UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                ----------------

                                   FORM 10-QSB

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly Period Ended September 30, 2006

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the Transition Period From _______ to _______

                               -------------------

                         Commission File Number 0-29351

                               HYBRID FUELS, INC.
                               ------------------
             (Exact name of registrant as specified in its charter)

                                     NEVADA
         (State or other jurisdiction of incorporation or organization)

                                   88 0384399
                      (I.R.S. Employer Identification No.)


                 237 Main Street, Box 880, Niverville, Manitoba
                    (Address of principal executive offices)

                                     R0A 1E0
                                  (Postal Code)

       Registrant's telephone number, including area code: (888) 550-2333


Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or shorter period that registrant was required to file
such reports), and (2) has been subject to filing requirements for the past 90
days. Yes [X] No [ ]

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

The number of issued and outstanding shares of the registrant's common stock as
of November 17, 2006 was 26,332,933

Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]


<PAGE>

                                TABLE OF CONTENTS

<TABLE>

<S>                                                                            <C>
PART-I    FINANCIAL INFORMATION                                                PAGE

Item 1    Financial Statements..................................................3

Item 2    Plan of Operation.....................................................4

Item 3    Controls and Procedures...............................................9


PART-II  OTHER INFORMATION                                                      PAGE

Item 1    Legal Proceedings.....................................................9

Item 2    Unregistered Sales of Equity Securities and Use of Proceeds ..........9

Item 3    Defaults Upon Senior Securities.......................................9

Item 4    Submission of Matters to a Vote of Security Holders...................10

Item 5    Other Information.....................................................10

Item 6    Exhibits and Reports on Form 8-K......................................10

          Signature.............................................................10
</TABLE>



                                       2
<PAGE>

                          PART-I FINANCIAL INFORMATION
                          ----------------------------

Item 1.   Financial Statements
------------------------------

Hybrid Fuels, Inc.
(A Development Stage Company)

September 30, 2006

                                                                          Index


Consolidated Balance Sheets................................................F-1

Consolidated Statements of Operations......................................F-2

Consolidated Statements of Cash Flows......................................F-3

Notes to the Consolidated Financial Statements.............................F-4


                                       3


<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)

<TABLE>
<CAPTION>

                                                                                    September 30,      June 30,
                                                                                         2006            2006
                                                                                          $               $
                                                                                     (unaudited)
<S>                                                                                       <C>            <C>
ASSETS

Current Assets

  Cash                                                                                        738           3,533
  Prepaid expenses                                                                         12,250          25,500
--------------------------------------------------------------------------------------------------------------------

Total Assets                                                                               12,988          29,033
====================================================================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

  Accounts payable                                                                         81,483          62,804
  Accrued liabilities                                                                      32,137          28,874
  Note payable and other advances (Note 3)                                                 47,589          47,334
  Due to related parties (Note 4)                                                         209,371         209,371
  Due to a former director (Note 5)                                                       326,701         326,701
--------------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                                 697,281         675,084

Redeemable and Restricted Common Shares (Note 6(b))                                       222,767         222,767
--------------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                         920,048         897,851
--------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 1 and 6)

Stockholders' Deficit

Common Stock: $0.001 par value; 50,000,000 shares authorized
26,332,933 shares issued and outstanding                                                   26,333          26,333

Additional Paid-in Capital                                                              1,006,967       1,006,967

Donated Capital                                                                           574,603         547,375

Deficit Accumulated During the Development Stage                                       (2,514,963)     (2,449,493)
--------------------------------------------------------------------------------------------------------------------

Total Stockholders' Deficit                                                              (907,060)       (868,818)
--------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Deficit                                                12,988          29,033
====================================================================================================================

               (The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
</TABLE>

                                       F-1


<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
(expressed in U.S. dollars)
(unaudited)

<TABLE>
<CAPTION>
                                                                     Accumulated from
                                                                      January 28, 1998      For the Three Months
                                                                     (Date of Inception)           Ended
                                                                      to September 30,         September 30,
                                                                            2006            2006          2005
                                                                             $               $             $
<S>                                                                       <C>                <C>           <C>
  Revenue                                                                         -               -             -
  ------------------------------------------------------------------------------------------------------------------

  Expenses

    Deposits and advances written-off                                       305,512               -             -
    Foreign exchange loss                                                    21,321             507         2,617
    General and administrative (Note 4)                                   1,682,102          45,235        40,547
    Imputed interest (Notes 4 and 5)                                        499,603          19,728        19,728
    Research and development                                                 16,925               -             -
  ------------------------------------------------------------------------------------------------------------------

  Total Operating Expenses                                                2,525,463          65,470        62,892
  ==================================================================================================================

  Operating Loss                                                         (2,525,463)        (65,470)      (62,892)

  Other Income

    Gain on settlement of debt                                               10,500               -        10,500
  ------------------------------------------------------------------------------------------------------------------

  Net Loss                                                               (2,514,963)        (65,470)      (52,392)
  ==================================================================================================================

