8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):  September 25, 2006

HUMAN BIOSYSTEMS

(Exact name of registrant as specified in its charter)

000-28413

(Commission File Number)

California	77-0481056
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1127 Harker Avenue, Palo Alto, CA 94301

(Address of Principal Executive Offices Including Zip Code)

Registrant's telephone number, including area code: (650) 323-0943

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (See General Instruction A.2. below):

[ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

========================================================================

Item 1.01 Entry into a Material Definitive Agreement.

On September 25, 2006, Human BioSystems (“HBS”), a California corporation, and HBS BioEnergy (“HBS Bio”), a California corporation and a wholly owned subsidiary of HBS, entered into an Asset Purchase Agreement with EXL III Group Corporation (“EXL”) effective September 1, 2006.  Pursuant to the Asset Purchase Agreement, EXL agreed to sell options to purchase certain property in Lumberton County, North Carolina, to HBS Bio.  In consideration for the options, HBS Bio will issue fifty thousand (50,000) shares of HBS common stock to EXL and reimburse EXL $40,000 for expenses incurred with respect to the options and related proposed ethanol projects, discussed further below.  

On September 25, 2006, HBS Bio and HBS entered into a Consulting Services Agreement effective September 1, 2006, with EXL.  That agreement provides that EXL will supervise, manage, and coordinate the development, construction, and operation of up to three ethanol facilities.  The Consulting Services Agreement also provides that EXL’s President, Claude Luster, III, will have the title of President of HBS Bio during the term of the agreement, and will report to HBS Bio’s Chief Executive Officer.  The term of the agreement is two years from the effective date, with an option to extend the term for two additional years by mutual written agreement.  

In consideration for its consulting services, EXL will receive an annual consulting fee of $199,000.  Upon the funding of the first ethanol facility, the annual consulting fee will increase to $224,000.  The consulting fee will increase again to $324,000 upon the funding of the second ethanol facility, and to $424,000 in the even a third ethanol facility is funded.  

EXL will also be entitled to 3,450,000 shares of HBS common stock, no par value per share.  The stock will be placed in escrow, and to that end, HBS Bio, EXL, and Silicon Valley Law Group as escrow agent entered into an Escrow Agreement.  The Escrow Agreement provides that 1,000,000 shares of HBS common stock will be released to EXL upon the execution of certain agreements necessary for the development of the first ethanol facility, the submission of preliminary environmental and land use permits for the first ethanol facility, and the assignment and conveyance of the option to purchase the second facility.  An additional 1,000,000 shares will be released to EXL upon the acquisition of certain permits for the first facility and the execution of certain agreements necessary for development of the first facility, as well as the submission of preliminary environmental and land use permits for the second facility.  The 1,450,000 remaining shares will be rel eased to EXL when a funding commitment for the first facility is obtained.  In the event funding for the first facility is not obtained within four months from the date on which the funding commitment is received, any shares still in escrow will be dispersed to HBS Bio and any shares previously released to EXL will be returned to HBS Bio.  

Item 3.02 Unregistered Sales of Equity Securities.

On September 25, 2006, HBS entered into a Consulting Services Agreement under which it will be obligated to issue 3,450,000 shares of common stock (see Item 1.01 above). The issuance was made in reliance on Section 4(2) of the Securities Act of 1933, as amended and was made without general solicitation or advertising.  The recipient was a sophisticated investor with access to all relevant information necessary to evaluate the investments, who represented to HBS and HBS Bio that the shares were being acquired for investment purposes.

Item 9.01-Exhibits

Exhibit No.  Description

--------------  ---------------

10.1

Asset Purchase Agreement effective September 1, 2006, by and among HBS, HBS Bio, and EXL.

10.2

Consulting Services Agreement effective September 1, 2006 by and between HBS Bio and EXL.

10.3

Escrow Agreement by and among HBS Bio, EXL, and Silicon Valley Law Group.

99.1

Press Release Issued September 28, 2006 Entitled "Breaking News: HBS BioEnergy Finalizes Agreement to Acquire Planned Ethanol Projects."

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: September 29, 2006

HUMAN BIOSYSTEMS

By:   /s/ Harry Masuda

        -----------------

         Harry Masuda

         CEO

EX-10.1

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made and entered into effective as of September 1, 2006 (the “Effective Date”), by and among EXL III GROUP CORPORATION, a California corporation (“EXL”), HUMAN BIOSYSTEMS, a California corporation (“HBS”) and HBS BIOENERGY, a California corporation (“HBS Bio”).  Certain capitalized terms used in this Agreement are defined in Exhibit A hereto.

RECITALS

A.

EXL is the owner of the following property, which EXL desires to transfer, sell and assign to HBS Bio (collectively, the “Subject Property”), subject to the terms and conditions of this Agreement:

(i)

All right, title and interest of EXL (to the extent such right, title and interest are assignable) in and to that certain Option Agreement, dated July 26, 2006, by and between EXL and K.M. Biggs, Inc. and Katydid Farms, Inc., to purchase that certain real property located in Lumberton County, North Carolina, a copy of which Option Agreement is attached as Exhibit B hereto (the “Lumberton Option”);

(ii)

All right, title and interest of EXL (to the extent such right, title and interest are assignable) in and to any and all use permits, encroachment permits, licenses and other governmental authorizations that are applicable to the construction, maintenance, repair, use, operation, replacement, and improvement of any part of the property and/or interests described in the above subparagraphs (i) and (ii), inclusive, some of which are described in the Schedule of Permits attached as Exhibit C hereto (the “Permits”); and

(iii)

All records of EXL primarily relating to the Subject Property, including property files, contract files, environmental files, health and safety files, Permit files, abstracts and title opinions or policies, tax records, insurance and related records, transportation records, surveys and maps and all other books, records, files and data that relate to the Subject Property (the “Records”).

B.

HBS Bio desires to acquire, purchase and accept an assignment of the Subject Property from EXL, subject to the terms and conditions of this Agreement.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and based upon the foregoing recitals, the parties agree as follows:

1.

Purchase and Sale.  EXL shall sell the Subject Property to HBS Bio, and HBS Bio shall purchase the Subject Property from EXL, on all of the terms, covenants and conditions set forth in this Agreement.  

1.1

No Assumption of Liabilities.  HBS Bio shall not assume any Liabilities of EXL (whether or not related to the Subject Properties), including (a) any Tax Liabilities of EXL; (b) any obligations of EXL relating to accounts payable or other indebtedness; (c) any wages or salaries or other obligations relating to employment or any employees of EXL; or (d) any other Liabilities of EXL, except (i) obligations of EXL under the Lumberton Option (provided that EXL shall pay all expenses of obtaining the Lumberton Option).

1.2

Transaction Taxes.  EXL shall be liable for any sales taxes, use taxes, transfer taxes or similar taxes, charges or fees that may become payable in connection with the conveyance and sale of the Subject Property to HBS Bio.

1.3

Allocation.  EXL and HBS Bio shall determine in good faith the manner in which the Purchase Price (as defined below) is to be allocated among the Subject Property.  Neither EXL nor its members shall file any Tax Return or other document with, or make any statement or declaration to, any Governmental Body that is inconsistent with such allocation.

2.

Purchase Price.  

2.1

Consideration.  As consideration for the transfer of the Subject Property (the “Purchase Price”), HBS Bio shall transfer to EXL an aggregate of Fifty Thousand (50,000) shares of HBS common stock, no par value, as increased to reflect any stock dividend or other adjustment to the HBS common stock (the “Shares”).  HBS Bio shall also pay EXL, at the Closing, the sum of $40,000 as reimbursement for expenses incurred with respect to the Lumberton Option and the proposed ethanol projects.

3.

Representations and Warranties of EXL.  EXL represents and warrants to HBS Bio and HBS as follows:

3.1

Organization and Good Standing.  EXL is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite power and authority to own and lease the properties and assets it owns and leases in connection with its business and to carry on its business as currently conducted.  EXL is duly licensed to do business in the State of California and all other jurisdictions in which the character of the Subject Property or the nature of its business requires it to be so licensed or qualified except where a failure to have such license or qualification would not have a material adverse effect upon the operation of the Subject Property or the business as presently conducted by EXL.

3.2

Corporate Authority; Authorization of Agreement.  EXL has all corporate requisite power and authority to execute and deliver this Agreement and the documents provided for herein to be executed and delivered by EXL at the Closing, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement and such documents.  EXL has taken all proper corporate action to authorize and approve the execution and delivery of this Agreement and the documents provided for herein to be executed and delivered by EXL at the Closing, the performance of all the terms and conditions hereof and thereof to be performed by EXL and the consummation of the transactions contemplated hereby and thereby.  No other act or proceeding on the part of EXL is necessary to authorize the execution, delivery or performance of this Agreement or such other documents, or the transactions contemplated hereby or thereby.  This Agreement constitutes (and the documents provided for herein to be executed and delivered by EXL at Closing will, when executed and delivered, constitute) the legal, valid and binding obligations of EXL, enforceable against EXL in accordance with their terms, except as may be (i) limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and (ii) subject to general principles of equity (regardless of whether that enforceability is considered in a proceeding in equity or at law).

