX TO EXHIBITS
Exhibit
Number Description
2.1 Agreement and Plan of Merger and Reorganization by and among Cleantech Biofuels, Inc., Biomass NA Acquisition Subsidiary, Inc. and Biomass North America Licensing, Inc. dated as of July 14, 2008 (incorporated herein by reference to Exhibit 2.1 of the Registrant’s quarterly report on Form 10-Q for the period ended June 30, 2008).
3.1 Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
3.2 Restated By-Laws (incorporated herein by reference to Exhibit 3.2 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
4.2 Investors’ Rights Agreement dated as of April 16, 2007 by and among SRS Energy, Inc. and certain Investors (incorporated herein by reference to Exhibit 4.2 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.1 Technology License Agreement between Bio Products International, Inc. and SRS Energy, Inc. dated as of March 8, 2007 (incorporated herein by reference to Exhibit 10.4 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.2* 2007 Stock Option Plan (incorporated herein by reference to Exhibit 10.7 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.3* Form of Director Stock Option Agreement (incorporated herein by reference to Exhibit 10.8 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.4* Director Stock Purchase Agreement (incorporated herein by reference to Exhibit 10.9 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.5* Employment Agreement - Edward P. Hennessey, Jr. (incorporated herein by reference to Exhibit 10.10 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.6* Form of Employee Agreement - Tom Jennewein (incorporated herein by reference to Exhibit 10.11 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.7* Form of Employee Stock Option Agreement - Tom Jennewein (incorporated herein by reference to Exhibit 10.12 of the Registrant’s registration statement on Form SB-2 filed on September 10, 2007, File No. 333-145939).
10.8 Commercial Lease with Pershing Properties, LLC dated October 12, 2007 (incorporated herein by reference to Exhibit 10.13 of the Registrant’s registration statement on Form SB-2/A filed on November 30, 2007, File No. 333-145939).
10.9 Patent Purchase Agreement dated October 22, 2008 by and between Cleantech Biofuels, Inc. and World Waste Technologies, Inc. (incorporated herein by reference to Exhibit 10.15 of the Registrant’s current report on Form 8-K filed on October 27, 2008).
10.12 Technology License and Joint Development Agreement among Biomass North America Licensing, Inc., Biomass North America, LLC and Anthony P. Noll (incorporated herein by reference to Exhibit 10.18 of the Registrant’s quarterly report on Form 10-Q for the period ended September 30, 2008).
10.13* Form of employee stock purchase agreement entered into with Edward P. Hennessey, Jr., Mike Kime and Tom Jennewein (incorporated herein by reference to Exhibit 10.20 of the Registrant’s annual report on Form 10-K for the period ended December 31, 2008).
10.16 Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporate herein by reference to Exhibit 10.20 of the Registrant’s current report on Form 8-K filed on September 8, 2010).
10.17 Security Agreement between Cleantech Biofuels, Inc. and CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.21 of the Registrant’s current report on Form 8-K filed on September 8, 2010).
10.18 Amendment dated February 11, 2011 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.22 of the Registrant’s current report on Form 8-K filed on February 16, 2011).
10.19 Amendment No. 2 dated May 31, 2011 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.23 of the Registrant’s current report on Form 8-K filed on June 1, 2011).
10.20 Amendment No. 3 dated July 29, 2011 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.24 of the Registrant’s current report on Form 8-K filed on August 2, 2011).
10.21* Form of Employee Stock Option Agreement entered into with Edward P. Hennessey, Jr. and Tom Jennewein (incorporated herein by reference to Exhibit 10.25 of the Registrant’s current report on Form 8-K filed on August 31, 2011).
10.22* Form of Director Stock Option Agreement (incorporated herein by reference to Exhibit 10.26 of the Registrant’s current report on Form 8-K filed on October 19, 2011).
10.23 Amendment No. 4 dated November 7, 2011 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.27 of the Registrant’s current report on Form 8-K filed on November 10, 2011).
10.24 Amendment No. 5 dated March 27, 2012 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.28 of the Registrant’s annual report on Form 10-K for the period ended December 31, 2011).
10.26 Engagement Agreement between Cleantech Biofuels, Inc. and Fenton Engineering International dated May 30, 2012 (incorporated herein by reference to Exhibit 10.30 of the Registrant’s current report on Form 8-K filed on June 5, 2012).
10.27 Amendment No. 6 dated July 31, 2012 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.29 of the Registrant’s quarterly report on Form 10-Q filed on August 6, 2012).
10.28 Amendment No. 7 dated November 1, 2012 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.30 of the Registrant’s quarterly report on Form 10-Q filed on November 6, 2012).
10.29 Amendment No. 8 dated January 9, 2013 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.31 of the Registrant’s current report on Form 8-K filed on January 10, 2013).
10.30 Amendment No. 9 dated May 8, 2013 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.30 of the Registrant’s quarterly report on Form 10-Q filed on May 13, 2013).
10.31 Amended Technology License and Joint Development Agreement, dated November 1, 2013, among CTB Licensing LLC, Biomass North America LLC and Anthony P. Noll (incorporated herein by reference to Exhibit 10.31 of the Registrant’s quarterly report on Form 10-Q filed on November 12, 2013).
10.32 Amendment No. 10 dated March 21, 2014 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010 (incorporated herein by reference to Exhibit 10.32 of the Registrant’s annual report on Form 10-K filed on March 21, 2014).
10.33 Memorandum of Understanding between Cleantech Biofuels, Inc., James Avenue LLC, 25 Van Keuren LLC, and Joseph Smentkowski, Inc. dated October 13, 2014.
10.34 Amendment No. 11 dated March 17, 2015 to a Promissory Note issued in favor of CMS Acquisition, LLC dated September 1, 2010.
Code of Ethics (incorporated herein by reference to Exhibit 14 of the Registrant’s annual report on Form 10-KSB for the period ended December 31, 2007).
21.1 List of Subsidiaries.
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 Certificate (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 Certificate (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
*Management contract or compensatory plan or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CleanTech Biofuels, Inc.
(registrant)
April 1, 2019 By: /s/ Edward P. Hennessey, Jr.
Edward P. Hennessey, Jr.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
April 1, 2019
/s/ Edward P. Hennessey, Jr.
Edward P. Hennessey, Jr., Chairman of the Board
of Directors and Chief Executive Officer
(principal executive officer)
April 1, 2019
/s/ James Russell
James Russell, Director