  Net Loss Per Share - Basic and Diluted                                                          -             -
  ==================================================================================================================

  Weighted Average Shares Outstanding                                                    26,333,000    25,367,000
  ==================================================================================================================

               (The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
</TABLE>

                                       F-2


<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)

<TABLE>
<CAPTION>
                                                                                           For the Three Months
                                                                                                  Ended
                                                                                               September 30,
                                                                                            2006          2005
                                                                                              $             $
<S>                                                                                          <C>           <C>
  Operating Activities

    Net loss                                                                                 (65,470)      (52,392)

    Adjustments to reconcile net loss to net cash used in operating
    activities
      Amortization of deferred compensation and other stock-based
      compensation                                                                                 -        13,250
      Donated services                                                                         7,500         7,500
      Imputed interest                                                                        19,728        19,728
      Foreign exchange translation loss                                                            -         4,297
      Gain on settlement of debt                                                                   -       (10,500)

    Changes in operating assets and liabilities
      Prepaid expenses                                                                        13,250             -
      Accounts payable and accrued liabilities                                                21,942         9,701
  ------------------------------------------------------------------------------------------------------------------

  Net Cash Used In Operating Activities                                                       (3,050)       (8,416)
  ------------------------------------------------------------------------------------------------------------------

  Financing Activities

    Proceeds from issuance of common stock                                                         -         8,163
  ------------------------------------------------------------------------------------------------------------------

  Net Cash Provided By Financing Activities                                                        -         8,163
  ------------------------------------------------------------------------------------------------------------------

  Effect of Exchange Rate on Changes on Cash                                                     255             -
  ------------------------------------------------------------------------------------------------------------------

  Decrease in Cash                                                                            (2,795)         (253)

  Cash - Beginning of Period                                                                   3,533           946
  ------------------------------------------------------------------------------------------------------------------

  Cash - End of Period                                                                           738           693
  ==================================================================================================================

  Non-cash Investing and Financing Activities

    Common shares issued to settle debt                                                            -        93,000
  ==================================================================================================================

  Supplemental Disclosures

    Interest paid                                                                                  -             -
    Income taxes paid                                                                              -             -
  ==================================================================================================================

                (The Accompanying Notes are an Integral Part of the Consolidated Financial Statements)
</TABLE>

                                       F-3


<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)

1.   Nature of Operations and Continuance of Business

     In May 1998, the Company caused a Nevada corporation to be formed under the
     name Polo Equities, Inc. The two companies then merged pursuant to Articles
     of Merger adopted May 28, 1998 and filed with the State of Nevada on June
     10, 1998.

     On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid
     Fuels, USA, Inc., with an inception date of January 28, 1998, and 330420
     B.C. Ltd., which changed its name to Hybrid Fuels (Canada) Inc. This
     acquisition was accounted for as a reverse merger whereby the shareholder
     of Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. gained control of
     Polo Equities Inc., which changed its name to Hybrid Fuels, Inc. All
     historical financial statements are those of Hybrid Fuels, USA, Inc. and
     Hybrid Fuels (Canada) Inc. As part of the acquisition, three shareholders
     holding 12,000,000 previously issued shares returned their shares for
     cancellation. For accounting purposes, the acquisition was treated as a
     reverse merger business purchase of Polo Equities Inc. by Hybrid Fuels,
     USA, Inc. and Hybrid Fuels (Canada) Inc. No amount was allocated to the
     intellectual asset as it was acquired from a related party and the transfer
     had no cost basis associated with it. There was no public market for the
     shares of Polo Equities, Inc. at the time of the reverse merger.

     On May 29, 1998 the Company changed its name to Hybrid Fuels, Inc., herein
     "the Company". The Company trades on the OTC Bulletin Board under the
     symbol HRID.

     Pursuant to the above acquisition, the Company acquired a number of
     proprietary technologies with the primary objective of the business being
     to build small farm-scale ethanol facilities that involve a number of
     proprietary technologies exclusively owned by the Company. Other
     proprietary technology involves the use of a bio-gas burner that burns
     manure and bedding straw. This technology eliminates ground and
     ground-water contamination and produces most of the energy required for the
     facility by supplying heat for fermentation and vaporization and for the
     operation of a greenhouse, if desired. Another exclusive proprietary
     technology is a vegetable-based formula that allows diesel and ethanol to
     emulsify. This hybrid fuel reduces particulate emissions without reduction
     in power when used in an unaltered diesel engine.

     The Company is a development stage company with management devoting most of
     its activities in investigating business opportunities and further
     advancing its technologies. The ability of the Company to emerge from the
     development stage with respect to any planned principal business activity
     is dependent upon its successful efforts to raise additional equity
     financing and/or generate significant revenue. There is no guarantee that
     the Company will be able to complete any of the above objectives. At
     September 30, 2006, the Company had a working capital deficit of $684,293
     and an accumulated deficit of $2,514,963. These factors, among others,
     cause substantial doubt about the continuance of the Company as a going
     concern.