3.3

No Violation.  The execution and delivery by EXL of this Agreement and the documents provided for herein, the consummation by EXL of the transactions contemplated hereby and thereby and the compliance by EXL with the terms hereof and thereof, do not and will not (i) violate or conflict with or result in a breach of any provisions of or constitute a default (or an event which, with notice or lapse of any applicable cure period, or both, would constitute a default) or require a consent under, or result in the termination of, or accelerate the performance required by or result in the creation of any lien upon any of the Subject Property under, any of the terms, conditions or provisions or the articles of incorporation, bylaws or similar charter documents of EXL, or (ii) violate any order, writ, injunction, decree, statute, rule or regulation of any Government Authority (as defined below) applicable to EXL or the Subject Proper ty.

3.4

Actions and Proceedings.  Except as disclosed on Schedule 3.4:

(a)

there is no action, suit, proceeding or investigation pending against EXL which has been served on EXL, or to the best of EXL’s knowledge, threatened against EXL involving or affecting the Subject Property;

(b)

there are no decrees, injunctions, liens or orders of any Governmental Authority outstanding against EXL relating to or affecting the Subject Property that would have a Material Adverse Effect (as defined below) upon the Subject Property;

(c)

there is no action, suit, proceeding or investigation pending against EXL which has been served on EXL by which any Person (as defined below) seeks to restrain, prohibit or enjoin the performance by EXL of the transactions contemplated hereby.

3.5

No Brokers.  No Person acting on behalf of EXL has any valid claim against HBS Bio, HBS or the Subject Property for any broker’s or finder’s fee or similar compensation in connection with the transactions contemplated hereby.  EXL shall indemnify and hold HBS Bio and HBS harmless from and against any and all Claims (as defined below) by any Person alleging a right to a broker’s or finder’s fee from or through EXL.

3.6

Material Contracts.  

(a)

Schedule 3.6(a) contains a true and complete listing of all Material Contracts relating to the Subject Property.  For the purposes of this Agreement, “Material Contracts” means the following contracts or agreements to which EXL is a party and that relate primarily to the Subject Property: (i) any written contract or agreement obligating EXL to make capital expenditures which as of the date hereof are reasonably estimated by EXL to exceed $50,000 after the date hereof; (ii) any contract or agreement obligating EXL to pay, or entitling EXL to receive, an amount which as of the date hereof is reasonably estimated by EXL to exceed either (A) $50,000 in any 12-month period after the date hereof or (B) $50,000 in the aggregate over the remainder of the current term of the contract or agreement; (iii) any other contract or agreement that is material to the Subject Property; (iv) any rights of first refusal, buy/sell, option or similar rights in favor of Persons other than EXL with respect to the Subject Property; and (v) any material amendment or modification to any of the foregoing.  EXL has delivered to HBS Bio accurate and complete copies of all such Material Contracts.

(b)

Except as disclosed on Schedule 3.6(b), (i) all of the Material Contracts are valid and binding against EXL and (ii) no defaults by EXL exist thereunder nor has any event occurred which, solely with the giving of notice or the lapse of any applicable cure period, or both, would constitute a default by EXL under any Material Contract, except where a default or termination of such Material Contract would not have a Material Adverse Effect upon the Subject Property.  To the knowledge of EXL, except as disclosed on Schedule 3.6(b), (i) all of the Material Contracts are valid and binding against the other parties thereto (or their successors in interest); (ii) no defaults by the other parties thereto (or their successors in interest) exist thereunder nor has any event occurred which, solely with the giving of notice or the lapse of any applicable cure period, or both, would constitute a default by such other parties (or their successor s in interest) under any Material Contract, except where a default or termination of such Material Contract would not have a Material Adverse Effect upon the Subject Property.  

(c)

Except as disclosed on Schedule 3.6(c), no consents or approvals are required in connection with the assignment by EXL to HBS Bio of EXL’s rights and obligations under the Material Contracts, no violations would occur under the Material Contracts in connection with or as a result of the transfer from EXL to HBS Bio of the Subject Property, and no violations would occur under the Material Contracts in connection with the assignment by EXL to HBS Bio of EXL’s rights and obligations under the Material Contracts, except where failing to obtain such consent or such approval would not have a Material Adverse Effect upon the Subject Property.

3.7

Other Agreements.  There exist no agreements or arrangements for the sale by EXL of the Subject Property (including, without limitation, calls on or other rights in favor of Persons other than EXL to purchase such Subject Property whether or not the same are currently being exercised).

3.8

Permits.  

(a)

Schedule 3.8 contains a true and complete listing of all Permits (as defined below) that EXL holds with respect to the Subject Property or for which EXL has applied.

(b)

Except as disclosed on Schedule 3.8, (i) to the knowledge of EXL, EXL holds, or has applied for, or are in the process of applying for, all Permits material to the ownership of the Subject Property; (ii) all such Permits are in full force and effect, and to the knowledge of EXL, all applications for such Permits are complete; and (iii) EXL is in compliance in all material respects with such Permits.  

3.9

Compliance With Laws.  EXL is in compliance in all material respects with all Permits, judgments, orders, decrees, injunctions, statutes, rules, regulations and other legal or administrative requirements of all Governmental Authorities having jurisdiction over the Subject Property, except where non-compliance would not have a Material Adverse Effect upon the Subject Property.  EXL has not received any written notice of a material violation of any such Permit, judgment, order, decree, injunction, statute, rule, regulation or other legal or administrative requirement from any Governmental Authority having jurisdiction over the Subject Property other than violations which, to the best of EXL’s knowledge, have been cured or remedied to such Government Authority’s satisfaction.

3.10

Title to Subject Property.  EXL has good title and/or a valid ownership interest in all of the Subject Property free and clear of all liens, claims and encumbrances other than Permitted Encumbrances (as defined below) and as set forth on Schedule 3.10.  Upon consummation of the transactions contemplated hereby, HBS Bio will have acquired good title and/or a valid ownership interest in the Subject Property, free and clear of any liens or encumbrances, except for Permitted Encumbrances and liens and encumbrances created by or through EXL.

3.11

Full Disclosure.  Neither this Agreement nor any Exhibit or Schedule hereto contains or will contain any untrue statement of fact, and neither this Agreement nor any such Exhibits or Schedules omits or will omit to state any fact necessary to make any of the representations, warranties or other statements or information contained therein not misleading.

4.

Representation and Warranties of HBS BioEnergy.

4.1

Organization and Good Standing.  HBS Bio is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own and lease the properties and assets it owns and leases and to carry on its business as such business is presently conducted.  HBS Bio is duly licensed or qualified to do business in the State of California and all other jurisdictions in which the character of the properties and assets owned or leased by it or the nature of the business conducted by it requires it to be so licensed or qualified, except where the failure to be so licensed or qualified would not have a material adverse effect on HBS Bio, taken as a whole, or the transactions contemplated by this Agreement, taken as a whole.

4.2

Corporate Authority; Authorization of Agreement.  HBS has all requisite corporate power and authority to execute and deliver this Agreement and the documents provided for herein to be executed and delivered by HBS Bio at the Closing, to consummate the transactions contemplated hereby and to perform its obligations under this Agreement and such documents.  HBS Bio has taken all proper corporate action to authorize and approve the execution and delivery of this Agreement and the documents provided for herein to be executed and delivered by HBS Bio at the Closing, the performance of all the terms and conditions hereof and thereof to be performed by HBS Bio and the consummation of the transactions contemplated hereby and thereby.  No other act or proceeding on the part of HBS Bio is necessary to authorize the execution, delivery or performance of this Agreement or such other documents, or the transactions contemplated hereby or thereby.  This Agreement constitutes (and the documents provided for herein to be executed and delivered by HBS Bio at Closing will, when executed and delivered, constitute) the legal, valid and binding obligations of HBS Bio, enforceable against HBS Bio in accordance with their terms, except as may be (i) limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and (ii) subject to general principles of equity (regardless of whether that enforceability is considered in a proceeding in equity or at law).

4.3

No Violation.  The execution and delivery by HBS Bio of this Agreement and the documents provided for herein, the consummation by HBS Bio of the transactions contemplated hereby and thereby and the compliance by HBS Bio with the terms hereof and thereof, do not and will not (i) violate or conflict with or result in a breach of any provisions of or constitute a default (or an event which, with notice or lapse of any applicable cure period, or both, would constitute a default) or require a consent under, or result in the termination of, or accelerate the performance required by or result in the creation of any lien upon any of the Subject Property under, any of the terms, conditions or provisions or the articles of incorporation, bylaws or similar charter documents of HBS Bio, or (ii) violate any order, writ, injunction, decree, statute, rule or regulation of any Government Authority applicable to HBS Bio or the Subject Prope rty.

