10-Q

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2009

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File No. 0-28413

HUMAN BIOSYSTEMS

( Exact name of small business issuer as specified in its charter )

California (State or other jurisdiction of incorporation or organization) 77-0481056 (I.R.S. Employer Identification Number)

1127 Harker Avenue

Palo Alto, California 94301

(Address of principal executive offices)

650-323-0943

(Issuer’s telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.  Yes þ   No  ¨

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

Large Accelerated Filer           Accelerated Filer ____       Non-Accelerated Filer ____      Smaller Reporting Company __X  

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

At March 31, 2009 the registrant had outstanding 2,396,500 shares of common stock, no par value.

HUMAN BIOSYSTEMS

FORM 10-Q

TABLE OF CONTENTS

PAGE

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets as of March 31, 2009 (Unaudited)

and  December 31, 2008

F-1

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Months Ended March 31, 2009 and 2008 and the

Period from February 26, 1998 (Inception) through March 31, 2009

F-2

Condensed Consolidated Statement of Stockholders' Deficit (Unaudited)

For the Three Months Ended March 31, 2009

F-3

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2009 and 2008 and the

Period from February 26, 1998 (Inception) through March 31, 2009

F-4-5

Notes to Condensed Consolidated Financial Statements (Unaudited)

F-6-10

Item 2.

Management's Discussion and Analysis of Financial Condition and

               Results of Operations

11-18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

19

Item 1A.

Risk Factors

19

Item 2.

Unregistered Sales of Equity Securities

               and Use of Proceeds

19

Item 3.

Defaults Upon Senior Securities

20

Item 4.

Submission of Matters to a Vote of Security Holders

20

Item 5.

Other Information

20

Item 6.

Exhibits

20

Signatures

20

ITEM 1.  Financial Statements

HUMAN BIOSYSTEMS
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
	March 31,	December 31,
	2009	2008
	(Unaudited)
Current assets
Cash	$                         -	$                             -
Prepaid expenses	10,900	12,300
Total current assets	10,900	12,300
Fixed assets, net	71,400	79,400
Total assets	$               82,300	$                   91,700
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft	$                 6,100	$                     5,700
Accounts payable	962,300	905,000
Accrued liabilities	179,800	179,800
Other liabilities	25,000	-
Public relations payable	58,400	58,400
Due to stockholders	593,100	539,400
Note payable, net of discount	322,500	322,500
Total current liabilities	2,147,200	2,010,800
Commitments and contingencies
Stockholders' deficit
Preferred stock; no par or stated value; 10,000,000 shares
authorized, no shares issued or outstanding	-	-
Common stock; no par or stated value; 300,000,000 shares authorized,
2,452,400 and 2,412,400 shares issued, and
2,396,500 and 2,356,500 outstanding, respectively	25,851,600	25,842,100
Accumulated deficit during development stage	(27,916,500)	(27,761,200)
Total stockholders' deficit	(2,064,900)	(1,919,100)
Total liabilities and stockholders' deficit	$               82,300	$                   91,700
The accompanying notes are an integral part of these condensed consolidated financial statements

F-1

HUMAN BIOSYSTEMS
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
			February 26, 1998
	Three months ended	Three months ended	(Inception) Through
	March 31, 2009	March 31, 2008	March 31, 2009
Revenue	$                        -	$                        -	$                       -
Operating expenses
General and administrative
Stock based compensation	-	2,000	4,383,000
Public relations	400	38,000	5,593,800
Other general and administrative expenses	126,400	202,400	9,937,500
Total general and administrative	126,800	242,400	19,914,300
Research and development	15,000	40,600	2,714,900
Sales and marketing	-	-	820,800
Total operating expenses	141,800	283,000	23,450,000
Loss from operations	(141,800)	(283,000)	(23,450,000)
Other income (expense)
Loan fees	-	-	(750,000)
Bad debt related to other receivable	-	-	(502,300)
Gain/(loss) on investment	10,000	-	(760,200)
Forgiveness of debt	-	-	105,600
Interest income	-	-	8,700
Interest expense	(23,500)	(60,200)	(1,351,200)
Loss from continuing operations before provision for income taxes	(155,300)	(343,200)	(26,699,400)
Provision for income taxes	-	800	9,600
Loss from continuing operations	(155,300)	(344,000)	(26,709,000)
Loss from discontinued ethanol development operations	-	21,000	1,207,500
Net loss	$             (155,300)	$         (365,000)	$   (27,916,500)
Basic and diluted loss per common share	$                   (0.07)	$               (0.22)	$            (45.07)
Basic and diluted weighted average
common shares outstanding	2,377,815	1,632,822	619,441
The accompanying notes are an integral part of these condensed consolidated financial statements

F-2

HUMAN BIOSYSTEMS
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(UNAUDITED)
				Accumulated
				Deficit During	Total
		Common Stock		Development	Stockholders'
		Shares	Amount	Stage	Deficit
Balance December 31, 2008		2,356,500	$     25,842,100	$     (27,761,200)	$       (1,919,100)
Issuance of common stock for cash
related to investment agreement,
weighted average price of	$0.25	17,700	2,700	-	7,700
Issuance of common stock for interest	$0.25	12,500	5,000		5,000
Issuance of common stock in satisfaction
of accounts payable,
weighted average price of	$0.19	9,300	1,800	-	1,800
Issuance of common stock to existing shareholders
due to the rounding up of fractional shares	$0.00	500	-		-
Comprehensive loss, net of tax		-	-	(155,300)	(155,300)
Balance March 31, 2009		2,396,500	$    25,851,600	$   (27,916,500)	$      (2,064,900)
The accompanying notes are an integral part of these condensed consolidated financial statements

F-3

HUMAN BIOSYSTEMS
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	Three months	Three months	February 26, 1998
	ended	ended	(Inception) Through
	March 31, 2009	March 31, 2008	March 31, 2009
Cash flows from operating activities:
Net loss	$         (155,300)	$         (365,000)	$          (27,916,500)
Adjustments to reconcile net loss to net cash
used by operating activities:
Stock based compensation	-	3,600	4,376,400
Public relations - paid or to be paid in common stock	-	38,000	5,395,400
Depreciation	8,000	6,000	69,300
Deemed interest expense	-	-	92,800
Interest expense paid in common stock	5,000	-	494,400
Interest and wages due to stockholders	53,700	79,900	267,100
Amortization and accretion of loan fees and discounts		48,500	1,325,800
(Gain) Loss on investment	(10,000)	-	766,800
Bad debt related to other receivables	-	-	502,300
Changes in operating assets and liabilities:
Change in prepaid expenses	1,400	15,000	108,200
Change in other assets	-	-	(133,800)
Change in bank overdraft	400	1,600	6,100
Change in accounts payable	69,100	59,300	1,336,000
Change in accrued liabilities	-	9,800	214,700
Change in other liabilities	25,000		251,100
Net cash used by operating activities	(2,700)	(103,300)	(12,843,900)
Cash flows from investing activities:
Proceeds from sale of investments	-	-	133,100
Purchase of fixed assets	-	-	(140,700)
Deposit on land purchase	-	-	(389,700)
Net cash provided (used) by investing activities	-	-	(397,300)
Cash flows from financing activities:
Change in due to stockholders	-	100,000	2,008,900
Proceeds from issuance of common stock	2,700	17,300	11,093,100
Proceeds from borrowing on notes payable	-	-	1,829,500
Principal payments on notes payable	-	(7,200)	(1,433,300)
Principal payments on note payable for D&O	-	(15,500)	(165,500)
Principal payments on stock subject to rescission	-	-	(41,500)
Change in other receivables	-	-	(50,000)
Net cash provided by financing activities	2,700	94,600	13,241,200
Net increase (decrease) in cash	-	(8,700)	-
Cash, beginning of period	-	8,700	-
Cash, end of period	$                       -	$                      -	$                             -
The accompanying notes are an integral part of these condensed consolidated financial statements