     The Company expects that future capital requirements for developing and
     expanding technologies will be met through stock offerings by way of
     private placements.

2.   Summary of Significant Accounting Policies

     (a)  Consolidated Financial Statements and Basis of Presentation

          These consolidated financial statements represent the consolidation of
          the Company and its wholly owned subsidiary, Hybrid Fuels (Canada)
          Inc. The Company's subsidiary is currently inactive and has no assets,
          liabilities or operations. The Company's fiscal year end is June 30.

     (b)  Cash and Cash Equivalents

          The Company considers all highly liquid instruments with a maturity of
          three months or less at the time of issuance to be cash equivalents.

     (c)  Use of Estimates

          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 periods. Actual results
          could differ from those estimates.


                                       F-4

<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)

2.   Summary of Significant Accounting Policies (continued)

     (d)  Basic and Diluted Net Income (Loss) per Share

          The Company computes net income (loss) per share in accordance with
          SFAS No. 128, "Earnings per Share" which requires presentation of both
          basic and diluted earnings per shares (EPS) on the face of the income
          statement. Basic EPS is computed by dividing net income (loss)
          available to common shareholders (numerator) by the weighted average
          number of common shares outstanding (denominator) during the period.
          Diluted EPS gives effect to all dilutive potential common shares
          outstanding during the period including stock options, using the
          treasury stock method, and convertible preferred stock, using the
          if-converted method. In computing diluted EPS, the average stock price
          for the period is used in determining the number of shares assumed to
          be purchased from the exercise of stock options or warrants. Diluted
          EPS excludes all dilutive potential common shares if their effect is
          anti-dilutive.

     (e)  Foreign Currency Translation

          The Company's functional and reporting currency is the United States
          dollar. Monetary assets and liabilities denominated in foreign
          currencies are translated in accordance with SFAS No. 52 "Foreign
          Currency Translation", using the exchange rate prevailing at the
          balance sheet date. Gains and losses arising on settlement of foreign
          currency denominated transactions or balances are included in the
          determination of income. Foreign currency transactions are primarily
          undertaken in Canadian dollars. The Company has not, to the date of
          these financials statements, entered into derivative instruments to
          offset the impact of foreign currency fluctuations.

     (f)  Comprehensive Loss

          SFAS No. 130, "Reporting Comprehensive Income," establishes standards
          for the reporting and display of comprehensive loss and its components
          in the financial statements. As at September 30, 2006 and 2005, the
          Company has no items that represent a comprehensive loss and,
          therefore, has not included a schedule of comprehensive loss in the
          financial statements.

     (g)  Financial Instruments

          The fair values of financial instruments, which include cash, accounts
          payable, accrued liabilities, notes and advances payable, due to
          related parties and due to a former director approximate their
          carrying values due to the immediate or short-term maturity of these
          financial instruments. The Company's operations are in Canada which
          results in exposure to market risks from changes in foreign currency
          rates. The financial risk is the risk to the Company's operations that
          arise from fluctuations in foreign exchange rates and the degree of
          volatility of these rates. Currently, the Company does not use
          derivative instruments to reduce its exposure to foreign currency
          risk.

     (h)  Income Taxes

          The Company has adopted SFAS No. 109 "Accounting for Income Taxes" as
          of its inception. Pursuant to SFAS No. 109 the Company is required to
          compute tax asset benefits for net operating losses carried forward.
          The potential benefits of net operating losses have not been
          recognized in these financial statements because the Company cannot be
          assured it is more likely than not it will utilize the net operating
          losses carried forward in future years.

     (i)  Stock-based Compensation

          The Company records stock-based compensation in accordance with SFAS
          No. 123R "Share Based Payments", using the fair value method.

                                       F-5

<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)

2.   Summary of Significant Accounting Policies (continued)

     (j)  Recent Accounting Pronouncements

          In September 2006, the Financial Accounting Standards Board ("FASB")
          issued SFAS No. 158, "Employers' Accounting for Defined Benefit
          Pension and Other Postretirement Plans - an amendment of FASB
          Statements No. 87, 88, 106, and 132(R)". This statement requires
          employers to recognize the overfunded or underfunded status of a
          defined benefit postretirement plan (other than a multiemployer plan)
          as an asset or liability in its statement of financial position and to
          recognize changes in that funded status in the year in which the
          changes occur through comprehensive income of a business entity or
          changes in unrestricted net assets of a not-for-profit organization.
          This statement also requires an employer to measure the funded status
          of a plan as of the date of its year-end statement of financial
          position, with limited exceptions. The provisions of SFAS No. 158 are
          effective for employers with publicly traded equity securities as of
          the end of the fiscal year ending after December 15, 2006. The
          adoption of this statement is not expected to have a material effect
          on the Company's future reported financial position or results of
          operations.