4.4

Litigation.  There is no action, suit, proceeding or investigation pending against HBS Bio or its affiliates which has been served on HBS Bio or its affiliates or, to the best of HBS Bio’s knowledge, threatened against HBS Bio or its affiliates by which any Person seeks to restrain or enjoin the performance by HBS Bio of this Agreement.

4.5

No Brokers.  No Person acting on behalf of HBS Bio has any valid claim against HBS Bio for any broker’s or finder’s fee or similar compensation in connection with the transactions contemplated hereby.  HBS Bio shall indemnify and hold EXL harmless from and against any and all Claims by any Person alleging a right to a broker’s or finder’s fee from or through HBS Bio.

4.6

Full Disclosure.  Neither this Agreement nor any Exhibit or Schedule hereto contains or will contain any untrue statement of fact, and neither this Agreement nor any such Exhibits or Schedules omits or will omit to state any fact necessary to make any of the representations, warranties or other statements or information contained therein not misleading.

5.

Due Diligence.

5.1

Access to Subject Property.  Upon execution of this Agreement, and until Closing, HBS Bio shall have the reasonable right to inspect the Subject Property and the real property subject to the Lumberton Option and conduct such physical, topographical, geological, environmental, drainage, soil and engineering studies or inspections as HBS Bio may reasonably desire.  Based upon the results of such studies or inspections, HBS Bio may, at its sole discretion, terminate this Agreement.  HBS Bio shall provide EXL reasonable prior notice of any access hereunder.  Any and all access and tests shall be done at the sole cost and expense of HBS Bio, who shall indemnify EXL for any and all claims arising directly from HBS Bio’s tests.

5.2

Access to Records.  Upon reasonable notice from HBS Bio, EXL shall provide HBS Bio reasonable access during EXL’s regular business hours to the Records (as defined herein).  The disclosure of any privileged document or information to HBS Bio shall not constitute a waiver of the applicable privilege, and HBS Bio shall promptly following written request of EXL return to EXL all originals, copies and derivations of any such document or information unless such document or information primarily relates to the Subject Property.  Any and all access shall be provided at the sole cost and expense of HBS Bio, who shall indemnify EXL for any and all claims arising from HBS Bio’s activities.

5.3

Access to Persons.  EXL shall provide HBS Bio reasonable access during EXL’s regular business hours to EXL’s employees, agents and representatives.  Any and all access shall be provided at the sole cost and expense of HBS Bio, who shall indemnify EXL for any and all claims arising from HBS Bio’s activities.

5.4

Other Due Diligence.  Prior to the Closing, and subject to the terms and conditions of this Agreement, HBS Bio may conduct such other examination or investigation of public records relating to the Subject Property or third persons having knowledge of the Subject Property as HBS Bio may choose to conduct in its discretion.

6.

Pre-Closing Covenants.  

6.1

Certain Covenants of EXL Prior to Closing.  Between the date of this Agreement and the Closing Date:

(a)

Conduct of Business.  Except as expressly permitted by this Agreement or as otherwise approved by HBS Bio in writing, EXL shall have:  (i) used reasonable efforts to (A) maintain in effect all Permits material to the Subject Property and (B) maintain the Subject Property in its present condition; (ii) performed in all material respects its obligations under the Material Contracts and complied in all material respects with all applicable laws applicable to the Subject Property; and (iii) not entered into or assumed any contract or agreement which, if entered into or assumed prior to the date hereof, would be a Material Contract.

(b)

Transfers.  Except as otherwise provided herein, EXL shall not have sold, transferred or abandoned any portion of the Subject Property.

(c)

Material Contract.  EXL shall not have amended, altered, modified, waived or terminated any Material Contract.  

(d)

Transfer of Permits.  EXL shall reasonably cooperate with HBS Bio with regard to the application for transfer of any Permits.

(e)

Closing Conditions.  EXL shall use its best efforts to satisfy all conditions to Closing and cooperate in good faith with HBS Bio in HBS Bio’s efforts to effect the Closing.

7.

Conditions Precedent to Closing.  In addition to the performance of the parties’ respective obligations set forth in this Agreement, the Closing hereunder is expressly subject to the satisfaction of all of the following conditions:

7.1

Approval by EXL Board of Directors and Shareholders.  The Board of Directors and shareholders (if required) of EXL shall have approved of the terms and conditions of this Agreement.

7.2

Approval by HBS Bio Board of Directors and Shareholders.   The Board of Directors and shareholders (if required) of HBS Bio shall have approved of the terms and conditions of this Agreement.

7.3

Approval by HBS Board of Directors.  The Board of Directors of HBS shall have approved of the terms and conditions of this Agreement.

7.4

Permits.  EXL shall have obtained written confirmation from the appropriate agencies that all necessary Permits issued by such agencies are either assignable to EXL, or shall be re-issued in the name of EXL.

7.5

Consulting Services Agreement.  HBS Bio and CarbSynol Energy, LLC shall have entered into that certain Consulting Services Agreement in the form attached hereto as Exhibit D (the “Consulting Services Agreement”).

7.6

Updated Information.  If prior to the Closing Date, EXL becomes aware of any act or circumstance which would change or render materially incorrect any representation or warranty made by EXL under this Agreement, whether as of the date given or any time thereafter through the Closing Date and whether or not such representation or warranty was based upon EXL’s knowledge and/or belief as of a certain date, EXL will give prompt written notice of such changed fact or circumstance to HBS Bio.  If (a) EXL delivers a notice pursuant to the foregoing sentence, and (b) if the subject of the notice materially adversely affects the Subject Property, then (c) within fifteen (15) calendar days after receipt of the notice to HBS Bio, HBS Bio shall have the right, as its sole and exclusive remedy, to select one of the following options prior to the Closing Date:  (1) HBS Bio may terminate this Agreement by written notice del ivered to EXL on or before the Closing Date, in which event Escrow shall be cancelled, and this Agreement shall terminate, expire and have no further force or effect; or (2) HBS Bio may accept the Subject Property subject to the matters set forth in EXL’s updated disclosure notice and proceed with the Closing, in which case EXL shall have no obligation or liability with regard to such matter and this Agreement shall remain in force and effect according to its terms.

8.

Closing.  The consummation of the transactions contemplated by this Agreement (the “Closing”) for the Subject Property shall occur on September 15, 2006 (“Closing Date”), unless otherwise agreed in a writing signed by HBS Bio and EXL or unless otherwise provided by this Agreement.  

8.1

Events at Closing.  At the Closing:

(a)

EXL shall:

(i)  execute and deliver to HBS Bio the Bill of Sale;

(ii) execute and deliver to HBS Bio one original affidavit or other certification that EXL is not a “foreign person” within the meaning of Section 1445 (or similar provisions) of the Internal Revenue Code of 1986, as amended (i.e., EXL is not a nonresident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in such Code and the Regulations promulgated thereunder);

(iii)  assign to HBS Bio all of EXL’s right, title and interest, and HBS Bio shall assume all obligations of EXL under, the Option Agreement, pursuant to the terms of an assignment agreement substantially in the form of Exhibit E attached hereto (the “Assignment of Option Agreement”);

(iv)  assign to HBS Bio all of EXL’s right, title and interest, and HBS Bio shall assume all obligations of EXL under, the Permits, pursuant to the terms of an assignment agreement substantially in the form of Exhibit F attached hereto (the “Assignment of Permits”);

(v)  have received an opinion of HBS Bio’s counsel to the effect set forth in Sections 4.1, 4.2, 4.3 (to the best of such counsel’s knowledge) and 4.4 (to the best of such counsel’s knowledge), in form and in substance reasonably satisfactory to EXL; and

(vi)  have obtained all consents and approvals that are required in connection with the transactions contemplated hereby, other than consents and approvals which EXL and HBS Bio reasonably agree are not material.

(b)

HBS Bio shall:

(i)  deliver to the Escrow Agent certificates representing the Shares;

(ii)  have received an opinion of EXL’s counsel to the effect set forth in Sections 3.1, 3.2, 3.3 (to the best of such counsel’s knowledge) and 3.4 (to the best of such counsel’s knowledge) and that the forms of conveyance documents are legally sufficient to convey to HBS Bio all of EXL’s right, title and interest in and to the Subject Property, in form and in substance reasonably satisfactory to HBS Bio;

(iii)  have obtained all consents and approvals that are required in connection with the transactions contemplated hereby, other than consents and approvals which EXL and HBS Bio reasonably agree are not material; and

(iv)  have received from CarbSynol Energy, LLC an executed Consulting Services Agreement.

(c)

EXL and HBS Bio shall execute and deliver such other documents and instruments as may be reasonably necessary to consummate the transactions contemplated hereby.

8.2

Effect of Closing.  Except as otherwise provided herein, all obligations of the parties wholly or partially to be performed after the Closing shall survive the Closing.   Without limiting the generality of the foregoing, except as otherwise provide herein, all obligations of a party to indemnify another person contained herein shall survive the Closing.

9.

Post-Closing Covenants.

