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

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

• the demand for and production costs of various energy products made from our biomass,

• competition from other alternative energy technologies, and

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

Although we believe the expectations reflected in our forward-looking statements are based upon reasonable assumptions, it is not possible to foresee or identify all factors that could have a material and negative impact on our future performance. The forward-looking statements in this report are made on the basis of management's assumptions and analyses as of the time the statements are made, in light of their experience and perception of historical conditions, expected future developments and other factors believed to be appropriate under the circumstances.
Company Overview
The following discussion of our company overview and plan of operation should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance. These risks and other factors include, among others, those listed under "Statement Regarding Forward-Looking Information."

We are a development stage company that has recently changed its focus from being a fully integrated cellulosic ethanol producer to being a provider of cellulosic biomass derived from municipal solid waste, also known as MSW, for any energy product. Previously, our business focused on utilizing the following technologies to produce ethanol:
• a pressurized steam classification technology, which we refer to as the "PSC" technology, invented at the University of Alabama, Huntsville that used a pressurized steam classification vessel to convert MSW into cellulosic material while simultaneously segregating and eliminating any inorganic materials in the solid waste and cleaning recyclable materials in the MSW;

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

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

In January 2008, we purchased a small scale unit designed to operate the HFTA technology from the University of California Berkeley and moved this unit to the Hazen Research facility in Golden Colorado. The unit was reconstructed and used to analyze the sugar content obtainable from a variety of biomass derived from different sources of garbage and waste paper. Based on these results, we determined that there are sufficient amounts of sugars obtainable from the biomass we derive from garbage to warrant further development and potential commercialization of the HFTA technology.
In September 2008, we acquired the exclusive rights to a Biomass Recovery System developed by Anthony Noll that we refer to as our Biomass Recovery Process, which is technology comprised of improvements to the patent we acquired in October 2008. Our rights to use the Biomass Recovery Process technology permit us to use the biomass we derive from MSW to produce all energy products. In October 2008, we acquired the patent for the PSC technology from World Waste Technologies ("WWT"), who previously had purchased the patent from the University of Alabama Huntsville. As a result, we became the licensor of the PSC technology to Bio-Products International, Inc. ("Bio-Products") under its Master License Agreement. Bio-Products was the sublicensor of the PSC technology to us. During the fourth quarter of 2008, Brelsford Engineering, Inc. terminated our license to the Brelsford technology for non-payment of certain fees. We have decided not to use this technology going forward in our operations and thus have written off the remaining asset as of December 31, 2008. The impairment loss of $97,500 is included in research and development expense on the statement of operations for the year ended December 31, 2008.
Since early 2008, we had been in litigation against Bio-Products regarding our use of the PSC technology as a sublicensee. In March 2009, we entered into a Settlement Agreement with Bio-Products settling all of these claims. Pursuant to the Settlement Agreement, in addition to a customary mutual release, Bio-Products entered into a covenant not to sue whereby Bio-Products and its related parties agreed to permit us to use the Biomass Recovery Process technology worldwide, for any product that we desire and with no royalty due to Bio-Products. We also mutually terminated the License Agreement with Bio-Products that had granted to us a sublicense to use the PSC technology. As a result, we have no further obligations thereunder. Due to our ownership of the patent covering the PSC technology, we continue to be the licensor of the PSC technology to Bio-Products under the Master License Agreement. As a result of the Settlement Agreement, we are now capable of using the Biomass Recovery Process technology to produce any energy product that we desire and are no longer limited to production of fuel grade ethanol in the United States. 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 is the holder of the technology licenses. Pursuant to the merger agreement, SRS Acquisition Sub, our wholly-owned subsidiary, merged into SRS Energy with SRS Energy as the surviving corporation. We consummated the merger on May 31, 2007 resulting in SRS Energy becoming our wholly-owned subsidiary. Effective August 2, 2007, we changed our name to CleanTech Biofuels, Inc.
SRS Energy was originally formed as a wholly-owned subsidiary of Supercritical Recovery Systems, Inc., a Delaware corporation, in July 2004. At that time, Supercritical Recovery Systems was a licensee of various technologies for the processing of waste materials into usable products. While investigating different technologies, Supercritical Recovery Systems was introduced to the PSC and Brelsford technologies and secured licenses to the technologies in SRS Energy. Prior to our acquisition of SRS Energy, Supercritical Recovery Systems distributed approximately 80% of its ownership of SRS Energy to the stockholders of Supercritical Recovery Systems. Since our acquisition of SRS Energy, Supercritical Recovery Systems has ceased its business activities with respect to licensing other technologies.
We have no operating history as a producer of biomass feedstocks or any energy products and have not constructed any commercial operating plants to date. We have no operating revenues to date and expect that our current capital and other existing resources will be sufficient only to complete a portion of the testing of our technologies and to provide a limited amount of working capital. The Company will require substantial additional capital to implement its business plan and it may be unable to obtain the capital required to do so. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, we will be required to delay our development and may not be able to implement our business plan. Recent Developments
Beginning in April 2009, the Company commenced a second offering of units comprised of a convertible promissory note and a warrant. As of November 9, 2009, the Company has received $642,500 in investment proceeds. Each convertible promissory note carries a one-year term and a 6% interest rate. In addition, each note can be converted into shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), at $0.08 per share, at the Note holder's option. Each note was issued with a warrant to purchase additional shares of Common Stock to provide 100% coverage of the Note at a price of $0.30 per share. Under the first offering of units comprised of a convertible promissory note and warrants, which is now closed, the Company received $642,000 in investment proceeds.
During the first quarter of 2009, we constructed a small-scale test vessel. This vessel has operated in Kentucky beginning in April 2009 processing approximately 12 tons of MSW. The biomass will be and has been tested as a feedstock in energy conversion technologies that are ready for commercialization. In July 2009, the Company entered into a joint research agreement with Fiberight, LLC ("Fiberight"), to establish the anticipated yields and operating costs from using biomass produced by us for the production of ethanol using Fiberight's proprietary enzymatic processes. Under the agreement, we provided approximately 2000 pounds of biomass feedstock derived from MSW from the City of Chicago to use in Fiberight's conversion technology.
In August 2009, the Company entered into a joint research agreement with GeoSyn Fuels, L.L.C. ("GeoSyn") whereby the Company provided GeoSyn with biomass feedstock derived from MSW from the City of Chicago for GeoSyn's testing of their proprietary process for converting biomass into ethanol and other products.
In July 2009, we reached a settlement in the litigation with Duluth Venture Capital Partners, L.L.C. ("Duluth") pursuant to which all claims against the Company and its officers and directors were dismissed with prejudice. The settlement agreement required the Company to remove stop transfer orders previously placed on shares of its Common Stock registered in the name of Duluth and make a payment of $25,000 to Duluth. This payment was advanced by the Company and has been recouped by the Company pursuant to an agreement with its insurance carrier.