          In September 2006, the FASB issued SFAS No. 157, "Fair Value
          Measurements". The objective of SFAS No. 157 is to increase
          consistency and comparability in fair value measurements and to expand
          disclosures about fair value measurements. SFAS No. 157 defines fair
          value, establishes a framework for measuring fair value in generally
          accepted accounting principles, and expands disclosures about fair
          value measurements. SFAS No. 157 applies under other accounting
          pronouncements that require or permit fair value measurements and does
          not require any new fair value measurements. The provisions of SFAS
          No. 157 are effective for fair value measurements made in fiscal years
          beginning after November 15, 2007. The adoption of this statement is
          not expected to have a material effect on the Company's future
          reported financial position or results of operations.

          In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
          for Uncertainty in Income Taxes, an interpretation of FASB Statements
          No. 109". FIN 48 clarifies the accounting for uncertainty in income
          taxes by prescribing a two-step method of first evaluating whether a
          tax position has met a more likely than not recognition threshold and
          second, measuring that tax position to determine the amount of benefit
          to be recognized in the financial statements. FIN 48 provides guidance
          on the presentation of such positions within a classified statement of
          financial position as well as on derecognition, interest and
          penalties, accounting in interim periods, disclosure, and transition.
          FIN 48 is effective for fiscal years beginning after December 15,
          2006. The adoption of this statement is not expected to have a
          material effect on the Company's future reported financial position or
          results of operations.

          In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
          of Financial Assets, an amendment of FASB Statement No. 140,
          Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities". This statement requires all
          separately recognized servicing assets and servicing liabilities be
          initially measured at fair value, if practicable, and permits for
          subsequent measurement using either fair value measurement with
          changes in fair value reflected in earnings or the amortization and
          impairment requirements of Statement No. 140. The subsequent
          measurement of separately recognized servicing assets and servicing
          liabilities at fair value eliminates the necessity for entities that
          manage the risks inherent in servicing assets and servicing
          liabilities with derivatives to qualify for hedge accounting treatment
          and eliminates the characterization of declines in fair value as
          impairments or direct write-downs. SFAS No. 156 is effective for an
          entity's first fiscal year beginning after September 15, 2006. The
          adoption of this statement is not expected to have a material effect
          on the Company's future reported financial position or results of
          operations

          In February 2006, the FASB issued SFAS No. 155, "Accounting for
          Certain Hybrid Financial Instruments-an amendment of FASB Statements
          No. 133 and 140", to simplify and make more consistent the accounting
          for certain financial instruments. SFAS No. 155 amends SFAS No. 133,
          "Accounting for Derivative Instruments and Hedging Activities", to
          permit fair value re-measurement for any hybrid financial instrument
          with an embedded derivative that otherwise would require bifurcation,
          provided that the whole instrument is accounted for on a fair value
          basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
          Impairment or Disposal of Long-Lived Assets", to allow a qualifying
          special-purpose entity to hold a derivative financial instrument that
          pertains to a beneficial interest other than another derivative
          financial instrument. SFAS No. 155 applies to all financial
          instruments acquired or issued after the beginning of an entity's
          first fiscal year that begins after September 15, 2006, with earlier
          application allowed. The adoption of this statement is not expected to
          have a material effect on the Company's future reported financial
          position or results of operations.

                                       F-6
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)

2.   Summary of Significant Accounting Policies (continued)

     (k)  Reclassifications

          Certain reclassifications have been made to the prior period's
          financial statements to conform to the current period's presentation.

3.   Note Payable and Other Advances

     (a)  On September 15, 2000, the Company issued a note for Cdn$50,000
          payable on or before September 15, 2001 plus 8% interest. The Company
          extended repayment of the note until the completion of a financing
          arrangement. Interest expense of $1,403 has been accrued for the
          period ended September 30, 2006 (2005 - $975) and is included in
          accrued liabilities. The note payable was $44,895 after translation
          into U.S. dollars as at September 30, 2006 (June 30, 2006 - $44,655).

     (b)  As at September 30, 2006, cash advances totalling $2,694 (Cdn$3,000)
          (June 30, 2006 - $2,679) from unrelated parties are non-interest
          bearing, unsecured and due on demand.

4.   Related Party Transactions

     (a)  A shareholder is owed $199,371 (June 30, 2006 - $199,371) for payment
          of rent, office expenses and professional fees on behalf of the
          Company. Imputed interest of $7,477 (2005 - $7,476), calculated at a
          rate of 15% per annum, was charged to operations and treated as
          donated capital. This amount owing is unsecured, non-interest bearing
          and due on demand.

     (b)  During the three month period ended September 30, 2006, the Company
          recognized a total of $7,500 (2005 - $7,500) for donated services
          provided by the President of the Company.

     (c)  At September 30, 2006, officers of the Company are owed $10,000 (June
          30, 2006 - $10,000) for advances and expenses paid on behalf of the
          Company. This amount is unsecured, non-interest bearing and due on
          demand.