F-4

Supplemental disclosure of cash flow information:
Cash paid for income taxes	$                         -	$                         -	$                 9,600
	=============	=============	=============
Cash paid for interest	$                         -	$                    300	$               13,000
	=============	=============	=============
Schedule of non-cash financing and investing activities:
Issuance of common stock in satisfaction of
accounts payable	$                 1,800	$                         -	$             235,800
	=============	=============	=============
Issuance of common stock in satisfaction of
note payable, including interest of $1,600	$                         -	$                 5,200	$                 5,200
	=============	=============	=============
The accompanying notes are an integral part of these condensed consolidated financial statements

F-5

HUMAN BIOSYSTEMS

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS, HISTORY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business - Human BioSystems (hereinafter referred to as the "Company") is a development stage company incorporated on February 26, 1998 under the laws of the State of California under the name "HyperBaric Systems."  In November of 2002, we changed our name to Human BioSystems. The business purpose of the Company is to develop the technology for preservation of certain biologic material, including platelets (a blood component), red blood cells, heart valves, tissue and organs. The Company is in the twelfth year of its research and development activities. The Company's goal is to develop the technology to extend and maintain functionality of these materials for much longer periods of time than is currently possible.

In August 2006, we entered the renewable energy market through the formation of our wholly-owned subsidiary, HBS BioEnergy (“HBS Bio”).  Although at that time, HBS Bio intended to identify, secure and develop suitable sites for the production of ethanol and biodiesel fuel for the U.S. market using innovative methods to improve the efficiency and cost of producing biofuels, we made the decision in October 2007 to continue our efforts in the renewable energy market by focusing on the waste to energy segment of that market using animal and other waste products to produce electrical energy to be sold to utilities versus ethanol and biodiesel fuel production. The new focus in the Company’s renewable fuels segment of the business is being addressed through a partnership with Environmental BioMass Energy Inc. (EBE) which is in the business of converting biowaste to electrical energy. Under this partnership, HBS initially received approximately 49% of EBE common stock in exc hange for releasing its interest in a property purchase agreement. All operations and management functions of EBE are performed by EBE employees. The Company currently holds slightly less than 30% of EBE common stock as of December 31, 2008 due to the conversion of certain Company liabilities to equity in EBE.

Going concern - The accompanying consolidatedfinancial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company is in the development stage, has no operating revenue and incurred a net loss of approximately $155,300 for the 3 months ended March 31, 2009. The Company is in the twelfth year of research and development, with an accumulated loss during the development stage of approximately $27,916,500. As of March 31, 2009, management is uncertain as to the completion date or if the product will be completed at all.

These conditions give rise to substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent upon its ability to obtain additional financing or sale of its common stock as may be required and ultimately to attain profitability.

Management's plan has been to raise financing of approximately $4,000,000 through a combination of equity and debt financing or to seek merger partners to continue with the business or another business. 

In this regard, in January 2009, the Company signed a letter of intent to acquire all of the shares of San West Inc. through a reverse merger agreement such that the San West shareholders and others would receive 85% of the combined company and the Company shareholders would retain 15% of the outstanding shares following the merger. The letter of intent calls for San West to pay $25,000 upon signing and another $26,000 upon the signing of a definitive agreement. These payments are non-refundable. We received $25,000 on January 29, 2009 and  recorded it as an other liability until the completion or termination of the agreement. San West is to assume the liabilities under an agreed discounted settlement agreement of certain liabilities. A definitive agreement was subsequently signed on April 3, 2009 with an effective date set for April 17, 2009 and extended to May 8, 2009 pending the completion of the final terms of the merger agreement. As of May 11, 2009 the reverse m erger has not been made effective. Although we believe this transaction will be completed within the next two weeks, there is no assurance that the Company will be successful in completing this merger.

F-6

On March 4, 2009 the Company completed a one for eighty reverse split. All shares and per share data have been restated to reflect the stock split. The number of authorized shares of common and preferred are not affected by the reverse split and will remain the same after the split as the number of authorized shares prior to the split.

Amended Articles of Incorporation - In October 2002, a Certificate of Amendment to the Articles of Incorporation changed the name of the Company to Human BioSystems. The Certificate of Amendment to the Articles of Incorporation also changed the number of authorized shares of common stock from 10,000,000 to 45,000,000. Further, the Certificate of Amendment to the Articles of Incorporation authorized 5,000,000 shares of preferred stock, with preferences and rights to be set by the Board of Directors.

In October 2003, a Certificate of Amendment to the Articles of Incorporation changed the number of authorized shares of common stock from 45,000,000 to 145,000,000.

In May 2007, a Certificate of Amendment to the Articles of Incorporation changed the number of authorized shares of common stock from 145,000,000 to 300,000,000. Further, the Certificate of Amendment of the Articles of Incorporation authorized 10,000,000 shares of preferred stock, with preference and rights to be set by the Board of Directors.

Basis of presentation - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the Company's Form 10-K for the year ended December 31, 2008.

The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position of the Company as of March 31, 2009 and the results of operations and cash flows presented herein have been included in the financial statements. Interim results are not necessarily indicative of results of operations for the full year.

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Use of estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

2. STOCK COMPENSATION

On January 1, 2006 the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” requiring the Company to recognize expense related to the fair value of its employee stock option awards. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award. Total stock compensation expense recognized by the Company during the 3 months ended March 31, 2009 and 2008 was $0 and $2,000, respectively.  

F-7

The Company has estimated the fair value of its option awards granted after January 1, 2006 using a modified Black-Scholes option valuation model that uses the assumptions noted in the following table. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Modified Black-Scholes-Based Option Valuation Assumptions	2009	2008
Fair value of options granted during the period	$  -	$  -
Expected term (in years)	-	-
Expected volatility	-	-
Weighted average volatility	-	-
Expected dividend yield	-	-
Risk-free rate	-	-

The following table summarizes the stock option transactions for the three months ended March 31, 2009:

Stock Options	Shares	Weighted Average Price	Aggregate Intrinsic Value
Outstanding at January 1, 2009	13,075	$24.00	$6,200
Granted	-	-	-
Exercised	-	-	-
Expired	3,875	8.80	-
	--------------		--------------
Outstanding at March 31, 2009	9,200	$29.60	$6,200
	========		========
Exercisable at March 31, 2009	9,200	$29.60	$6,200

The following table summarizes the stock option transactions for the three months ended March 31, 2008:

Stock Options	Shares	Weighted Average Price	Aggregate Intrinsic Value
Outstanding at January 1, 2008	13,950	$23.20	$6,200
Granted	-	-	-
Exercised	-	-	-
Expired	-	-	-
	--------------		--------------
Outstanding at March 31, 2008	13,950	$23.20	$6,200
	========		========
Exercisable at March 31, 2008	13,025	$24.00	$6,200

The aggregate intrinsic value of options exercised during the three months ended March 31, 2009 and 2008 was zero and zero, respectively.

