Joint Venture for Integrating Livestock and Ethanol Operations

16 August 2006

Hybrid Fuels has reached an agreement in principle with the A4 Bar Cattle Company Ltd. in Alberta, Canada covering a proposed joint venture to develop an operation for the integration of cattle “feeding-to-finish” with production of fuel ethanol.

The joint venture will develop and operate the proposed Siksika A4 Bar Farm Operations Project, consisting initially of the construction of two facilities using Hybrid Fuels’s technology together with cattle supplied by A4 Bar Cattle Company.

The barns constructed for the Siksika Project will be atmospherically controlled and will contain fly control devices. Cattle in the barns will be fed a diet of wet distillers grains (WDG) resulting from ethanol production and which will be supplemented by a daily ration of barley grass grown hydroponically. The barley grain serves as the feedstock for fermentation.

The Hybrid Fuels’ system uses the manure and bedding straw from the pens in a gasifier/burner that provides heat energy for the ethanol production and the hydroponics feed system.

Hybrid Fuels expects that the initial phase of the proposed Siksika Project of two facilities will produce up to 3,000 liters of ethanol daily, generate up to 1 megawatt of power, finish up to 2,400 head of cattle annually and provide up to 10 full time jobs. The hydroponics section of the barn is designed to have the grass growing equivalent of up to approximately 1,600 acres of grassland.

Provided the initial phase of the Siksika Project meets the expectations of the joint venture participants, A4 Bar Cattle Company Ltd. and Hybrid Fuels (Canada) Inc., the agreement between the parties allows for the construction of additional facilities.