5.   Amounts Owing to a Former Director

     The former President, who was also a director of the Company, is owed
     $2,701 for office and related expenses paid for on behalf of the Company.
     Effective July 1, 1999 the former President was entitled to a salary of
     US$6,000 per month and was owed $326,701 as at September 30, 2006 (June 30,
     2006 - $326,701). These amounts are unsecured, non-interest bearing and due
     on demand. Imputed interest of $12,251 (2005 - $12,251), calculated at a
     rate of 15% per annum, was charged to operations and treated as donated
     capital. The Company did not have a written employment contract with the
     former President.

6.   Commitments and Contingencies

     Although the Company is not involved in any legal proceedings, several
     issues may eventually lead to the Company instituting legal action as
     follows:

     (a)  On August 4, 1998 and March 23, 1999, the Company's former Board of
          Directors authorized the issuance of 1,000,000 and 900,000 shares
          respectively to individuals without consideration. On August 21, 1999,
          the current Board of Directors resolved that share certificates
          representing ownership of these 1,900,000 shares were issued without
          adequate consideration being paid to the Company and were therefore
          not fully paid and non-assessable. The Company cancelled the share
          certificates and indemnified the transfer agent, for any costs or
          liability that may incur arising out of the cancellation of such
          shares. The transfer agent removed the 1,900,000 shares from the
          stockholder list effectively reversing the issuance. Six of the
          cancelled certificates, totaling 550,000 shares, have been endorsed
          and returned to the Company for cancellation. The contingencies
          regarding the cancelled shares relate to anyone who may have
          subsequent holder rights, and possibly the individuals who were issued
          those shares who may claim that they were issued for due
          consideration. The Company has determined that there is no amount to
          be accrued for future liabilities associated with claims by subsequent
          shareholders. To date when these shares have been delivered to a
          broker for possible resale, the broker has informed the Company or the
          transfer agent and the shares are kept and cancelled. The Company will
          continue to monitor this issue. No other contingent liabilities have
          been included, as some of the previous directors have been informed
          verbally of the cancellation. No formal legal demand has been made as
          former management has failed to provide addresses despite a number of
          requests.

                                       F-7


<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
(unaudited)

6.   Commitments and Contingencies (continued)

     (b)  Between October 1998 and June 1999, the management at that time sold a
          total of 361,120 common shares of the Company to 34 subscribers on the
          basis of an Offering Memorandum ("Offering") that contained a
          significant number of inaccuracies. A total of $223,000 was raised
          pursuant to this Offering. Management had concerns regarding possible
          misstatements, omissions and misleading statements. On the advice of
          legal counsel, the Company offered these 34 subscribers the option of
          receiving restricted stock as the Company did not and does not have
          the funds to repay these subscribers. Restricted shares must be owned
          and fully paid for at least one year. After the one-year holding
          period, the number of shares non-affiliates may sell during any
          three-month period cannot exceed 1% of the outstanding shares of the
          same class being sold. If the shares have been owned for two years or
          more, no volume restrictions apply to non-affiliates. Those who opted
          to receive restricted stock were also given an undertaking that they
          would receive a rescission offer when the Company was in a position to
          repay their money plus appropriate interest, in return for a return of
          the restricted stock, or they could elect to retain the stock. To
          date, 23 subscribers, have, pursuant to this offer received 232,753
          shares, representing $158,000. The remaining 11 subscribers, who paid
          $65,000 for 128,367 shares, have not responded to the offer. These
          subscriptions are recorded as redeemable and restricted common shares
          until rescission rights have been revoked.


                                       F-8


<PAGE>

ITEM 2.  Plan of Operation
--------------------------

This Form 10-QSB contains forward-looking statements. The words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and other similar expressions identify forward-looking statements
that involve risks and uncertainties. The reader should not place undue reliance
on forward-looking statements in this Form 10-QSB because of their inherent
uncertainty. The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto and other financial information
included in this Form 10-QSB and our Form 10-KSB for the fiscal year ended June
30, 2006. Actual results could differ materially from the results discussed in
the forward-looking statements. Hybrid Fuels Inc. ("the Company") assumes no
responsibility to correct or update the forward looking statements as
circumstances change and therefore, the forward looking statements should be
assumed to speak only as at the date of the filing of this report.

Hybrid Fuels Inc. is a developmental stage company and has had no income since
the acquisition of the hybrid fuels technology in June 1998. The Company is
unlikely to have any significant cash flow until after the quarter ending
December 31, 2006.

As at June 30, 2006, our independent auditors raised a substantial doubt about
our ability to continue as a going concern because we have not generated any
revenues and have conducted operations at a loss since inception. As of
September 30, 2006, the Company has a working capital deficit of $(684,293).

Although the Company is in the developmental stages, the process behind Hybrid
Fuels' intended business has been researched and developed for more than a
decade. A facility that integrated the process described below was constructed
and operated near Dalum, Alberta from 1994 to 1996. The Dalum facility was
designed to prove the concepts and included all of the wet ethanol-producing and
cattle-feeding features of a full-scale commercial operation. The Dalum project
was also the source of the actual operating results that are referred to later
in this report.