F-8

3. FIXED ASSETS

A summary of fixed assets is as follows:

		March 31, 2009		December 31, 2008
Equipment	$	130,900	$	130,900
Less: accumulated depreciation		59,500		51,500
Fixed  assets, net	$	71,400	$	79,400
		=========		========

Depreciation expense for the three months ended March 31, 2009 and 2008 was $8,000 and $6,000, respectively.

4. RELATED PARTY TRANSACTIONS

Stockholder payables consist of the following:

		March 31,2009		December 31,2008
Wages payable to stockholder employees	$	594,400	$	539,400
Employee Advances		(1,300)		-
Total	$	593,100	$	539,400
		===========		==============

5. NOTES PAYABLE

In November 2006, the Company entered into a loan transaction with Dutchess Private Equities, LP (“Dutchess”), and issued to Dutchess a Promissory Note (“First Dutchess Note”) with a face value of $1,200,000, with net proceeds to the Company from the transaction of $1,000,000 and an imputed annual rate of interest of 43.278%. The First Dutchess Note matured on August 31, 2007. Repayment of the face value will be made monthly in the amount of $120,000, plus 50% of any proceeds raised over $120,000 per month from Puts, issued by the Company as collateral. Thirty such Puts were issued and are to be used only in the case of a default under the terms of the loan agreement. If the First Dutchess Note’s face value is not paid off by maturity, the Company will be required to pay an additional 10% on the face value of the First Dutchess Note, plus 2.5% per month, compounded daily, until the First Dutchess Note is paid off. The Company may be required to pay penalties if certain obligations under the First Dutchess Note are not met. If the Company raises financing of more than $2,000,000, Dutchess may require that the Company use the balance of any amount over $2,000,000 to pay any amounts due on the First Dutchess Note. The Company issued 6,300 Holder Shares, which will carry piggyback registration rights in the next registration statement. An additional 6,200 shares will be required each time an eligible registration statement is filed and the shares are not included. The $200,000 loan discount is being accreted: $40,000 of this discount was accreted during the year ended December 31, 2006 and $160,000 was accreted during the year ended December 31, 2007. The balance payable as of March 31, 2009 was $236,500.

In May 2007, the Company entered into a loan transaction with Dutchess and issued to Dutchess a Promissory Note (“Second Dutchess Note”) with a face value of $462,000, with net proceeds to the Company from the transaction of $350,000 and an imputed annual rate of interest of 63.108%.  The Second Dutchess Note matures on April 15, 2008. Repayment of the face value will be made monthly in an amount of the greater of 1) 100% of the proceeds raised from Puts given to Dutchess (as the “Investor” see note 7) by the Company, exceeding $120,000 per month (“Threshold Amount”) or 2) $51,333 per month. The lender received a loan fee of $25,000, payable in restricted stock. The $77,000 loan discount is being accreted; $52,500 of this discount was accreted during the year ended December 31, 2007 and $24,500 was accreted during the year ended December 31, 2008. The balance payable as of March 31, 2009 was $86,000.

F-9

The Company is currently in default on the First Dutchess Note and Second Dutchess Note due to the non-payment or insufficient payment of the agreed monthly principal amounts due under the notes. The Company is currently negotiating a payment plan that is acceptable to Dutchess.  Although the Company is in default on the two notes, Dutchess has not exercised its right to increase the face amount of the loans or the interest rates, however Dutchess did exercise its right to convert 9,300 shares under the First Dutchess Note.

6. COMMON STOCK

In January 2009, the Company issued 12,500 shares of restricted common stock for interest to Dutchess Private Equities Fund, Ltd. pursuant to the Conversion Notice provision of the Note of November 2006 with Dutchess Private Equities, Ltd., valued at $5,000.  

In February 2009, the Company issued 17,800 shares of restricted common stock to Dutchess Private Equities Fund, Ltd. pursuant to the Conversion Notice provision of the Note of November 2006 with Dutchess Private Equities, Ltd., valued at $2,700.

In March 2009, the Company issued 9,260 shares of restricted common stock in satisfaction of accounts payable, valued at $1,800.

In March 2009, the Company issued 500 shares of stock to existing shareholders due to the rounding up of fractional shares which resulted from the 1 for 80 reverse split.

7. INVESTMENT AGREEMENTS

In December 2008, we entered into the new Investment Agreement with Dutchess effective December 29, 2008. Pursuant to the terms of the new Investment Agreement, we may offer, through a series of puts, and Dutchess must purchase from time to time, up to a maximum of 458,400 shares of our common stock, provided that Dutchess shall not be required to purchase shares of our stock with an aggregate purchase price in excess of $10,000,000.  The purchase price of shares purchased under this Investment Agreement shall be equal to 95% of the lowest closing "best bid" price (the highest posted bid price) of the common stock during the five consecutive trading days immediately following the date of our notice to Dutchess of our election to put shares pursuant to this Investment Agreement. The dollar value that we will be permitted to put pursuant to this Investment Agreement will be either: (A) 200% of the average daily volume in the US market of the common stock for t he ten trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put, or (B) $250,000. We filed a registration statement on Form S-1 in January 2009 to register for resale an aggregate of 458,400 shares of common stock issuable under this Investment Agreement; this registration statement was declared effective on January 30, 2009.

8. LEGAL AGREEMENTS

In December, 2007 the Company entered into an agreement for legal services to write a Reg S offering memorandum that the Company plans to use for raising capital in Europe. Compensation is based on an hourly rate for services. The Company has also used this same firm and attorney from time to time throughout 2008 for other legal services such as for our annual meeting. This same firm also provided legal services for the Company to facilitate the anticipated reverse merger with San West, Inc.

In September, 2008 the Company entered into an agreement for legal services with another firm to file a registration statement on Form S-1 pursuant to a new investment agreement with Dutchess Private Equities, Ltd. We may use this firm in the future for other legal services.

9. OTHER

In February 2009, the Company exchanged 40,000 of  its shares in EBE for $10,000 in accounts  payable due to a consultant. As the Company had previously written off its investment in EBE, the Company recorded a gain on investment of $10,000 for the three months ended March 31, 2009.

10. SUBSEQUENT EVENTS

In April 2009, the Company released 5 million shares for sale in Europe under Regulation S into an escrow account for subsequent sales to investors. The company also entered into a consulting agreement to place these shares and a trust declaration agreement to hold these shares for the Company in escrow.

In April 2009, the Company sold 420,000 shares of common stock for $21,000 to one investor and another 100,000 shares for $5,000.

In May 2009, the Company commenced negotiations with Dutchess Private Equities LP pursuant to a settlement on the liquidated damages associated with the Company’s default on the two Notes described in Note 5.