9.1

Public Announcements.  No party hereto shall make any public announcement or statement with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other parties to the form, content and timing of such announcement or statement.  However, HBS may make such announcement or statement upon (a) receiving advice of its counsel that the making of such public announcement or statement is required by applicable law, rule or regulation; and (b) giving EXL as much prior notice as is reasonably practicable under the circumstances.

9.2

Further Actions.  From and after the Closing Date, EXL shall cooperate with HBS Bio and HBS Bio’s representatives, and shall execute and deliver such documents and take such other actions as HBS Bio may reasonably request, for the purpose of evidencing the transactions set forth herein and putting HBS Bio in possession and control of the Subject Property.  To the extent that the parties hereto have been unable to obtain any Consent that HBS Bio reasonably deems necessary to be obtained for the transfer to HBS Bio of any of the Subject Property by the Closing Date, EXL shall use its commercially reasonable efforts to obtain such Consent as promptly as practicable thereafter.  Until such Consent is obtained, EXL shall cooperate, and shall use its commercially reasonable efforts to cause its representatives to cooperate, with HBS Bio in any lawful arrangement designed to provide HBS Bio with the benefits of such Subject Property at no cost to HBS Bio in excess of the cost HBS Bio would have incurred (without modification to the terms of any applicable Material Contract) if the Consent had been obtained.  EXL hereby irrevocably nominates, constitutes and appoints HBS Bio as the true and lawful attorney-in-fact of EXL (with full power of substitution) effective as of the Closing Date, and hereby authorizes HBS Bio, in the name of and on behalf of EXL, to institute and prosecute any Proceeding and to take any other action (on or at any time after the Closing) that HBS Bio may deem appropriate for the purpose of (a) collecting, asserting, enforcing or perfecting any claim, right or interest of any kind that is included in or relates to any of the Subject Property; (b) defending or compromising any claim or Proceeding relating to any of the Subject Property; or (c) otherwise carrying out or facilitating any of the transactions contemplated hereby.  The power of attorney referred to in the preceding sentence is and shall be coupled with an interest and shall be irrevocable, and shall survive the dissolution or insolvency of EXL.

9.3

Second Option.  As soon as practicable after the Closing, HBS Bio and EXL shall cooperate to select a mutually satisfactory property for the second ethanol project and to secure an option to purchase said property (the “Second Option”) on terms and conditions mutually agreed upon by HBS Bio and EXL.  

10.

Default/Termination.  The parties may terminate this Agreement prior to the completion of the development of the two ethanol plants as follows:

10.1

Default Prior to Completion of Development of Ethanol Plants.    Either party may terminate this Agreement in the event of a breach by the other party of any of its obligations contained herein if such breach continues uncured for a period of ten (10) days after written notice of such breach to the other party; and

10.2

Termination by HBS Bio or HBS.  HBS or HBS Bio may terminate this Agreement at any time upon thirty (30) days written notice to EXL.

10.3

EXL Buyout of HBS Bio Interest Upon Termination.  In the event that HBS or HBS Bio terminates this Agreement pursuant to Sections 10.1 or 10.2 hereof, EXL shall have the right, but not the obligation, to purchase HBS’ and HBS Bio’s right, title and interest in and to the ethanol projects by reimbursing HBS and HBS Bio in full for all expenditures made by HBS and HBS Bio hereunder, plus interest at the rate of ten percent (10%) per annum from the date of the expenditure.

11.

Indemnification.  

11.1

Indemnification of EXL by HBS Bio.  HBS Bio shall indemnify, defend (with counsel reasonably acceptable to EXL) and hold harmless EXL and EXL’s employees, affiliates, agents, consultants, attorneys, representatives, contractors, directors and officers (collectively, the “EXL Parties”) against and from any and all loss, damage, liability or expense, including without limitation court costs and reasonable attorneys’ fees and experts’ fees, which the EXL Parties may incur or sustain either prior to or following the Closing, caused or allegedly caused by (i) the negligence or wrongful acts of, or (ii) any breach or default by HBS  Bio of its obligations under this Agreement.

11.2

Indemnification of HBS Bio by EXL.  EXL shall indemnify, defend (with counsel reasonably acceptable to HBS Bio) and hold harmless HBS Bio and its employees, affiliates, agents, consultants, attorneys, representatives, contractors, directors and officers (collectively, the “HBS Bio Parties”) against and from any and all loss, damage, liability or expense, including without limitation court costs and reasonable attorneys’ fees and experts’ fees, which the EXL Parties may incur or sustain either prior to or following the Closing, caused or allegedly caused by (i) the negligence or wrongful acts of the EXL Parties, or (ii) any breach or default by EXL of its obligations under this Agreement.

11.3

Survival.  The respective indemnity obligations of the parties set forth in this Section 11 shall survive the Closing, and may be enforced by the parties and their successors and assigns following the Closing.

12.

Agreement of the Parties.  This Agreement and the Consulting Services Agreement represent the entire and integrated agreement of the parties hereto, and supersede any and all prior agreements between the parties, including without limitation that certain Letter of Intent between HBS and EXL dated July 19, 2006, which Letter of Intent is hereby terminated as of the Effective Date hereof.  HBS, HBS Bio, EXL and Luster expressly acknowledge, warrant and understand that there are no statements, representations, inducements or agreements made by or between the parties hereto except as expressly set forth herein in writing.  No amendment, supplement or termination hereof shall be valid except by way of writing subscribed by the parties hereto.

13.

Attorneys’ Fees.  In connection with any suit or other proceeding (including without limitation appellate or bankruptcy proceedings) with respect to the subject matter, interpretation or enforcement of this Agreement, or the right to indemnification hereunder, the prevailing party (as determined by the court, agency or other authority before which suit or proceeding is commenced) shall, in addition to such other relief as may be awarded, be entitled to recover reasonable attorneys’ fees, expert witness fees, expenses and costs of suit or investigation as actually incurred.

14.

Assignment.  This Agreement shall not be assignable by any party without the prior written consent of the other parties, which consent shall not be unreasonably withheld.  Subject to such consent, the terms, conditions and covenants of this Agreement shall be binding upon, and inure to the benefit of, the parties and their respective successors and permitted assigns.  

15.

Notices.  All notices which may be or are required to be given by either party to the other party hereunder shall be in writing (“Notices”).  All Notices shall be sufficiently given, made or delivered if personally served.  All Notice shall also be sufficiently given, made or delivered (i) upon facsimile transmission to the numbers specified under the party’s signatures so long as such transmission is completed prior to 5:00 p.m. California time and a confirming copy is sent by United States mail, (ii) the next business day following deposit with a national overnight courier service, addressed to the parties at the addresses under their signatures, or (iii) forty-eight (48) hours following the certified mailing thereof, postage prepaid, addressed to the parties at the addresses under their signatures.

16.

Time.  Time is of the essence of this Agreement and every provision hereof.  

17.

Uncontrollable Forces.  No party to this Agreement shall be in default under this Agreement when a failure of performance shall be the result of uncontrollable forces.  The term “uncontrollable forces” shall mean any cause or causes beyond the control of a party, including without limitation failure of or threat of failure of facilities, flood, earthquake, storm, drought, fire, lightning, or other natural catastrophe, civil disturbance or disobedience, sabotage, war and/or acts of terrorism, government priorities and restraint by court order or public authority, and action or non-action by, or inability to obtain or maintain in effect, the necessary authorizations or approvals from any governmental agency or authority, any of which by exercise of due diligence of a party could not reasonably have been expected to avoid and which by exercise of due diligence it has been unable to overcome.  Nothing contain ed in this section shall be construed as requiring a party to settle any labor dispute in which it may be involved, or to enter into any contracts or commit to financing arrangements, which contains conditions or terms which a party determines are unduly burdensome.

18.

Fees and Expenses.  Each party shall bear and pay all fees, costs and expenses (including fees and expenses of such party’s legal, accounting, financial and other advisors) that have been incurred or that are in the future incurred by, on behalf of or for the benefit of, such party in connection with: (i) the negotiation, preparation and review of the Letter of Intent; (ii) the negotiation, preparation and review of this Agreement, including the Exhibits and Schedules hereto; and (iii) the consummation and performance of the transactions contemplated hereby; provided, however, that upon the Closing, HBS shall reimburse EXL for its legal expenses up to an aggregate of $10,000.

19.

Waiver.  No waiver by any party of any of the terms or conditions of this Agreement or any of such party’s rights under this Agreement shall be effective unless such waiver is in writing and signed by the party charged with the waiver.

20.

Exhibits and Schedules.  The Exhibits and Schedules to this Agreement are incorporated by this reference as if fully set forth herein.

21.

Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

22.

Independent Counsel; No Presumption.  Each party acknowledges that:  (a) it has been represented by independent counsel in connection with this Agreement; (b) it has executed this Agreement with the advice of such counsel; and (c) this Agreement is the result of negotiations between the parties hereto and the advice and assistance of their respective counsel.  The fact that this Agreement was prepared by counsel for one party or the other as a matter of convenience shall have no import or significance.  Any uncertainty or ambiguity in this Agreement shall not be construed against either party because its counsel prepared this Agreement in its final form.