After the Dalum facility was closed in 1996, further research enabled us to
modify the facility's material requirements, improve the building designs,
select the latest equipment, and refine the process.

At this time, the Company's intended principal business is to integrate cattle
feeding and finishing with the production of wet ethanol. The main source of
revenue for the Company is expected to come from the sale of finished cattle and
denatured wet ethanol. The Company is actively pursuing other sources of revenue
related to their integrated farm system.

A test facility is being constructed on a 12-acre parcel of land in Oyama, BC,
Canada. A group of Hybrid Fuels, Inc. shareholders is bearing the financial
burden of construction and retains legal ownership of the facility. The Company
has not incurred any costs pertaining to the facility to date and will not be
obligated financially until the Company enters into a formal agreement to either
acquire the facility on mutually agreeable terms. It is expected that the
Company will acquire the facility from the shareholder group in the quarter
ending December 31, 2006.

The key purpose of placing the first facility in service is to demonstrate the
economic feasibility of the system. Once this first facility is operating, we
plan to use it as a demonstration and training facility and to earn revenue from
its operation. Our projections indicate that the facility should generate
sufficient revenue to pay all of our operating costs, plus a surplus that may be
used toward development of operating activities. We expect that the

                                       4
<PAGE>

facility will show sufficient cash flow to make it possible for us to get
approval for financing subsequent facilities.

The commercial facility being built by the shareholder group is to include all
items necessary for a fully operational facility utilizing the Company's
technology. The proposed facilities are planned to consist of a cattle barn,
ethanol-producing plant, gasifier/burner (manure/straw burning unit) and a
hydroponics barley-grass growing system.

The cattle barn at the Oyama facility has been designed to accommodate 200 head
of cattle and the hydroponics barley-grass growing system. Once the facility is
operational, it is expected that the cattle will be fed starting with 50 head
and adding another 50 approximately every four weeks until the barn is at full
capacity. As we gain experience with the facility, we intend to operate the barn
continuously at full capacity during the subsequent 100-day feeding cycles. At
the end of each feeding cycle, the cattle will be sold at auction.

The cattle barn includes floor space for six individual pens - five occupied
pens and one pen remaining empty and free of manure and bedding waste. Cattle
are to be moved to a clean pen every five days on a rotational basis. The manure
and bedding straw is removed from the pens and destroyed in the gasifier/burner
that provides heat energy for the ethanol production and the hydroponics feed
system.

In the ethanol plant, grains are fermented and then distilled to produce the wet
ethanol. The heat is supplied from the burning of the used bedding straw and
manure in the gasifier/burner. The ethanol production process also generates a
high protein product, called "distillers mash" and a liquid byproduct called
"stillage water." The mash and liquid is supplemented by barley grass and
creates an excellent feed for the cattle. The expected weight gain is an average
of four pounds a day per head during the planned 100-120 day feeding cycle.

Ethanol produced by the first facility in the first two to three months of its
operation is expected to be used for testing purposes. Once the facility is
operating at full capacity, we project that the ethanol production will be
approximately 200 US gallons per day.

It is intended that the wet ethanol will be blended with a proprietary
emulsifier and diesel fuel. When this newly created fuel was tested in an
unaltered diesel engine at the British Columbia Institute of Technology in June
1996, it reduced particulate emissions (black smoke) by over 62% and the
smog-causing nitrogen oxide (NOx) emissions by more than 22%. Researchers also
noted no measurable loss of engine power when testing this fuel blend.

The hydroponics barley-grass growing system is expected to produce a ration of
10-15 pounds per day of fresh grass per animal, year round, regardless of
climate. We believe each grass unit represents approximately the equivalent of
400 acres of grass growing land.

Current estimates have the final cost of building this facility to be
approximately $1,230,000. An estimated $935,000 of this cost is for foundations
and flooring, buildings, the gasifier/burner, the ethanol-producing equipment,
the hydroponics unit, tanks and machinery. Soft costs, for such items as
permits, engineering and other professional fees, survey and layout costs, site
preparation, delivery of buildings and materials, equipment rentals, tools and
miscellaneous items, are estimated to cost $147,500. Approximately $147,500 is
expected to cover construction labour and supervision expenses.

                                       5
<PAGE>

The Company has no immediate funding source except through private sources and
until one facility is fully operational and demonstrates cash flow Hybrid Fuels
Inc., and our wholly-owned subsidiary Hybrid Fuels (Canada), will have limited
access to banks, trust companies, and other traditional lending sources.

Estimated operating costs to the end of the second quarter (December 31, 2006)
total $250,000. This estimate includes $120,000 for cattle and feed, $60,000 for
payables (excluding related party loans and accrued executive salaries), $40,000
for technical support and labor and $30,000 for contingencies and other
operating expenses. These estimates are subject to change based on conditions
outside of management's control and actual experience with operating the first
facility.

The operating cost estimate of $250,000 would not adequately cover the cost of
acquiring an operating facility if the Company chooses and enters into a
purchase agreement as opposed to a lease agreement.