The Company had a note payable to WWT in the amount of $450,000 and warrants to purchase 900,000 shares of Common Stock at a price of $0.45 per share and warrants to purchase an additional 900,000 shares of Common Stock at a price of $0.45 contingent on payment of the note by July 22, 2009 (the original maturity date). 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. We entered into amendments dated July 23, 2009 whereby: (i) the Company paid 10% of the original note and all accrued interest to date, (ii) all previous warrants (totaling 1,800,000) were reissued at a price of $0.11 with no contingencies and (iii) the remaining payments on the note were scheduled to be paid on October 22, 2009 (50% of principal plus accrued interest to date not yet paid) and January 22, 2010 (remaining principal and accrued interest to date). We entered into amendments dated October 22, 2009 whereby: (i) the October 22, 2009 payment was deferred until November 22, 2009 and (ii) we issued additional warrants to Vertex for 500,000 shares of Common Stock at a price of $0.10 per share. The warrants are exercisable at any time for five years from the date of issuance or reissuance. Plan of Operation
The following discussion of our plan of operation should be read in conjunction with the financial statements and related notes to the financial statements included elsewhere in this report. This discussion contains forward-looking statements that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance. These risks and other factors include, among others, those listed under "Statement Regarding Forward-Looking Information." Our company was initially conceived as a fully-integrated producer of cellulosic ethanol using a technology for cleaning and separating municipal solid waste, also known as MSW, into its component parts, which we refer to as the PSC technology and a dilute acid hydrolysis technology developed by Brelsford Engineering, Inc. To further enhance our ability to produce ethanol, in 2008 we licensed a technology that uses nitric acid to hydrolize biomass into ethanol. The technology developed at the University of California Berkeley is controlled by HFTA, Inc. pursuant to a Master License Agreement with the University of California Berkeley and sublicensed to us for the production of ethanol from MSW.
Based on our investigation and acquisition of new technologies and research and development of our existing technologies in 2008, we have re-focused our business on the commercialization of our technology for cleaning and separating MSW into its component parts through the acquisition of further technology to clean and separate MSW, which we refer to as the Biomass Recovery Process and is currently in use in a commercial setting in Australia. As a result, we believe this technology is ready for commercial implementation in the United States and elsewhere. In furtherance of our new focus, we have begun evaluating potential commercial projects using our technology. Biomass Feedstock Production
We previously were seeking to construct an operating commercial plant in Chicago, Illinois. Recently, the waste hauling company we were working with in the Chicago area was acquired by Waste Management, Inc. At this time we are not certain whether we will seek to work with Waste Management, Inc. to develop the Chicago market. Our long-term intentions are to develop this market, but we are currently evaluating our options to do so in light of the recent acquisition. We are also seeking to develop a plant in a major metropolitan area. We are currently working with an existing waste hauler, to develop one or more waste transfer stations where waste collected will be processed using our technology and the biomass produced used to create heat and power.
We are also seeking to implement our technology in Maryville, Missouri. In September 2009, a member of our board of directors, Dr. David Bransby, filed a grant request with the United States Department of Energy, seeking $5.0 million in funding. If this grant is awarded we intend to use the funding to install one of our vessels at a waste facility in Maryville, Missouri. The biomass we produce will be supplied to Northwest Missouri State University for research purposes in advanced biofuel technologies and to supply steam for the University. The University has used biomass to produce steam for more than twenty years and has significant experience in handling biomass feedstocks.