F-10

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

This quarterly report contains forward-looking statements including statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expects,” “anticipates,” “intends,” “believes” or similar language. These forward-looking statements involve risks, uncertainties and other factors. All forward-looking statements included in this quarterly report are based on information available to us on the date hereof and speak only as of the date hereof. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. The factors discussed elsewhere in this quarterly report are among those factors that in some cases have affected our results and could cause the actual results to differ materially from those projected in the forward-looking statements.

The following discussion should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report.

Overview

We are a developmental stage company, and have a very limited operating history and no revenue to date.  Our prospects must be considered in light of the risks and uncertainties encountered by companies in an early stage of development involving new technologies, new lines of business and regulatory approval process requirements before any revenue is possible.

We have experienced operating losses since our inception.  These losses have resulted from the significant costs incurred in the development of our technology, the establishment of our research and development facility and the launch of our alternative energy business. Expenditures will increase in all areas in order to execute our business plan, particularly in research and development, gaining regulatory approval to market our products in the U.S. and abroad, but expenditures in the our alternative energy business has been eliminated because of its restructuring in 2007 and 2008.

From time to time since 2003, we have experienced increased difficulty in raising outside capital.  We have pursued various alternatives for raising capital over the prior three fiscal years (see “Liquidity and Capital Resources” below for detailed descriptions of our capital-raising transactions).  To date, we continue to seek alternative sources for capital including licensing of technology, strategic alliances and mergers with a revenue producing company.

In this regard, in January 2009, the Company signed a letter of intent to acquire all of the shares of San West Inc. through a reverse merger agreement such that the San West shareholders and others would receive 85% of the combined company and the Company shareholders would retain 15% of the outstanding shares following the merger. The letter of intent calls for San West to pay $25,000 upon signing and another $26,000 upon the signing of a definitive agreement. San West is to assume the liabilities under an agreed discounted settlement agreement of certain liabilities. A definitive agreement was subsequently signed on April 3, 2009 with an effective date set for April 17, 2009 and extended to May 8, 2009 pending the completion of the final terms of the merger agreement. As of May 11, 2009 the reverse merger has not been made effective. Although we believe this transaction will be completed within the next two weeks, there is no assurance that the Company will be successfu l in completing this merger.

Platelet and Organ Preservation Business

We are a developer of preservation platforms for organs and other biomaterials, specializing in the development of proprietary above zero (HBS-AZ) and below zero (HBS-BZ) organ and tissue preservation systems and methods for preserving blood platelets.  We have been successful in preserving blood platelets for ten days under refrigeration while maintaining cell structure and morphology, which has never been done before to our knowledge.  

We have completed in-vitro tests using our proprietary systems at two independent laboratories that specialize in platelet testing with results that we believe justify proceeding to human infusion (in-vivo) tests.  However, after discussions with the FDA, we elected to first pursue animal and human studies in Mexico.  We have located facilities in Mexico where we intend to pursue these studies; however, due to a lack of funding we suspended these efforts in July 2007.

We began research on kidney preservation in 2002 and have developed what we believe is a solution that will operate under refrigerated temperature storage conditions for over 30 hours, allowing organ preservation beyond current capabilities.  We successfully transplanted a rat kidney that had been frozen at a temperature of negative 80 degrees Centigrade for three months in our patent-pending HBS sub-zero solution. In October 2005, we successfully completed the initial phase of our survival studies of animals with transplanted kidneys preserved using our HBS organ preservation solution, and were able to preserve a rat's kidney at negative 196 degrees Centigrade for up to five days while maintaining some functionality when transplanted back into the animal, evidenced by urine production. We previously preserved rats' kidneys at negative 20 and negative 80 degrees Centigrade. We will continue to conduct further tests on a larger animal sample s ize, and conduct histology and survival studies as well. Our goal is to extend the kidney shelf life for up to 72 to 96 hours at above freezing temperatures and even longer at sub-zero temperatures.  We believe that the extended shelf life should enable better matching of donor kidneys to recipients.

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In the third quarter of 2005, we also purchased a special freezer and equipment used to conduct experiments at negative 80 degrees Centigrade.  Recent survival studies on animals with kidneys stored in the HBS-AZ solution for 14 days showed an 83% survival rate versus 42% and 10% for the respective UW and HTK (European) solutions. Further recent studies using biochemical test markers have corroborated these studies.  In 2008, we intend to seek opportunities to license our organ preservation technology for storage at temperatures above zero degrees Centigrade.

In July 2002, we received our first patent on our technology and methodology for preserving blood platelets.  We filed a provisional patent application in June 2001 to cover our improved platelet preservation methods.   In August 2003, we filed another patent application covering improved platelet preservation methods. In May 2006, the U.S. Patent Office approved our patent for organ preservation entitled “Methods and Solutions for Storing Donor Organs”, U.S. Patent No. 7,029,839.  We will seek strategic alliances with companies that have the capability to provide technical and clinical expertise as well as financial and marketing expertise to leverage our current expertise in these areas.

In January, 2008, we released one of our organ preservation research consultants due to lack of funds. We also temporarily reduced all management salaries by 50% in an effort to conserve cash.

In April, 2008, the Company made the decision to close the Russian Branch office, where the original platelet research was conducted until it was transferred to the U.S., and more recently the Branch had conducted market research for the Company. The process was completed on October 2, 2008.

In July 2008, the Company reduced payroll expenses by inactivating pay of our Chief Medical Officer until financial conditions improve.

Alternative Energy Business

In August 2006, we entered the renewable energy market through the formation of our wholly-owned subsidiary, HBS BioEnergy (“HBS Bio”).  Although at that time, HBS Bio intended to identify, secure and develop suitable sites for the production of ethanol and biodiesel fuel for the U.S. market using innovative methods to improve the efficiency and cost of producing biofuels.

During April 2007, HBS Bio entered into a lease for approximately 90 acres of property in Morrow County, Oregon for a period of 20 years, with the option to renew the lease for 10 consecutive terms of five years each.  HBS Bio paid $15,000 upon execution of the lease for a three month review period. HBS Bio extended the review period for an additional three months by payment of an additional $15,000.  This lease expired on October 3, 2007, as a result of the decision by HBS Bio to refocus its efforts in the renewable energy market.

In addition, during April 2007, HBS Corcoran, a joint venture in which HBS Bio owns an interest, entered into an agreement for the purchase of approximately 922 acres of property in Tulare County, California for an aggregate purchase price of approximately $12 million. HBS Corcoran is required to make deposits of up to $690,000 in escrow within 18 months from April 17, 2007.  During the year ended December 31, 2007, HBS Bio deposited an aggregate of $389,700 into escrow.  The deposits are nonrefundable except under certain conditions, are to be applied to the purchase price, and will constitute liquidated damages in the event of HBS Corcoran’s default under the purchase agreement.  HBS Corcoran will have 18 months to review the suitability of the property for its planned uses.  The balance of the purchase price must be deposited in escrow within 30 days after completion of the feasibility review or the end of the feasibility period, whichever occurs first.

We made the decision in July 2007 to suspend all ethanol and bio-fuels business activities and in October 2007 we decided to continue our efforts in the renewable energy market by focusing on the waste to energy segment of that market using animal and other waste products to produce electrical energy to be sold to utilities versus ethanol and biodiesel fuel production.