Operations are expected to commence once the initial testing of the facility's
gasifier/burner, air exchange and feed system are completed and ready for the
first delivery of cattle. Management currently anticipates that this will be
completed in the quarter ending December 31, 2006. However, any delay in the
completion of these tasks will also delay commencement of our operations. It is
difficult to establish the start date of operations since the Company is relying
on third parties to complete the facility which includes work by testing
consultants and timely provision of equipment and installation. Therefore,
completion of these tasks is not entirely under our control.

The facility will not be run at full capacity until approximately four months
have passed from the facility becoming operational. We believe that at the end
of the fourth month of operations, when we sell the first group of finished
cattle, we will have sufficient data from which to prepare information for
purposes of estimating revenue streams and expenses to establish a more
comprehensive business plan.

The Company expects to expand the size of the cattle barn in future facilities
to accommodate 400 head of cattle for economy of scale. The Company believes the
additional heat energy that will be generated as a result of this expansion
makes it feasible to develop renewable energy generation systems. It is expected
that each facility could produce up to 1,500 litres of ethanol daily, generate
up to 0.5 megawatt of power, finish up to 1,200 head of cattle annually and
provide up to 5 full-time jobs. The hydroponics section of the barn is designed
to have the grass growing capacity equivalent to approximately 800 acres of
grassland.

It is intended that future facilities will be constructed for the Company by
independent contractors on privately-owned farms after a written, contractual
agreement is made between the Company and the operator (s).

Until the end of the next fiscal year the Company anticipates conducting further
research and development with respect to the following:

1. Researching efficiencies in facility construction and operation;
2. Researching new technologies; consulting with various technical researchers
and agriculture officials.

Once we have a fully operational facility, and have proven the technology and
processes, we intend that our subsidiary, Hybrid Fuels (Canada) Inc., will
operate it and will earn revenue from the sale of the finished cattle and
denatured wet ethanol.


                                       6
<PAGE>

Efforts to improve every aspect of the whole operation continue with positive
results. Management believes the overall Hybrid Fuels program involving
progressive and environmental sensitivity towards cattle feeding, maintenance
and processing will present a chemical-free product cycle which offers a world
class benchmark for the industry.

Results of Operations For The Three Months Ended September 30, 2006
-------------------------------------------------------------------

The net loss for the present quarter is $(65,470) compared to $(52,392) for the
comparable quarter last year.

At the end of the quarter, the Company had cash of $738 compared to $3,533 at
June 30, 2006. As at September 30, 2006, the Company had a working capital
deficit of $(684,293) compared to $(646,051) as at June 30, 2006.

The President and CEO of the Company donated services in the amount of $7,500 in
the current quarter.

Although we currently do not have significant cash reserves, related parties
have indicated a willingness to provide operating capital in exchange for
restricted common shares. These related parties are under no obligation and no
assurances can be given that they will continue to do so.

Risk Factors
------------

The following factors have affected or could affect the Company's actual results
and could cause such results to differ materially from those expressed in any
forward-looking statements made by the Company. Investors should consider
carefully the following risks and speculative factors inherent in and affecting
the business of the Company and an investment in the Company's common stock.

1. Our cash reserves are not adequate to cover our costs of operations. To date,
we have covered our operating losses by loans from shareholders or privately
placing securities. We expect to fund our general operations and
marketing activities in the near term with current cash plus cash that may be
obtained from loans from shareholders and/or the sale of securities. However,
our cost estimates may not include enough provisions for any contingency,
unexpected expenses or increases in costs that may arise.

2. We will need to raise additional capital to develop operations and to pay
ongoing expenses. If additional funds are raised through the issuance of equity,
our shareholders' ownership will be diluted. There can be no assurance that
additional financing will be available on terms favorable to us or at all. If
funds are not available on terms acceptable to us, we may not be able to
continue our business.

3. We have not sought protection of our intellectual property through any
patents, but have elected to protect it through non-disclosure agreements. Our
intended business may be adversely affected if we are unable to adequately
protect our intellectual property. Because our intellectual property is not
protected by patents, others may seek to discover and use our intellectual
property. We cannot provide assurance that our intellectual property rights will
not be invalidated, circumvented or challenged. If we are found to infringe on
the intellectual property rights of others, we may not be able to continue to
market our process, or we may have to enter into costly license or settlement
agreements. Third parties may allege infringement by us with respect to past,


                                       7
<PAGE>

current or future intellectual property rights. Any claim of infringement,
regardless of merit, could be costly, time consuming and require us to develop
non-infringing technology or enter into royalty, licensing or settlement
agreements. These agreements could be on terms unfavorable or unacceptable to us
and could significantly harm the development of our business. In the future, we
may also have to enforce our intellectual property rights through litigation.
Any such enforcement could also result in additional costs and could materially
affect our financial condition and our business.