23.

Severability.  If any provision of this Agreement or application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement (including the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable) shall not be affected thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law.

24.

Interpretation.  Words used in the singular number shall include the plural, and vice-versa, and any gender shall be deemed to include every other gender.  The captions and headings of the Articles and Sections of this Agreement are for convenience of reference only and shall not be deemed to define or limit the provisions hereof.  The Recitals stated above are material parts of the consideration of this Agreement and are incorporated by reference as terms of this Agreement.

25.

Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the State of California (without giving effect to principles of conflicts of laws).  Any Proceeding relating to this Agreement or the enforcement of any provision of this Agreement shall be brought or otherwise commenced in any state or federal court located in the County of Santa Clara, California.  Each party expressly and irrevocably consents and submits to the non-exclusive jurisdiction of each state and federal court located in the County of Santa Clara, California (and each appellate court located in the State of California) in connection with any such Proceeding.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and date set forth beneath their signatures below.  

“HBS Bio” HBS BioEnergy, a California corporation By:/s/Harry Masuda Print Name:Harry Masuda Title: Chief Executive Officer Date:September 25, 2006	“EXL” EXL III Group Corporation, a California corporation By: /s/ Claude Luster, III Print Name: Claude Luster, III Title: President/CEO Date: September 25, 2006
Address: 1127 Harker Ave Palo Alto, CA 94301 ________________________________________ Facsimile:650-327-8658	Address: 221 W. Riverridge Ave Fresno, CA 93711 ________________________________________ Facsimile: 559-261-0952
With copies to: Silicon Valley Law Group 25 Metro Drive, Suite 600 San Jose, CA  95110 Attn:  Cathryn S. Gawne, Esq. Telephone:  (408) 573-5700 Facsimile:    (408) 573-5701	With copies to:
“HBS” Human BioSystems, a California corporation By: /s/ Harry Masuda Print Name: Harry Masuda Title: Chief Executive Officer Date: September 25, 2006
Address:
1127 Harker Ave. Palo Alto, CA 94301 ________________________________________ Facsimile: 650-327-8658
With copies to: Silicon Valley Law Group 25 Metro Drive, Suite 600 San Jose, CA  95110 Attn:  Cathryn S. Gawne, Esq. Telephone:  (408) 573-5700 Facsimile:    (408) 573-5701

List of Exhibits to be Attached

Exhibit A

Definitions

Exhibit B

Lumberton Option Agreement

Exhibit C

Schedule of Permits

Exhibit D

Consulting Services Agreement

Exhibit E

Assignment of Option Agreement

Exhibit F

Assignment of Permits

EX-10.2

CONSULTING SERVICES AGREEMENT

This CONSULTING SERVICES AGREEMENT (the “Agreement”), dated as of September 1, 2006, is made and entered into by and between HBS BIOENERGY, a California corporation (the “Company”), and EXL III GROUP CORPORATION, a California corporation (“Consultant”).  

RECITALS

A.

The Company is engaged in the business of developing and constructing ethanol manufacturing facilities (the “Business”).  

B.

The Company wishes to engage Consultant to provide certain services and Consultant wishes to provide such services, upon the terms and conditions set forth below.  

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I – SERVICES

1.1

Services to be Provided.   Consultant agrees to supervise, manage and coordinate the development, construction and operation of up to three (3) ethanol facilities (each a “Facility” and collectively the “Facilities”) at locations to be selected by the mutual agreement of Consultant and the Company (the “Services”).  The Services shall include, but shall not be limited to, the negotiation of options to purchase the real property upon which the Facilities will be located (each a “Property” and collectively the “Properties”), the conduct of due diligence on the Properties, the acquisition of all permits, consents and approvals for the construction and operation of the Facilities (including but not limited to environmental and land use permits), the negotiation and consummation of all contracts and agreements for the construction, financing and operation of the Faciliti es, the acquisition of raw materials, and the sale and shipping of ethanol and byproducts of the ethanol manufacturing process.

1.2

Devotion of Time.  Consultant acknowledges and agrees that the Services to be provided hereunder are and will be of such a nature that regular hours may be impossible.  Consultant agrees to devote such time as it and the Company mutually agree are required to fully perform the Services, and Consultant agrees that the consideration set forth in this Agreement for the Services will be in full and complete satisfaction for such Services.  Consultant hereby releases the Company from any claims for overtime pay or additional compensation whatsoever.

1.3

Title.  Consultant’s President, Claude Luster, III, shall have the title of President of the Company during the term of this Agreement, and shall report to the Chief Executive Officer of the Company.

ARTICLE II – TERM AND TERMINATION

2.1

Term of Agreement.  This Agreement shall commence as of the date set forth above and shall continue for a period of two (2) years thereafter, unless sooner terminated pursuant to the terms of Section 2.2 hereof.  The parties may extend the term of this Agreement for an additional two (2) years by mutual written agreement.

2.2

Termination Prior to Completion of Term.   Notwithstanding Section 2.1 of this Agreement, the parties may terminate this Agreement prior to the expiration of its term as follows:

1

(a)

Either party may terminate the Agreement in the event of a breach by the other party of any of its obligations contained herein if such breach continues uncured for a period of ten (10) days after written notice of such breach to the other party; and

(b)

Either party may terminate this Agreement upon written notice to the other party if the party to whom such notice is directed is adjudicated bankrupt, files a voluntary petition of bankruptcy, makes a general assignment for the benefit of creditors, is unable to meet its obligations in the normal course of business as they fall due or if a receiver is appointed on account of insolvency.

Upon the termination of this Agreement for any reason, each party shall be released from all obligations and liabilities to the other occurring or arising after the date of such termination, except that any termination shall not relieve Consultant or the Company of their obligations under Section 4.2 ("Taxes and Benefits"), Section 4.3 ("Inventions"), Section 4.4 ("Confidentiality") and Article VI ("Miscellaneous"), nor shall any such termination relieve Consultant or the Company from any liability arising from any breach of this Agreement by such party.

2.3

Buyout of HBS Bio Interest Upon Termination.  In the event that HBS Bio terminates this Agreement pursuant to Section 2.2(a) hereof, Consultant shall have the right, but not the obligation, to purchase the right, title and interest of HBS Bio and HBS Bio’s parent, Human BioSystems’ (“HBS”) in and to the ethanol projects set forth in that certain Asset Purchase Agreement of even date herewith and under this Agreement by reimbursing HBS and HBS Bio in full for all expenditures made by HBS and HBS Bio under the Asset Purchase Agreement and this Agreement, plus interest at the rate of ten percent (10%) per annum from the date of the expenditure.

ARTICLE III – CONSIDERATION

3.1

Consideration for Services.  For providing the Services, Consultant shall be entitled to receive the following consideration:

(a)

Consulting Fee.  Consultant shall receive an annual consulting fee (the “Consulting Fee”) equal to One Hundred Ninety-Nine Thousand Dollars ($199,000).  The Consulting Fee shall be increased to an annual rate of Two Hundred Twenty-Four Thousand Dollars ($224,000) upon the funding of the first Facility, and to an annual rate of Three Hundred Twenty-Four Thousand Dollars ($324,000) upon the funding of the second Facility.  In the event that a third Facility is funded pursuant to the terms of and within the budget provided by that certain Asset Purchase Agreement, dated September 1, 2006, by and among Consultant, the Company, EXL, and HBS (the “Asset Purchase Agreement”), the Consulting Fee shall be increased to an annual rate of Four Hundred Twenty-Four Thousand Dollars ($424,000).  The Consulting Fee shall be paid semi-monthly, on the first and fifteenth days of each month.

(b)

Shares of Common Stock.  Consultant shall be entitled to receive up to an aggregate of Three Million Four Hundred Fifty Thousand (3,450,000) shares of HBS common stock, no par value per share (the “Shares”).   

(c)

Deposit of Shares into Escrow.  On the effective date of this Agreement, the Company shall deliver to Silicon Valley Law Group (the “Escrow Agent”) a certificate or certificates evidencing the Shares.  The Escrow Agent shall hold the Shares pursuant to the terms and conditions of the Escrow Agreement.  Such terms and conditions shall include but shall not be limited to the following:

(i)  An aggregate of 1,000,000 Shares will be released to Consultant upon the execution by the Company and Consultant of a raw product delivery agreement, risk management agreement, fuel ethanol marketing agreement, and distilled grain marketing agreement with mutually satisfactory third parties; the submission of preliminary environmental and land use permits for the first Facility; and the assignment and conveyance to the Company of that certain option to purchase the second Facility;

2

(ii)  An aggregate of 1,000,000 Shares will be released upon the acquisition of air permits and a conditional land use permit, and the execution of an engineering procurement and construction agreement for the first Facility; the execution of a raw product delivery agreement, risk management agreement, fuel ethanol marketing agreement, and distilled grain marketing agreement with mutually satisfactory third parties; and the submission of preliminary environmental and land use permits for the second Facility;

(iii)  The remaining 1,450,000 shares will be released upon the Company’s and  EXL’s obtaining a funding commitment for the first Facility; and

(iv)  In the event that the Company and EXL do not obtain funding for the first Facility within four (12) months from the date on which the funding commitment referred to in (iii) above is received, then any Shares still remaining in escrow shall be disbursed to the Company and Consultant shall return to the Company all other Shares that may have previously been released to it from the above-referenced escrow.