We have completed construction of a small test vessel in Kentucky. Beginning in April 2009, this vessel has processed approximately 12 tons of MSW into approximately 4-5 tons of biomass. We are providing the biomass produced during this testing phase to a variety of fuel producers who are evaluating the biomass we produce from MSW as a feedstock for their technologies. In addition to the developments we are currently contemplating, other development opportunities have been presented to us and we are currently evaluating those potential developments. Also, a variety of federal, state and local stimulus funds, grant opportunities, loan guarantees and other programs have recently been announced or are expected to be announced in the near-term that have opened a variety of new development opportunities for the Company. On October 15, 2009, we filed final applications for Section 48C with respect to our proposed developments in Maryville, Missouri and in the St. Louis area. We anticipate filing additional grant and loan applications for governmental assistance in the near-term future. Upon operating a plant and after refining our know-how with respect to implementation of the technology, we intend to seek to partner with waste haulers, landfill owners and municipalities to implement the technology across the United States and internationally.
The further implementation of the commercial plants described above will require significant additional capital, which we currently do not have. We cannot provide any assurance that we will be able to raise this additional capital. We anticipate that financing for the project in the St. Louis area will be provided in large part via tax exempt bond financing. In addition, we intend to seek funding and loan guarantees from local, state and federal authorities. Diesel Fuel Production
We previously anticipated completing an agreement with Green Power, Inc. ("Green Power") to provide biomass for testing at Green Power's facility and if that is successful, to build a 200 ton per day MSW processing station to provide biomass for an existing 100 ton per day diesel fuel production plant. To date we have not been able to reach an agreement as to the nature and amount of biomass to be produced. These issues and a number of other items will be required to be resolved before we are able to complete any agreement with Green Power. We have not completed an agreement to date and there can be no assurance that we will complete any agreement and proceed with this development. New Technologies; Commercializing Existing Technologies Because of our unique ability to produce a clean, homogenous biomass feedstock, we are frequently presented with the opportunity to partner with or acquire new technologies. In addition to developing our current technologies, we will continue to add technologies to our suite of solutions that complement our core operations. We believe that our current technologies and aspects of those in development will enable us to eventually expand our business to use organic material from other waste streams such as municipal bio-solids from waste water facilities and animal waste for fuel production. To commercialize this technology, we intend to:
• construct and operate a commercial plant that processes MSW into cellulosic biomass for combustion in existing co-fired boilers for power;

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

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

Our ability to implement this strategy will depend on our ability to raise significant amounts of additional capital and to hire appropriate managers and staff. Our success will also depend on a variety of market forces and other developments beyond our control.