4. We have a history of operating losses and an accumulated deficit, as of
September 30, 2006, of $2,514,963.

5. Our ability to begin operations and to generate revenues and profits is
subject to the risks and uncertainties encountered by development stage
companies. Our future revenues and profitability are unpredictable. We currently
have no operating activities that will produce revenue. Furthermore, we cannot
provide assurance that we will be successful in raising the money necessary to
begin or expand operations.

6. The production of ethanol is being strongly encouraged by governments and
private parties as a way to reduce water and air pollution that could lead to
rapidly changing technology. If we are unable to adapt to rapidly changing
technologies, our intended business could be adversely affected.

7. We have no operating history which makes an evaluation of our future
prospects very difficult. Once we succeed in completing the construction of the
first operating facility, there can be no assurances that we will be able to
develop operations that are profitable or will operate as intended. If the
market for our facilities fails to develop, or develops more slowly than
anticipated, we may not be able to meet our expenses and may not achieve
profitable results.

8. Our common stock is not widely traded, and, as a result, the prices quoted
for our stock may not reflect its fair market value. Because of the low volume
of trading in our common stock, our stockholders may find it difficult to sell
their shares.

9. We currently have no insurance covering our operations, potential products,
services or directors and officers.

10. Future performance depends on the ability to attract, train, and retain
management, technical and marketing personnel. In the future, loss of one or
more key employees could negatively impact us, and there is no "key man" life
insurance in force at this time. Competition for qualified personnel is intense,
and there can be no assurance that we will attract or maintain key employees or
other needed personnel.

11. The production of beef and fuel are both highly competitive. Large companies
compete in both markets with significant competitive advantages. Many
competitors of the Company have significantly greater resources and experience
than the Company. Additionally, competitors of the Company may have better
access to financial and marketing resources superior to those available to the
Company. With the resources and name recognition that competitors possess, the
Company may face severe adversity entering the markets it is pursuing. There is
no assurance the Company will be able to overcome the competitive disadvantages
it will face as a small, start-up company with limited capital.

12. The continual shift in supply and demand factors create volatility in cattle
pricing that could result in a loss on cattle finishing.

13. A test facility is being constructed on a 12-acre parcel of land in Oyama,
BC, Canada. A group of Hybrid Fuels, Inc. shareholders is bearing the financial
burden of construction and retains legal ownership of the facility. It is


                                       8
<PAGE>

expected that once the facility has been completed for the Company's intended
operations, the Company will negotiate with this group to acquire the facility

on mutually agreeable terms although there is no guarantee that an acquisition
agreement will be finalized.

14. Since May 2003, the Canadian beef market has suffered as a consequence of
the United States limiting imports from Canada because of an isolated case of
Bovine Spongiform Encephalopathy (BSE). A recurrence of BSE in Canada could
potentially have an adverse effect on the Company even though the age of
finished cattle raised within our controlled facilities are planned to be under
the current 30-month age restriction on beef imported into the U.S.

ITEM 3.  Controls and Procedures
--------------------------------

Based on an evaluation as of the end of the period, the Company's Principal
Executive Officer and Principal Financial Officer has concluded that the
Company's disclosure controls and procedures as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act 1934 (the "Exchange
Act") are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. There were no significant deficiencies or material weakness,
and therefore there were no corrective actions taken.



                           PART II - OTHER INFORMATION
                           ---------------------------

Item 1. Legal Proceedings
-------------------------

No legal proceedings are threatened or pending against the Company or any of its
officers or directors. Further, none of the Company's officers or directors or
affiliates of the Company are parties against the Company or have any material
interest in actions that are adverse to the Company's interests.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
-------------------------------------------------------------------

N/A

Item 3. Defaults Upon Senior Securities
---------------------------------------

N/A


                                       9
<PAGE>

Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------

The Hybrid Fuels Inc. stockholders elected three Directors at the annual meeting
held on July 12, 2006 in Winfield, BC, Canada. The name of each nominee and the
number of shares voted were as follows:


Nominee           For                       Against           Withheld
-----------------------------------------------------------------------
Doulas Dickie     14,451,383                0                  0
Rolly Hein        14,449,883                0                  1,500
Edward Melenka    14,449,883                0                  1,500

In total, approximately 55% of Hybrid Fuels Inc.'s outstanding shares were voted
at the annual meeting.


Item 5. Other Information
-------------------------

N/A

Item 6.  Exhibits
-----------------


Exhibit 31.1 Principal Executive Officer Certification (section 302 of the
Sarbanes-Oxley Act of 2002)

Exhibit 31.2 Principal Financial Officer Certification (section 302 of the
Sarbanes-Oxley Act of 2002)

Exhibit 32.1 Principal Executive Officer Certification (section 906 of the
Sarbanes-Oxley Act of 2002)

Exhibit 32.2 Principal Financial Officer Certification (section 906 of the
Sarbanes-Oxley Act of 2002)


Signature
---------

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


HYBRID FUELS, INC.

By: /s/ Douglas Dickie
----------------------

Name:  Douglas Dickie
Title: President/CEO/CFO


Dated: November 20, 2006



                                       10