3.2

Status of Shares; Restrictions on Transferability.  With respect to the registration status and transferability of the Shares, Consultant understands, acknowledges and agrees that:

(a)

The Shares to be issued in connection with this Agreement have not been registered under the Securities Act of 1933, as amended (the “Act”) or under applicable state securities laws on the grounds that they are being issued in a transaction (i) involving a knowledgeable investor fully familiar with the operations of HBS and (ii) not involving a public offering and that consequently such transaction is exempt from registration under the Act and applicable state securities laws.  The Company and HBS will rely on Consultant’s representations herein as a basis for the exemption from such registration requirements.

(b)

The Shares may not be sold, transferred or otherwise disposed of except pursuant to an effective registration statement or appropriate exemption from registration under applicable state law and as a result, Consultant may be required to hold the Shares for an indefinite period of time.

(c)

Certificates representing the Shares will bear a legend substantially in the following form:

The securities represented hereby have not been registered under the Securities Act of 1933, as amended, or the securities law of any state.  Such securities have been acquired for investment and without a view to their distribution and may not be sold or disposed of in the absence of any effective registration statement for such securities under the Securities Act of 1933, as amended, and under applicable state securities laws, unless an exemption from registration is available under applicable state securities laws.

3.3

Further Restrictions Upon Transfer.  In addition to the restrictions on transferability set forth above, Consultant further agrees not to sell, encumber, transfer or otherwise dispose of any of the Shares unless and until the funding of the first Facility.

3.4

Registration Rights.  The Company will register the Shares prior to the receipt by HBS Bio of a binding commitment to fund the first Facility.  With the exception of fees and disbursements of special counsel and accountants for Consultant, underwriting and broker discounts and commissions and transfer taxes for Consultant, all fees, costs and expenses for such registration shall be borne by the Company.

3

ARTICLE IV –  RELATIONSHIP OF PARTIES

4.1

Relationship of Parties.  Consultant shall perform the Services under the general direction of the Company and agrees to devote its best efforts to the Services and to the reasonable satisfaction of the Company.  Notwithstanding, Consultant shall determine, in Consultant's sole discretion, the manner and means by which the Services are accomplished, subject to the express condition that Consultant shall at all times comply with applicable law.  Consultant is an independent contractor and Consultant is not an agent or employee of the Company, and has no authority whatsoever to bind the Company by contract or otherwise.

.

4.2

Taxes and Benefits.   Consultant acknowledges and agrees that it shall be the obligation of Consultant to report as income all compensation received by Consultant pursuant to this Agreement and Consultant agrees to indemnify the Company and hold it harmless to the extent of any obligation imposed on the Company to pay any taxes or insurance, including without limitation, withholding taxes, social security, unemployment, or disability insurance, including interest and penalties thereon, in connection with any payments made to Consultant by the Company pursuant to this Agreement.

4.3

Inventions.  All inventions, discoveries, concepts and ideas whether patentable or not, including but not limited to hardware, software, processes, methods, techniques as well as improvements thereto conceived (collectively referred to as "Developments"), made, conceived or developed by Consultant and its agents, alone or with others, which (i) result from or relate to the Services; (ii) which Consultant or its agents may receive from the Company while performing the Services; or (iii) result from use of the Company's equipment, facilities or materials, shall be property of the Company.  Consultant hereby assigns to the Company its entire right, title and interest in and to all such Developments and any intellectual property rights arising therefrom. Consultant shall further cooperate with the Company in connection with any applications, filings or documents prepared and or filed related to the Developments. & nbsp;However, the Company shall have no rights to any products or information owned or developed by Consultant or its suppliers prior to the execution of this Agreement or modifications to such products or information in connection with the Services.

4.4

Confidentiality.  Consultant and its agents agree to hold the Company's Confidential Information in strict confidence and not to disclose such Confidential Information to any third parties.  Consultant and its agents further agree to deliver promptly all Confidential Information in Consultant's or its agents’ possession to the Company at any time upon the Company's request.  For purposes hereof, "Confidential Information" shall include all confidential and proprietary information disclosed by the Company including but not limited to technical and business information relating to the Company's current and proposed products, research and development, production, manufacturing and engineering processes, costs, profit or margin information, finances, customers, suppliers, marketing and production, personnel and future business plans.  "Confidential Information" also includes proprietary or confidential information of any third party who may disclose such information to the Company or Consultant and its agents in the course of the Company's business.  The above obligations shall not apply to Confidential Information which is already known to the Consultant or its agents at the time it is disclosed, or which before being divulged either (a) has become publicly known through no wrongful act of the Consultant or its agents; (b) has been rightfully received from a third party without restriction on disclosure and without breach of this Agreement or other agreements entered into by the Company; (c) has been independently developed by the Consultant or its agents; (d) has been approved for release by written authorization of the Company; or (e) has been disclosed pursuant to a requirement of a governmental agency or of law.

4.5

Independent Activities.  Except as expressly provided herein, Consultant shall have the free and unrestricted right to independently engage in and receive the full benefit of any and all business endeavors of any sort whatsoever, whether or not competitive with the Services, without consulting the Company or allowing the Company to participate therein.  Notwithstanding the foregoing, however, Consultant shall give first priority to performance of the Services contemplated hereunder over any such other business endeavors.

4

4.6

Development of Ethanol Plants.  The Company and Consultant shall work together to develop ethanol plants upon the properties subject to the Lumberton Option and the Second Option pursuant to the timeline and budget attached hereto as Exhibit A.  The parties will negotiate and enter into a definitive Development Agreement that sets forth the terms and conditions of such development, which Development Agreement shall include: (i) the development fee reimbursement for the first ethanol project shall be split 50%-50% by the Company and Consultant after the Company receives reimbursement of its actual out of pocket expenses out of the project funding; (ii) the development fee reimbursement for the second ethanol project shall be split 60% to the Company and 40% to Consultant after the Company receives reimbursement of its actual out of pocket expenses out of the project funding; and (iii) the Company shall prov ide the initial aggregate funding, estimated at $1.5 million to $2.0 million, for the two ethanol projects.  Consultant shall give the Company two (2) weeks’ prior notice of any required portion of such funding.

ARTICLE V – REPRESENTATIONS AND WARRANTIES

OF CONSULTANT

5.1

Representations and Warranties of Consultant.  By executing and delivering this Agreement, Consultant acknowledges, represents and warrants to the Company and HBS as follows:

(a)

Consultant has obtained and reviewed (i) HBS’ latest Annual and Quarterly Reports on Forms 10-KSB and 10-QSB, respectively, and (ii) any other documents specifically requested by it (all such documents are collectively referred to in this Agreement as the “Disclosure Documents”).

(b)

Consultant has, either along or with the assistance of a professional advisor, sufficient knowledge and experience in financial and business matters that Consultant believes itself capable of evaluating the risks and merits of the prospective investment in the Shares and the suitability of an investment in HBS in light of its financial condition and investment needs, and legal, tax and accounting matters.

(c)

Consultant has been given access to full and complete information regarding HBS and has utilized such access to his satisfaction for the purpose of obtaining information in addition to, or verifying information included in, the Disclosure Documents.  Consultant has been given reasonable opportunity to meet with and/or contact HBS representatives for the purpose of asking questions of, and receiving answers from, such representatives concerning the accuracy of information provided in the Disclosure Documents.

(d)

Consultant is an “accredited investor” as defined in Rule 501(a) of Regulation D promulgated under the Act.

(e)

Consultant has relied on the advice of its legal counsel and accountants or other financial advisors with respect to tax and other considerations relating to the purchase of the Shares hereunder.  Consultant is not relying on HBS or the Company with respect to the economic considerations involved to make an investment decision in the Shares.

(f)

Consultant represents and warrants that it intends to acquire the Shares for its own account, for investment purposes and not with a view to resale of the Shares in connection with any distribution thereof.  Consultant intends to receive and hold the Shares for its own account, and has no contract, undertaking, agreement or arrangement with any person or entity to sell or otherwise transfer the Shares to any such person or entity or to have any such person or entity sell the Shares on its behalf.  In addition to the restrictions on transferability set forth above, Consultant further agrees not to sell, encumber, transfer or otherwise dispose of any of the Shares unless and until the funding of the first Facility.

5

ARTICLE VI – MISCELLANEOUS

6.1

Expenses.  Except as and to the extent otherwise provided in this Agreement, the parties shall each pay their own respective expenses and the fees and expenses of their respective counsel and other experts.  