Since October 2007, the focus in the Company’s renewable fuels segment of the business has been addressed as an investment through ownership of common shares of Environmental BioMass Energy Inc. (EBE) which is in the business of converting bio-waste to electrical energy. Under this investment, HBS initially received approximately 49% of EBE common stock in exchange for releasing its interest in a property purchase agreement described above  that was held through HBS Bio known as HBS Corcoran. All operations and management functions of EBE are performed by EBE employees.

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The Company currently holds slightly less than 30% of EBE common stock as of May 12, 2009 due to the conversion of certain Company liabilities to equity in EBE. The Company holds shares of EBE as an investment and is not directly involved in management or funding of its business. The Company expects that its ownership percentage should decline over time as EBE plans to raise equity capital to sustain operations.

As of March 31, 2009, the investment in EBE is $0.

Results of Operations     

THREE MONTHS ENDED MARCH 31, 2009 COMPARED WITH THREE MONTHS ENDED MARCH 31, 2008

Revenues.  We did not generate any revenue in either of the three-month periods ended March 31, 2009 or 2008, and we have not generated revenues since our inception in February 1998, as our focus to date has been on the research and development of products.  We are a development stage company in the twelfth year of research and development activities, and do not anticipate receiving revenue until we complete product development and clinical testing.

General and Administrative Expenses.   Other general and administrative expenses in the three months ended March 31, 2009 were $126,400, a decrease from $202,400 for the three months ended March 31, 2008.  The decrease was comprised in part by a substantial decrease in salary expenses to $40,000 for the three months ended March 31, 2009, from $50,500 for the three months ended March 31, 2008, a decrease in legal expenses to $61,900 for the three months ended March 31, 2009, from $72,000 for the three months ended March 31, 2008 and a decrease of $16,900 in professional outside services to $8,700 for the three months ended March 31, 2009, from $25,600 for the three months ended March 31, 2008

We experienced a decrease in stock-based compensation in the three months ended March 31, 2009 to $0 from $2,000 for the three months ended March 31, 2008.  From time to time, our staff has worked for under market rate compensation or has had to accrue pay for extended periods of time when financing was not available.  We have granted stock options to certain employees in partial consideration for salary reductions, and certain employees have elected to receive stock in lieu of compensation.  

Our total general and administrative expenses in the three months ended March 31, 2009 were $126,800, a decrease from $242,400 for the three months ended March 31, 2008. The decrease was comprised by a decrease of $37,600 in public relations expenses to $400 for the three months ended March 31, 2009, from $38,000 for the three months ended March 31, 2008 and a decrease in other general and administrative expenses to $126,400 for the three months ended March 31, 2009 from $202,400 for the comparable period in 2008.  This decrease was due to a reduction in salaries and to a decline in legal and professional fees and other expenses; we incurred higher fees and expenses in 2008 related to the filing of a registration statement in addition to our ongoing public company reporting requirements.

Research and Development.  Our research and development expenses were $15,000 for the three months ended March 31, 2009, a decrease from $40,600 for the comparable period in 2008.   The decrease was due to reduced payroll and the closing of our facility in Russia.

Sales and Marketing Expenses.  We had no sales and marketing expenses for either of the three months ended March 31, 2009 or 2008.  We eliminated payroll in sales and marketing in order to give priority to the completion of our scientific objectives – to complete human infusion studies for platelets and move closer to human testing utilizing our organ preservation technology – as well as to devote resources to the establishment of our alternative energy and ethanol business.

Ethanol Development.  We had no expenses for the development of our ethanol business in the three months ended March 31, 2009 compared to $21,000 expended for the three months ended March 31, 2008. The decrease was due to the agreement with EBE to pay previously accrued development costs.  As we have refocused our alternative energy activities, we do not anticipate additional expenditures for ethanol development in fiscal 2009 nor do we expect any expenditures in the biowaste business.

Other Income and Expense.  We incurred interest expense of $23,500 during the three months ended March 31, 2009.  We incurred interest expense of $60,200 during the three months ended March 31, 2008.  We had no interest income for either of the three months ended March 31, 2009 or 2008. We realized a gain on investment of $10,000 from the exchange of EBE shares valued at $0 for accounts payable totaling $10,000.

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Net Loss.  As a result of the foregoing factors, our net loss was $155,300, or 0.07 per share, for the three months ended March 31, 2009, and $365,000, or $0.28 per share, for the three months ended March 31, 2008.

Liquidity and Capital Resources  

Our operating plan for 2009 is focused on development of our products. It is our estimate that a cash requirement of $4 million is required to support this plan for the next twelve months.  During the three months ended March 31, 2009, we received an aggregate of$7,700from the issuance of common stock, including$7,700 from our agreement with Dutchess, compared to $17,300 received in the three months ended March 31, 2008.  We are actively seeking additional funding.  Once we receive the required additional financing, we anticipate continued growth in our operations and a corresponding growth in our operating expenses and capital expenditures.  We do not anticipate any revenue from operations for the next two or three years. Therefore, our success will be dependent on funding from private placements of equity securities.  Although we have ent ered into certain agreements with Dutchess, Ascendiant Securities, LLC and other financing sources (see below), there can be no assurance that we will be successful in raising significant capital pursuant to any of these agreements.  At the present time, we have no other agreements or arrangements for any private placements except for the reverse merger with San West discussed under “Overview” above.

We are in the twelfth year of research and development, with an accumulated loss during the development stage of $27,916,500.  As of March 31, 2009, we are uncertain as to the completion date of our research and development, or if products will ever be completed as a result of this research and development activity.  We anticipate that the funds spent on research and development activities will need to increase prior to completion of a product.  Additionally, we may not be able to secure funding in the future necessary to complete our intended research and development or other activities.

These conditions give rise to substantial doubt about our ability to continue as a going concern. Our financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should we be unable to continue as a going concern.  Our continuation as a going concern is dependent upon our ability to obtain additional financing from the sale of our common stock, as may be required, and ultimately to attain profitability.  The report of our independent registered public accounting firm, included in our Annual Report on Form 10-K for the year ended December 31, 2008, contains a paragraph regarding our ability to continue as a going concern.

During the three months ended March 31, 2009, we continued to spend cash to fund our operations.  Cash used by operating activities for the three months ended March 31, 2009 was $2,700, and consisted principally of our net loss of $155,300, offset by an increase in other liabilities of $25,000,  an increase in accounts payable of $69,100, $1,400 in prepaid expenses, $53,700 in interest and wages due to stockholders, $5000 in interest paid in stock and $8,000 in depreciation, offset by a gain on investment of $10,000 from the exchange of EBE shares valued for $0 for accounts payable totaling $10,000.

For the three months ended March 31, 2008, cash used by operating activities was $184,800, and consisted principally of our net loss of $365,000, offset by an increase in accrued liabilities of $9,800,  an increase in accounts payable of $59,300, $38,000 in public relations expenses paid or to be paid in common stock, $3,600 provided by stock-based compensation, a change in prepaid expenses of $15,000, amortization of discount and loan fees on notes payable of $48,500 and $6,000 in depreciation.