Results of Operations
The following tables set forth the amounts of expenses and changes represented
by certain items reflected in our consolidated statements of operations for the
three and nine months ended September 30, 2009 and 2008:

                                                           Three months ended
                                                   Sept 30, 2009        Sept 30, 2008        Change
General and administrative                        $       288,740      $        99,204      $ 189,536
Professional fees                                          64,657               90,284        (25,627 )
Research and development                                        -               40,271        (40,271 )

Operating loss                                            353,397              229,759        123,638

Other expense (income):
Interest expense                                          253,657                3,314        250,343
Amortization of technology license                              -                3,750         (3,750 )
Other income                                                    -                    -              -
Interest income                                            (3,431 )                 (3 )       (3,428 )


Net loss applicable to common stockholders        $       603,623      $       236,820      $ 366,803

General and administrative - The increase in expense in 2009 is due primarily to accruing salaries for all employees in 2009 compared to salary earned only by the CEO in 2008, an increase of approximately $47,000 in share-based compensation expense and $44,000 in increased marketing expenses. Professional Fees - The decrease in 2009 is due primarily to a reduction in legal fees.
Research and Development - The decrease in 2009 is due primarily to a shift in focus in our plan of operation from a fully-integrated producer of cellulosic ethanol to the commercialization of our technology for cleaning and separating MSW into its component parts as described earlier in this report.
Interest expense - The increase in 2009 is due primarily to the amortization of approximately $230,000 of discounts related to various notes and approximately $22,000 in interest on those notes. These notes were issued from October 2008 through September 2009 and thus no interest was incurred during the three months ended September 30, 2008.
Amortization - The asset related to this amortization was written off as of December 31, 2008 as we no longer plan to use the technology in our plan of operations going forward. As we have not yet commenced our operations, we have no amortization in 2009 for our current technology assets.
Interest income - The interest income in 2009 is for interest earned on the notes receivable from our directors, executive officers and consultants related to the issuance of restricted stock.

                                                           Nine months ended
                                                   Sept 30, 2009        Sept 30, 2008         Change
General and administrative                        $       877,567      $       400,534      $  477,033
Professional fees                                         257,231              281,176         (23,945 )
Research and development                                      101              277,187        (277,086 )

Operating loss                                          1,134,899              958,897         176,002

Other expense (income):
Interest expense                                          725,949               27,201         698,748
Amortization of technology license                              -               11,250         (11,250 )
Other income                                              (32,000 )                  -         (32,000 )
Interest income                                            (7,938 )             (5,982 )        (1,956 )


Net loss applicable to common stockholders        $     1,820,910      $       991,366      $  829,544

General and administrative - The increase in expense in 2009 is due primarily to accruing salaries for all employees in 2009 compared to salary earned only by the CEO in 2008, an increase of approximately $142,000 in share-based compensation expense and $85,000 in increased marketing expenses. Professional Fees - The decrease in 2009 is due primarily to a reduction in legal fees.
Research and Development - The decrease in 2009 is due primarily to a shift in focus in our plan of operation from a fully-integrated producer of cellulosic ethanol to the commercialization of our technology for cleaning and separating MSW into its component parts as described earlier in this report.
Interest expense - The increase in 2009 is due primarily to the amortization of approximately $660,000 of discounts related to various notes and approximately $65,000 interest on those notes. These notes were issued from October 2008 through September 2009 and thus no interest was incurred during the nine months ended September 30, 2008. This increase in interest was offset partially by reduced interest expense in 2009 on our Series A Convertible Notes as all but $140,000 of the notes were converted by the end of April 2008.
Amortization - The asset related to this amortization was written off as of December 31, 2008 as we no longer plan to use the technology in our plan of operations going forward. As we have not yet commenced our operations, we have no amortization in 2009 for our current technology assets.
Other income - The income in 2009 is for the leasing of our HFTA equipment, which expired on May 31, 2009, and the subsequent sale of this equipment. Interest income - The income in 2008 is primarily interest on $450,000 of promissory notes issued to us as part of the consideration for the issuance of . . .