6.3

Waivers.  The failure of either party to insist upon strict compliance with any of the terms, covenants or conditions of this Agreement by the other party shall not be deemed a waiver of that term, covenant or condition, nor shall any waiver or relinquishment of any right or power at any one time be deemed a waiver or relinquishment of that right or power for all or any other time.  

6.4

Binding Effect; Benefits.  This Agreement shall inure to the benefit of the parties hereto and shall be binding upon the parties hereto and their respective successors and assigns.  Except as otherwise set forth herein, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement.

6.5

Assignment.  The rights and liabilities of the parties hereto shall bind and inure to the benefit of their respective successors, executors and administrators, as the case may be, provided that, as the Company has contracted for Consultant's services, Consultant may not assign or delegate its obligations under this Agreement either in whole or in part without the prior written consent of the Company.

6.6

Notices.  Any notices required or permitted hereunder shall be given to the appropriate party at the address specified below or at such other address as the party shall specify in writing and shall be by personal delivery, facsimile transmission or certified or registered mail.  Such notice shall be deemed given upon personal delivery to the appropriate address or upon receipt of electronic transmission or, if sent by certified or registered mail, three days after the date of the mailing.

6.7

Entire Agreement.  This Agreement, the Escrow Agreement and the Asset Purchase Agreement constitute the entire agreement and supersede all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof and supersede all prior agreements, representations, warranties, statements, promises and understandings, whether written or oral, with respect to the subject matter hereof.  

6.8

Counterparts.  This Agreement may be executed in any number of counterparts, each of which when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

6.9

Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, without giving effect to the choice of law principles thereof.

6.10

Severability.  If any term or provision of this Agreement shall to any extent be invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and each term and provision of the agreement shall be valid and enforced to the fullest extent permitted by law.

6.11

Amendments.  This Agreement may not be modified or changed except by an instrument or instruments in writing signed by the party or parties against whom enforcement of any such modification or amendment is sought.

6.12

Section References.  All references contained in this Agreement to any section number are references to sections of this Agreement unless otherwise specifically stated.

6.13

Attorney’s Fees.  In the event of any action for the breach of this Agreement or misrepresentation by any party, the prevailing party shall be entitled to reasonable attorney’s fees, costs and expenses incurred in such action

6

IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date written below.

COMPANY:

CONSULTANT:

HBS BIOENERGY,

EXL III GROUP CORPORATION,

A California corporation

A California corporation

By: /s/ Harry Masuda

By:

/s/ Claude Luster, III

Its: Chief Executive Officer

Its:

President/CEO

Date: September 25, 2006

Date: September 25, 2006

Address: 1127 Harker Ave

              Palo Alto, CA 94301

Address: 221 W. Riverridge Ave.

              Fresno, CA 93711

7

EX-10.3

ESCROW AGREEMENT

This ESCROW AGREEMENT (the “Agreement”) is made and entered into as of September 1, 2006, by and among HBS BIOENERGY, a California corporation (the “Company”), EXL GROUP III CORPORATION, a California corporation (“Consultant”) and SILICON VALLEY LAW GROUP, a Law Corporation (the “Escrow Agent”).

RECITALS

A.

The Company and Consultant have duly executed and delivered that certain Consulting Services Agreement dated and effective as of September 1, 2006 (the “Consulting Services Agreement”), providing, among other things, for the provision of services by Consultant to the Company for consideration including up to an aggregate of Three Million Four Hundred Fifty Thousand (3,450,000) shares of the Company’s common stock (the “Stock”).

B.

Pursuant to Section 3.1(c) of the Consulting Services Agreement, the parties hereto are executing this Agreement and agreed to be bound by its terms and conditions.  Capitalized terms used herein and not defined shall have the definitions set forth in the Consulting Services Agreement.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

ESTABLISHMENT OF ESCROW

1.1

Simultaneously with the execution of this Agreement, the following has occurred, all of which is hereby acknowledged by the parties hereto:

(a)

The Company has deposited certificates representing the Stock (the “Deposit”) with the Escrow Agent.  The Deposit, including any dividends declared thereon, shall hereinafter be referred to as the “Escrow Account.”

(b)

The Company and Consultant hereby appoint the Escrow Agent, and the Escrow Agent hereby agrees to serve, as the escrow agent and depositary for the parties hereto subject to the terms and conditions set forth herein.  The Escrow Agent has received the Deposit and agrees to hold the Escrow Account in a separate and distinct account (the “Escrow Account”) which, subject to the terms and conditions of this Agreement, will be available for disbursement as provided in Article III at the Escrow Agent’s office in San Jose, California.  The Escrow Agent shall not distribute or release any of the Escrow Account except in accordance with the express terms and conditions of this Agreement.

ARTICLE 2

DISBURSEMENTS FROM THE ESCROW ACCOUNT

2.1

Subject to the notice provisions set forth in this Article 2, Consultant shall be entitled to release of the Stock as follows:

(a)  An aggregate of 1,000,000 shares of Stock will be released to Consultant upon the execution by the Company and Consultant of a raw product delivery agreement, risk management agreement, fuel ethanol marketing agreement, and distilled grain marketing agreement with mutually satisfactory third parties; the submission of preliminary environmental

1

and land use permits for the first Facility; and the assignment and conveyance to the Company of that certain option to purchase the second Facility;

(b)  An aggregate of 1,000,000 shares of Stock will be released upon the acquisition of air permits and a conditional land use permit, and the execution of an engineering procurement and construction agreement for the first Facility; the execution of a raw product delivery agreement, risk management agreement, fuel ethanol marketing agreement, and distilled grain marketing agreement with mutually satisfactory third parties; and the submission of preliminary environmental and land use permits for the second Facility; and

(c)  The remaining 1,450,000 shares will be released upon the Company’s and  Consultant’s obtaining a funding commitment for the first Facility.

2.2

The Company and Consultant shall give joint written notice (“Notice”) to the Escrow Agent of the achievement of the above milestones in respect of which release of Stock from the Escrow Account may be sought.  Such Notice shall identify in reasonable detail the milestone reached and the number of shares of Stock to be released from the Escrow Account.

2.3

In the event that the Company and Consultant do not obtain funding for the first Facility within four (12) months from the date on which the funding commitment referred to in (c) above is received, then they shall promptly notify the Escrow Agent as provided in Section 2.2 above; any shares of Stock still remaining in the Escrow Account shall be disbursed to the Company and Consultant shall return to the Company all other shares of Stock that may have previously been released to it from the above-referenced Escrow Account.

.

ARTICLE 3

COMPENSATION; EXPENSES

3.1

In consideration for its services as Escrow Agent, the Escrow Agent shall be entitled to receive the compensation set forth in Exhibit A hereto, as well as the reimbursement of all reasonable out-of-pocket costs and expenses actually incurred by the Escrow Agent in the performance of its duties hereunder.  Said compensation, costs and expenses shall be billed to and paid one-half by the Company and one-half by Consultant.

ARTICLE 4

EXCULPATION AND INDEMNIFICATION

4.1

The obligations and duties of the Escrow Agent are confined to those specifically set forth in this Agreement.  Except as provided in Article 13, in the event that any of the terms and provisions of any other agreement between any of the parties hereto, except for the Consulting Services Agreement, conflict or are inconsistent with any of the terms and provisions of this Agreement, the terms and provisions of this Agreement shall govern and control in all respects.  The Escrow Agent shall not be subject to, nor be under any obligation to ascertain or construe the terms and conditions of any other instrument, whether or not now or hereafter deposited with or delivered to the Escrow Agent or referred to in this Agreement, nor shall the Escrow Agent be obligated to inquire as to the form, execution, sufficiency, or validity of any such instrument nor to inquire as to the identity, authority, or rights of the person or persons exe cuting or delivering same.

4.2

The Escrow Agent shall not be personally liable for any act which it may do or omit to do hereunder in good faith and in the exercise of its own best judgment.  Any act done or omitted to be done by the Escrow Agent pursuant to the advice of its attorneys shall be deemed conclusively to have been performed or omitted in good faith by the Escrow Agent.

2

4.3

In the event the Escrow Agent is notified of any dispute, disagreement or legal action between the parties hereto and any third party relating to or arising in connection with the escrow, the Escrow Account, or the performance of the Escrow Agent’s duties under this Agreement, the Escrow Agent will not be required to determine the controversy or to take any action regarding it.  The Escrow Agent may hold all documents and funds and may wait for settlement of any such controversy by final appropriate legal proceedings, arbitration, or other means as, in the Escrow Agent’s discretion, it may require.  In such event, the Escrow Agent will not be liable for interest or damage.  Further, the Escrow Agent may, at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves, provided that such action must be brought before the Arbitrator pursuant to Arti cle 14 hereof (if the dispute involves solely the Company and Consultant).  The Escrow Agent is authorized, at its option, to deposit with the Clerk of the Court or the Arbitrator, as applicable, all documents and funds held in escrow, except all costs, expenses, charges, and reasonable attorneys’ fees incurred by the Escrow Agent due to the interpleader action and which the parties hereto agree to pay.  Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement.