Cash flow from financing activities for the three months ended March 31, 2009 produced a net increase in cash of $7,700 from the issuance of common stock.

Cash flow from financing activities for the three months ended March 31, 2008 produced a net increase in cash of $94,600, consisting of $17,300 from the issuance of common stock, an increase of $100,000 on amounts due to shareholders , offset by $7,200 in principal payments on notes payable, $15,500 in principal payments on a note payable for directors’ and officers’ liability insurance.

As of March 31, 2009, we had negative cash and cash equivalents amounting to $6,100, a decrease from the negative balance of $500 at March 31, 2008.  Our working capital deficit increased to $2,136,300 at March 31, 2009, from $1,914,800, at March 31, 2008.  As of March 31, 2009, we had no commitments to purchase capital equipment.

Financing Activities

From 2004 through 2008, we pursued various alternatives for raising capital.  We entered into the Investment Agreement with Dutchess effective June 28, 2004.  Pursuant to the terms of the Investment Agreement, we may offer, through a series of puts, and Dutchess must purchase from time to time, up to a maximum of 475,000 shares of our common stock, provided that Dutchess shall not be required to purchase shares of our stock with an aggregate purchase price in excess of $5,000,000.  The purchase price of shares purchased under the Investment Agreement shall be equal to 95% of the lowest closing "best bid" price (the highest posted bid price) of the common stock during the five consecutive trading days immediately following the date of our notice to Dutchess of our election to put shares pursuant to the Investment Agreement. The dollar value that we will be permitted to put pursuant to the Investment Agreement will be either : (A) 200% of the average daily volume in the US market of the common stock for the ten trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put, or (B) $10,000.  No single put can exceed $1,000,000.  We filed a registration statement on Form SB-2 in July 2004 to register for resale an aggregate of 475,000 shares of common stock issuable under the Investment Agreement; this registration statement was declared effective on August 23, 2004.

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Pursuant to the Investment Agreement, Dutchess acquired a total of 5,400 shares of our common stock for approximately $297,500 during the year ended December 31, 2005, 48,500 shares for approximately $643,700 during the year ended December 31, 2006 and an aggregate of 130,600 shares of the Company’s common stock for approximately $647,600 during the year ended December 31, 2007.

Because the registration of the 475,000 shares reserved for the Dutchess agreement was to expire in September, 2007, the Company registered 250,000 shares of the Company’s common stock in July, 2007 to allow continuation of the agreement with Dutchess. Dutchess acquired a total of 245,800 shares of the Company's common stock for approximately $321,100 during the year ended December 2007, and 4,200 shares of the Company’s common stock in exchange for approximately $2,000 during January 2008.

Because the 250,000 shares reserved for the Dutchess agreement was sold, the Company registered an additional 211,500 shares of the Company’s common stock in February, 2008 to allow continuation of the agreement with Dutchess. Dutchess acquired all of these shares for approximately $127,928 during the year ended December 31, 2008.

In December 2008, we entered into the new Investment Agreement with Dutchess effective December 29, 2008. Pursuant to the terms of the new Investment Agreement, we may offer, through a series of puts, and Dutchess must purchase from time to time, up to a maximum of 458,400 shares of our common stock, provided that Dutchess shall not be required to purchase shares of our stock with an aggregate purchase price in excess of $10,000,000.  The purchase price of shares purchased under this Investment Agreement shall be equal to 95% of the lowest closing "best bid" price (the highest posted bid price) of the common stock during the five consecutive trading days immediately following the date of our notice to Dutchess of our election to put shares pursuant to this Investment Agreement. The dollar value that we will be permitted to put pursuant to this Investment Agreement will be either: (A) 200% of the average daily volume in the US market of the common stock for t he ten trading days prior to the notice of our put, multiplied by the average of the three daily closing bid prices immediately preceding the date of the put, or (B) $250,000. We filed a registration statement on Form S-1 in January 2009 to register for resale an aggregate of 458,400 shares of common stock issuable under this Investment Agreement; this registration statement was declared effective on January 30, 2009.

In July 2004, we entered into the Stock Purchase Agreement, whereby we issued 87,500 shares of our restricted common stock for 512,665 shares in Langley, a London-based institutional investment trust formed in February 2004 to invest in a diverse portfolio of U.S. small-cap companies. Fifty percent of the free-trading Langley ordinary shares were held in escrow for two years as a downside price protection against our shares issued to Langley.  In the event of a decline in the market price of our common stock at the end of two years, we would be required to sell to Langley the amount of our Langley shares equal to (i) the original number of Langley shares issued as consideration under the Stock Purchase Agreement multiplied by (ii) the percentage decrease in the market price of our common stock.  

The Purchase Agreement became effective during October 2004 when Langley was approved for trading by the UK Listing Authority and Langley shares began trading.  The holding period expired in October 2006 and Langley transferred the shares from escrow. A finder’s fee of 300 shares, valued at approximately $6,600, was paid for this transfer. As of December 31, 2006, we had a balance of 487,000 Langley shares, which were sold on January 30, 2007 for $140,700, for a net loss on investment of $7,600.

In October 2005, we entered into an agreement with Ascendiant Securities, LLC ("Ascendiant") providing that Ascendiant would act on a best-efforts basis as our financial advisor and non-exclusive placement agent in connection with the structuring, issuance and sale of our debt and equity securities for financing purposes.  The agreement, which has a term of six months, requires us to pay Ascendiant a cash success fee and warrants for completed transactions that we approve.  The success fee is equal to ten percent of the gross proceeds from the sale of our securities; in addition, for transactions generating gross proceeds of $2,000,000 or more, we must issue Ascendiant 2,200 shares of our restricted common stock.  To date, no transactions have been presented to us by Ascendiant.

In March 2006, we entered into a loan agreement with an independent lender.  The lender agreed to loan us an amount based on 50% of the value of a portfolio of 6,300 shares of our common stock (approximately $75,000). These shares are held as collateral only.  The lender will receive a loan fee equal to five percent of the gross loan proceeds (approximately $3,700).  We received net funds of $71,250 from this loan, which was based on a formula and pricing period following the agreement date.  The agreement calls for interest at the annual rate of 4.99% of the loan amount, payable quarterly, for a period of three years.  At maturity, we have the option to pay off the loan balance and receive the same number of shares pledged, sell the pledged shares under certain conditions, renew the loan under certain conditions, or forfeit the shares and not repay the loan.  In January of 2007 an additional 2,100 shares of stock wer e issued for collateral. In December of 2007 we decided to forfeit all 8,300 shares as collateral and the loan was considered paid.

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In November 2006, we entered into a loan transaction with Dutchess, and issued to Dutchess a promissory note (“First Dutchess Note”) with a face value of $1,200,000, with net proceeds to us from the transaction of $1,000,000 and an imputed annual rate of interest of 43.278%. The First Dutchess Note matured on August 31, 2007. Repayment of the face value will be made monthly in the amount of $120,000, plus 50% of any proceeds raised over $120,000 per month from puts issued by us as collateral under the Investment Agreement (discussed above). Thirty such puts were issued and are to be used only in the case of a default under the Investment Agreement. If the First Dutchess Note’s face value is not paid off by maturity, we will be required to pay an additional 10% on the face value of the First Dutchess Note, plus 2.5% per month, compounded daily, until the First Dutchess Note is paid off. We may be required to pay penalties if certain obligations under the First Dutchess Not e are not met. If we raise financing of more than $2,000,000, Dutchess may require that we use the balance of any amount over $2,000,000 to pay any amounts due on the First Dutchess Note. We issued 6,300 Holder Shares (restricted Common Stock to Dutchess as an incentive) on November 3, 2006, which will carry piggyback registration rights in our next registration statement. An additional 6,200 shares will be required each time an eligible registration statement is filed and the shares are not included. The balance payable on the First Dutchess Note as of March 31, 2009 was $236,400

In March 2007, we entered into a loan agreement with Dr. Larry McCleary, a member of our Board of Directors.  Dr. McCleary agreed to loan us the sum of $500,000 for a term of two years from March 21, 2007, with a closing cost of $1,717.95 to be added into the first month’s interest payment. The loan bears interest at the rate of 9.25% per annum and provides for interest-only monthly payments with a balloon payment at the end of the term for the principal amount. We issued 1,300 shares of restricted common stock and 11,200 warrants valued at $30,000 to the Dr. McCleary for loan fees.

During April 2007, HBS Bio entered into an agreement for consulting services relating to raising capital for HBS Bio. Under the agreement HBS Bio will pay the consultant a consulting/finder’s fee of 4% of the units of the venture funded as a result of the consultant’s efforts and $500,000 with regard to the first $20 million or pro-rata amount thereof invested or loaned by a party introduced by the consultant and the lesser of 2.5% or $100,000 with regard to each subsequent $10 million invested or loaned by a party introduced by the consultant.

In April 2007, we also entered into a new agreement with Abernathy for providing investor relations and awareness services.  Under this agreement, we will make cash payments to Abernathy equal to 35% of the buy volume of our common stock attributable to the agreement.  Abernathy will promote us to the investment community and the general public through press releases and other communications, all of which we must approve in advance.  We have paid $167,100 pursuant to this agreement through March 31, 2009. This agreement has expired.

In May 2007, we entered into a second loan transaction with Dutchess and issued to Dutchess a second promissory note (“Second Dutchess Note”) with a face value of $462,000, with net proceeds to us from the transaction of $350,000 and an imputed annual rate of interest of 63.108%.  The Second Dutchess Note matures on April 15, 2008. Repayment of the face value will be made monthly in an amount of the greater of (i) 100% of the proceeds raised from puts given to Dutchess by us, exceeding $120,000 per month, or (ii) $51,333.

If we raise financing of more than $2,000,000, Dutchess may require that we use the balance of any amount over $2,000,000 to pay any amounts due on the Second Dutchess Note.  If the Second Dutchess Note is not paid in full by the maturity date, the face value of the Second Dutchess Note will be increased by 10% as an initial penalty, and we will pay an additional 2.5% per month on the face value, compounded daily, until paid in full.  In addition to the failure to pay the face value by the maturity date, the following events are also “Events of Default”:  failure to make a payment within 10 calendar days of its due date; bankruptcy; our common stock is suspended or no longer listed on a recognized exchange; the registration statement for the underlying shares in the equity line is not effective and not cured within five days; we fail to carry out puts in a timely manner; any of our representations contained in the Agreemen t were false when made; or we breach the Second Dutchess Note.  

Upon each and every Event of Default, Dutchess may elect to execute the puts in an amount that will repay it and fully enforce its rights under the Agreement.  Dutchess may also increase the face value of the Second Dutchess Note by 10% and an additional 2.5% per month, compounded daily until the default is cured or the Second Dutchess Note is paid in full.  Dutchess may also elect to stop any further funding (excluding the equity line of credit), or may switch any residual amount of the face value of the Second Dutchess Note not paid at maturity into a three-year convertible debenture.  If Dutchess so chooses, we have 10 days to file a registration statement for the shares issuable upon conversion of the convertible debenture equal to 300% of the residual amount, plus interest and liquidated damages.  If we do not file the registration statement within 10 days, or the registration statement is not declared effective within 60 days, the residual amount will be increased by $5,000 per day.  Moreover, if we have an opportunity to accelerate the effectiveness of the registration statement but fail to do so, the residual amount will increase by $5,000 per day commencing the date the statement would have been declared effective.  The conversion rate will be the lesser of 50% of the lowest closing bid price for the previous 15 days or 100% of the lowest bid price for the preceding 20 days.  If Dutchess does not elect to convert the debenture into common stock prior to maturity, it will automatically be converted into shares upon maturity.  Finally, Dutchess may increase the monthly payment amount to fulfill the repayment of the residual amount.  If we do not cooperate, Dutchess may elect to increase the face value of the Note by 2.5% per day, compounded daily.

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We have further agreed that we will not enter into any additional financing agreements without Dutchess’ express written consent.  We may not file any registration statement which includes any of our common stock exceeding 12,500 shares, including those on Form S-8 exceeding 10,000 shares, until the Second Dutchess Note is paid in full or Dutchess gives written consent.  Dutchess agrees to allow one registration statement on Form SB-2 (now Form S-1) not to exceed 312,500 shares as a shelf registration.  If we issue any shares to a third party while the Second Dutchess Note is outstanding under terms Dutchess deems more favorable to the third party, Dutchess may elect to modify the terms to conform to the more favorable term or terms of the third party financing.   We have issued 3,100 shares of unregistered restricted common stock to Dutchess as an incentive for entering into the Second Dutchess Note.  The balanc e payable on the Second Dutchess Note as of March 31, 2009 was $87,900.

We are currently in default on the First Dutchess Note and Second Dutchess Note due to the non-payment or insufficient payment of the agreed monthly principal amounts due under the notes. We are currently negotiating a payment plan that is acceptable to Dutchess.  Although we are in default on the two notes, Dutchess has not exercised its right to increase the face amount of the loans or the interest rates; however, Dutchess did exercise its right to convert 9,300 shares under the First Dutchess Note and 12,500 shares in January 2009.

In June 2007, we entered into a representation and finder’s agreement to raise investment capital from potential Korean investment sources, including institutions and individual investors. The finder’s fee is set at 5% of capital raised and up to $10 million of capital raised. In addition, a warrant to purchase 12,500 shares of our common stock was granted, provided that for each $100,000 raised, 100 shares shall vest up to the maximum amount of 12,500 shares if the full $10 million of capital is raised.  To date, no funds have been raised pursuant to this agreement.

In June 2007, we entered into a consulting and finder’s agreement to coordinate and support potential Korean investment opportunities. We will pay a cash fee of 5% of the capital raised up to $10 million.  To date, no funds have been raised pursuant to this agreement.

We have also registered 250,000 shares of our common stock in January of 2006 for use in raising capital. Through March 31, 2009, we have issued 249,300 of these shares.

In December 2007, we commenced a private placement of 250,000 shares of common stock in Germany pursuant to Regulation S under the Securities Act. In June, 2008, we increased the private placement from 250,000 to 312,500 shares. As of March 31, 2009, we have sold 248,300 of these shares.

In August 2008, we commenced the process to reverse split our common stock on a one for eighty basis. The record date is set for September 1, 2008 and the annual meeting is set for November 14, 2008.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

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Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes.  These changes have historically been minor and have been included in the consolidated financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations.