4.4

The parties hereto hereby agree to indemnify and hold the Escrow Agent harmless from and against all costs, damages, judgments, reasonable attorneys’ fees (whether such attorneys shall be regularly retained or specifically employed), expenses, obligations and liabilities of every kind and nature which the Escrow Agent may incur, sustain, or be required to pay in connection with or arising out of this Agreement, unless the aforementioned results from the Escrow Agent’s gross negligence or willful misconduct, and to pay the Escrow Agent on demand the amount of all such costs, damages, judgments, attorneys’ fees, expenses, obligations, and liabilities.  The foregoing indemnities in this section shall survive the resignation or substitution of the Escrow Agent or the termination of this Agreement.

ARTICLE 5

TERMINATION OF AGREEMENT

5.1

This Agreement may be terminated at any time upon the receipt by the Escrow Agent of five (5) business days prior written notice of termination by the Company and Consultant directing the distribution of all assets then held by the Escrow Agent under and pursuant to this Agreement.  This Agreement shall automatically terminate if and when all amounts in the Escrow Account shall have been distributed by the Escrow Agent in accordance with the terms of this Agreement.

5.2

Unless earlier terminated as provided in Section 5.1 above, the Escrow Account will terminate at 2:00 p.m., San Jose, California time, on September __, 200_.  Upon termination of the Escrow Account, the amounts, if any, held in the Escrow Account, after being reduced by any releases of Stock to which Consultant is already entitled under this Agreement, shall be immediately distributed by the Escrow Agent to the Company, and shall be free and clear of any claim by Consultant.

ARTICLE 6

RESIGNATION OF ESCROW AGENT

6.1

The Escrow Agent may resign at any time upon giving at least thirty (30) days prior written notice to the other parties hereto as provided in Article 7 hereto; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: The other parties hereto shall use their best efforts to select a successor escrow agent within thirty (30) days after receiving such notice.  If the other parties hereto fail to appoint a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent.  The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent.  Upon delivery of su ch instrument, the Escrow Agent shall be discharged from any further duties and liability under this agreement.  The Escrow Agent shall be paid any outstanding fees and expenses prior to transferring assets to a successor escrow agent.

3

ARTICLE 7

NOTICES

7.1

All notices required by this Agreement shall be in writing and shall be deemed to have been received (a) immediately if sent by facsimile transmission during a business day before 4:00 p.m. at recipient’s location (with a confirming copy sent the same business day by registered or certified mail), or by hand delivery (with signed return receipt), or (b) the next business day if sent by nationally recognized overnight courier, in any case to the respective addresses as follows:

If to the Company:

HBS BioEnergy

1127 Harker Avenue

Palo Alto, CA  94301

Attn:  Harry Masuda, Chief Executive Officer

Fax:  (650) 327-8658

with a copy to:

Cathryn S. Gawne, Esq.

Silicon Valley Law Group

25 Metro Drive, Suite 600

San Jose, CA  95110

Fax:  408/573-5701

If to Consultant:

EXL III Corporation

221 W. Riverridge Ave.

Fresno, CA 93711

Attn:  Claude Luster, III

Fax:  559-261-0952

with a copy to:

_____________________

_____________________

Attention:  ____________

Fax:  ________________

If to the Escrow Agent:

Silicon Valley Law Group

A Law Corporation

25 Metro Drive, Suite 600

San Jose, CA  95110

Attn: Cathryn S. Gawne, Esq.

Fax:  408/573-5701

4

ARTICLE 8

GOVERNING LAW; JURISDICTION

8.1

This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to the conflicts of law rules of such state.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

ARTICLE 9

AMENDMENT; MODIFICATION; WAIVER

9.1  

Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each party against whom the amendment is sought to be effective.

9.2

No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

ARTICLE 10

COUNTERPARTS

10.1

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same agreement.  This Agreement shall become effective when each party hereto shall have received a counterpart hereof signed by the other party hereto.  No provision of this Agreement is intended to confer upon any person other than the parties hereto any rights or remedies hereunder.

ARTICLE 11

INTERPRETATION

11.1

The headings used in this Agreement are for convenience only and shall not constitute a part of this Agreement.

11.2

As used in this Agreement, “business day” means a day other than a Saturday, Sunday, or other day when banking institutions in Palo Alto, California are authorized or required by law or executive order to be closed.

ARTICLE 12

SEVERABILITY

12.1

The parties agree that if any provision of this Agreement shall under any circumstances be deemed invalid or inoperative this Agreement shall be construed with the invalid or inoperative provisions deleted and the rights and obligations of the parties shall be construed and enforced accordingly.  Such invalidity or unenforceability shall not affect any valid and enforceable application thereof, and each such provision shall be deemed to be effective, in the manner and to the fullest extent permitted by law.

5

ARTICLE 13

EFFECT ON CONSULTING SERVICES AGREEMENT

13.1

The provisions of this Agreement are not intended to alter, modify, negate or replace any provisions of the Consulting Services Agreement that may be in conflict with the provisions hereof.  In the event of any conflict or inconsistency between the terms hereof and the Consulting Services Agreement, the Consulting Services Agreement shall control.  

ARTICLE 14

EXPENSES

14.1

All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.  

ARTICLE 15

ENTIRE AGREEMENT

15.1

This Agreement, the Consulting Services Agreement and that certain Asset Purchase Agreement of even date herewith by and among the Company, Consultant and Human BioSystems, a California corporation, constitute the entire agreement among the Company and Consultant with respect to the subject matter of this Agreement and supersede all prior agreements and understandings, both oral and written, among the parties with respect to the subject matter of this Agreement.

ARTICLE 16

SUCCESSORS AND ASSIGNS

16.1

The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that, unless permitted hereunder, no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of each other party hereto.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Escrow Agreement as of the day and year first above written.

THE COMPANY:

HBS BioEnergy, a California Corporation

By: /s/ Harry Masuda

Harry Masuda, Chief Executive Officer

CONSULTANT:

EXL III Group Corporation, a California Corporation.

By:/s/Claude Luster III

Claude Luster, III

President

ESCROW AGENT:

By: /s/ Cathryn S. Gawne

Cathryn S. Gawne, Esq.

6

EXHIBIT A

ESCROW AGENT COMPENSATION

to be provided by Escrow Agent

7

EX-99.1

.

Breaking News: HBS BioEnergy Finalizes Agreement to Acquire Planned Ethanol Projects

Palo Alto, CA – September 27, 2006 - (OTCBB:HBSC) -Human BioSystems (“HBS”) announced today that HBS BioEnergy (“HBS Bio”), a wholly owned subsidiary of HBS, signed definitive agreements with EXL III Group Corporation (“EXL”) to acquire two planned ethanol projects, pursuant to the Letter of Intent announced in a July 27, 2006 press release .

“The ethanol projects will be transferred or assigned to HBS Bio from EXL through the acquisition of options on the purchase of land appropriate for bio-fuels production or through projects already in progress. Under the terms of the asset purchase agreement, restricted stock of HBS will be released from escrow upon the transfer of the first option,” explained Mr. Harry Masuda, CEO of Human BioSystems.

A separate consulting agreement between HBS Bio and EXL was also signed that will utilize the services of EXL and specifically Mr. Claude Luster III, the principal of EXL, to provide the expertise and leadership necessary to complete the process of site acquisition, permitting, construction, financing and ultimately the production and sale of ethanol or other bio fuels. The terms of the consulting agreement require the payment of consulting fees and up to an aggregate of 3,450,000 shares of restricted HBS stock, to be held in escrow and  released as project milestones are met.

Mr. Claude Luster III, CEO of EXL said, “I am very excited about this relationship with HBS BioEnergy and HBS. I believe that EXL can bring the strategic components to the table that could benefit all parties concerned.”

“The signing of these agreements marks the beginning of a commitment by HBS to a revenue path while leaving the bio-medical business intact and separate from the energy business,” concluded Mr. Masuda.

Human BioSystems is a developer of preservation platforms for organs and other bio-materials.   HBS is headquartered in Palo Alto, California with research facilities in Michigan and has been granted four patents by the U.S. Patent Office.

Contact:

Human BioSystems	Investor  Relations	Investor Relations
Harry Masuda	Yes International	Concept Communications Group LLC
(650) 323-0943	Rich Kaiser	James D. Caldwell
	(800) 631-8127	(727) 447-0514

Certain statements contained herein are “forward-looking'' statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, failure to obtain regulatory approvals for the construction of ethanol plants,  failure to obtain the required financing and to construct the ethanol plants, failure of the ethanol plants to meet standards, the inability to find raw material for the production of ethanol or to sell the ethanol at on acceptable terms, the risks involved in pursuing a business unrelated to HBS’ prior business, and other factors discussed in filings made by the Company with the Securities and Exchange Commission