In preparing our financial statements to conform to accounting principles generally accepted in the United States, we make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. These estimates include useful lives for fixed assets for depreciation calculations and assumptions for valuing options and warrants. Actual results could differ from these estimates.

We consider that the following are critical accounting policies:

Research and Development Expenses

All research and development costs are expensed as incurred. The value of acquired in-process research and development is charged to expense on the date of acquisition. Research and development expenses include, but are not limited to, payroll and personnel expense, lab supplies, preclinical studies, raw materials to manufacture our solution, manufacturing costs, consulting, legal fees and research-related overhead. Accrued liabilities for raw materials to manufacture our solution, manufacturing costs and patent legal fees are included in accrued liabilities and included in research and development expenses.

Employee Stock Plans

On January 1, 2006, we adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” requiring us to recognize expense related to the fair value of its employee stock option awards.  We recognize the cost of all share-based awards on a graded vested basis over the vesting period of the award.

Prior to January 1, 2006, we accounted for our stock option plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations, as permitted by SFAS No. 123, “Accounting for Stock-Based Compensation.”  Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), using the modified-prospective-transition method.  Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions on SFAS No. 123(R). Results for p rior periods have not been restated.

Determining the appropriate fair value model and calculating the fair value of stock-based awards at the date of grant requires judgment.  We use a modified Black-Scholes option pricing model to estimate the fair value of employee stock options under our stock option plans, consistent with the provisions of SFAS No. 123(R).  Option pricing models, including the modified Black-Scholes model, also require the use of input assumptions, including expected stock price volatility, expected life, expected dividend rate and expected risk-free rate of return.  Expected stock price volatility is based on the historical volatility of our common stock.  We use historical data to estimate option exercise and employee termination within the valuation model.  The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

We will continue to review our input assumptions and make changes as deemed appropriate depending on new information that becomes available.  Higher volatility and expected lives will result in a proportional increase to stock-based compensation determined at the date of grant.  The expected dividend rate and expected risk-free rate of return would not have as significant an effect on the calculation of fair value.

In addition, SFAS No. 123(R) requires us to develop an estimate of the number of stock-based awards which will be forfeited due to employee turnover.  Quarterly changes in the estimated forfeiture rate have an effect on reported stock-based compensation, as the effect of adjusting the rate for an expense amortization after January 1, 2006 is recognized in the period the forfeiture estimate is changed.  If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to decrease the estimated forfeiture rate, which will result in an increase to the expense recognized in the consolidated financial statements.  The effect of forfeiture adjustments in fiscal 2007 was insignificant.  The expense we recognize in future periods could also differ significantly from the current period and/or our forecasts due to adjustments in the assumed forfeiture rates.

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ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk

We conduct all of our transactions, including those with foreign suppliers and customers, in U.S. dollars. We are therefore not directly subject to the risks of foreign currency fluctuations and do not hedge or otherwise deal in currency instruments in an attempt to minimize such risks. Demand from foreign customers and the ability or willingness of foreign suppliers to perform their obligations to us may be affected by the relative change in value of such customer or supplier's domestic currency to the value of the U.S. dollar. Furthermore, changes in the relative value of the U.S. dollar may change the price of our products relative to the prices of our foreign competitors.

ITEM 4T.  Controls and Procedures

Based on an evaluation conducted within 90 days prior to the filing date of this Quarterly Report on Form 10-Q, our Chief Executive Officer and acting Chief Financial Officer concluded that we maintain effective disclosure controls and procedures that ensure information required to be disclosed in our reports under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  Specifically, the disclosure controls and procedures assure that information is accumulated and communicated to our management, including our Chief Executive Officer and acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of management's evaluation.

PART II -- OTHER INFORMATION

ITEM 1.  Legal Proceedings.

Not applicable.

ITEM 1A.   Risk Factors  

Not applicable

 ITEM 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Set forth in chronological order is information regarding shares of common stock issued and options and warrants and other convertible securities granted by us during the three months ended March 31, 2009.  Also included is the consideration, if any, received by us for such shares, options and warrants, and information relating to the section of the Securities Act of 1933, as amended (the "Securities Act"), or the rule of the Securities and Exchange Commission, under which an exemption from registration was claimed.

In January 2009, the Company issued 12,500 shares of restricted common stock for interest to Dutchess Private Equities Fund, Ltd. pursuant to the Conversion Notice provision of the Note of November 2006 with Dutchess Private Equities, Ltd., valued at $5,000.  

In February 2009, the Company issued 17,800 shares of restricted common stock to Dutchess Private Equities Fund, Ltd. pursuant to the Conversion Notice provision of the Note of November 2006 with Dutchess Private Equities, Ltd., valued at $2,700.

In March 2009, the Company issued 9,260 shares of restricted common stock in satisfaction of accounts payable, valued at $1,800.

In March 2009, the Company issued 500 shares of stock to existing shareholders due to the rounding up of fractional shares which resulted from the 1 for 80 reverse split.

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ITEM 3.  Defaults Upon Senior Securities .

Not applicable.

ITEM 4.  Submission of Matters to a Vote of Security Holders .

Not applicable.

ITEM 5.  Other Information .

Not applicable.

ITEM 6.  Exhibits .

Exhibit No.	Description
31.01	Rule 13a-14(a)/15d-14a  Certification of Principal Executive Officer
31.02	Rule 13a-14(a)/15d-14a Certification of Principal Financial Officer
32.01	Section 1350 Certification of Principal Executive Officer
32.02	Section 1350 Certification of Principal Financial Officer

Signatures

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

HUMAN BIOSYSTEMS

Date: May 15, 2009

/s/ Harry Masuda

Harry Masuda

Chief Executive Officer

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EX-31.1

Exhibit 31.01

CERTIFICATION

I, Harry Masuda, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Human BioSystems;

2.

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

3.

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

4.

In my capacity as one of the registrant's certifying officers, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a)

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

(b)

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

(c)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

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

5.

In my capacity as one of the registrant's certifying officers, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a)

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

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Dated: May 15, 2009

/s/ Harry Masuda

Harry Masuda

Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.02

CERTIFICATION

I, Harry Masuda, certify that:

1.

I have reviewed this annual report on Form 10-Q of Human BioSystems;

2.

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

3.

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

4.

In my capacity as one of the registrant's certifying officers, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:

(a)

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

(b)

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

(c)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

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

5.

In my capacity as one of the registrant's certifying officers, I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):

(a)

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

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.

Dated: May 15, 2009

/s/ Harry Masuda

Harry Masuda

Acting Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.01

WRITTEN STATEMENT OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. 1350

Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned Principal Executive Officer of Human BioSystems (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the Quarter ended March 31, 2009 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 15, 2009

/s/ Harry Masuda

Harry Masuda

Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.02

WRITTEN STATEMENT OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. 1350

Solely for the purposes of complying with 18 U.S.C. 1350, I, the undersigned Principal Financial Officer of Human BioSystems (the "Company"), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2009 (the "Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 15, 2009

/s/ Harry Masuda

Harry Masuda

Acting Chief Financial Officer (Principal Financial Officer)