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

                                   FORM 10-QSB

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

                For the Quarterly Period Ended December 31, 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)

                                     R0A1E0
                                  (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 February 16, 2007 was 30,052,933

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


<PAGE>


                                TABLE OF CONTENTS



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..............9

Item 5        Other Information................................................9

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

              Signature.......................................................10


                                       2
<PAGE>

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

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

Hybrid Fuels, Inc.
(A Development Stage Company)

December 31, 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>


                                                                                     December 31,
                                                                                         2006          June 30,
                                                                                          $              2006
                                                                                     (unaudited)          $

ASSETS

Current Assets

<S>                                                                                           <C>           <C>
  Cash                                                                                        680           3,533
  Prepaid expenses                                                                              -          25,500
--------------------------------------------------------------------------------------------------------------------

Total Current Assets                                                                          680          29,033

Property and Equipment (Note 4)                                                           847,651               -

Intangible Assets (Note 5)                                                                561,982               -
--------------------------------------------------------------------------------------------------------------------

Total Assets                                                                            1,410,313          29,033
====================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities

  Accounts payable                                                                        116,098          62,804
  Accrued liabilities                                                                      26,823          28,874
  Note payable and other advances (Note 6)                                                 45,479          47,334
  Due to related parties (Note 7)                                                         213,871         209,371
  Due to a former director (Note 8)                                                       326,701         326,701
--------------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                                 728,972         675,084

Redeemable and Restricted Common Shares (Note 9(b))                                       222,767         222,767
--------------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                         951,739         897,851
--------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 1 and 9)

Stockholders' Equity (Deficit)

Common Stock: $0.001 par value; 50,000,000 shares authorized;
30,052,933 and 26,332,933 shares issued and outstanding, respectively                      30,053          26,333

Additional Paid-in Capital                                                              2,416,847       1,006,967

Donated Capital                                                                           601,831         547,375

Deficit Accumulated During the Development Stage                                       (2,590,157)     (2,449,493)
--------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity (Deficit)                                                      458,574        (868,818)
--------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Equity (Deficit)                                    1,410,313          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            For the                     For the
                                                 January 28, 1998         Three Months                Six Months
                                                (Date of Inception)          Ended                       Ended
                                                  to December 31,         December 31,               December 31,

                                                      2006             2006          2005          2006          2005
                                                         $              $             $              $            $

  Revenue                                                    -               -             -              -           -
  ------------------------------------------------------------------------------------------------------------------------

  Expenses

<S>                                                    <C>             <C>           <C>            <C>          <C>
    Deposits and advances written-off                  305,512               -             -              -           -
    Foreign exchange loss (gain)                        16,336          (4,985)          335         (4,478)      2,952
    General and administrative (Note 7(b))           1,742,553          60,452        43,540        105,686      84,087
    Imputed interest (Notes 7(a) and 8)                519,331          19,727        19,728         39,456      39,456
    Research and development                            16,925               -             -              -           -
  ------------------------------------------------------------------------------------------------------------------------

  Total Operating Expenses                           2,600,657          75,194        63,603        140,664     126,495
  ------------------------------------------------------------------------------------------------------------------------

  Operating Loss                                    (2,600,657)        (75,194)      (63,603)      (140,464)   (126,495)

  Other Income

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

  Net Loss                                          (2,590,157)        (75,194)      (63,603)      (140,664)   (115,995)
  ========================================================================================================================

  Net Loss Per Share - Basic and Diluted                                     -             -          (0.01)      (0.01)
  ========================================================================================================================

  Weighted Average Shares Outstanding                               26,859,000    25,887,000     26,596,000  25,739,000
  ========================================================================================================================


               (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 Six Months
                                                                                                  Ended
                                                                                               December 31,
                                                                                           2006          2005
                                                                                             $             $

  Operating Activities

<S>                                                                                         <C>           <C>
    Net loss                                                                                (140,664)     (115,995)

    Adjustments to reconcile net loss to net cash used in operating activities:
      Amortization of deferred compensation and other stock-based
        compensation                                                                               -        26,500
      Depreciation                                                                             3,967             -
      Donated services                                                                        15,000        15,000
      Foreign exchange translation loss                                                            -         2,321
      Gain on settlement of debt                                                                   -       (10,500)
      Imputed interest                                                                        39,456        39,456

    Changes in operating assets and liabilities:
      Prepaid expenses                                                                        25,500             -
      Accounts payable and accrued liabilities                                                51,243        21,410
      Due to related parties                                                                   4,500             -
  ------------------------------------------------------------------------------------------------------------------

  Net Cash Used In Operating Activities                                                         (998)      (21,808)
  ------------------------------------------------------------------------------------------------------------------

  Financing Activities

    Advances from related parties                                                                  -         1,866
    Common stock subscribed                                                                        -           863
    Proceeds from issuance of common stock                                                         -        18,338
  ------------------------------------------------------------------------------------------------------------------

  Net Cash Provided By Financing Activities                                                        -        21,067
  ------------------------------------------------------------------------------------------------------------------

  Effect of Exchange Rate on Changes on Cash                                                  (1,855)            -
  ------------------------------------------------------------------------------------------------------------------

  Decrease in Cash                                                                            (2,853)         (741)

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

  Cash - End of Period                                                                           680           205
  ==================================================================================================================

  Non-cash Investing and Financing Activities

    Common shares issued to settle debt                                                            -        82,500
    Common shares issued to acquire property and equipment and
      intangible assets                                                                    1,413,600             -
  ==================================================================================================================


  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.

     On December 14, 2006, the Company entered into an Asset Purchase Agreement
     ("Agreement") to acquire certain assets that includes a steel-construction
     cattle barn and ethanol plant, interior operating systems and equipment, a
     gasifier, facility designs and intellectual property at a total fair value
     of $1,413,600. Pursuant to the terms of the Agreement, the Company issued
     3,720,000 shares of common stock at a fair value of $0.38 per share.

     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. As at
     December 31, 2006, the Company had a working capital deficit of $728,292
     and has accumulated losses of $2,590,157 since inception. 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)  Interim Financial Statements

          The interim unaudited financial statements have been prepared on the
          same basis as the annual financial statements and in the opinion of
          management, reflect all adjustments, which include only normal
          recurring adjustments, necessary to present fairly the Company's
          financial position, results of operations and cash flows for the
          periods shown. The results of operations for such periods are not
          necessarily indicative of the results expected for a full year or for
          any future period.


                                      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)

     (c)  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.

     (d)  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.

     (e)  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.

     (f)  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.

     (g)  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 December 31, 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.

     (h)  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.

     (i)  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.

     (j)  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)

     (k)  Property and Equipment

          Property and equipment are recorded at cost and consists of a cattle
          barn, an ethanol producing plant, a gasifier/burner and grain handling
          equipment, which are being amortized on a straight-line basis over
          their estimated lives of ten years.

     (l)  Intangible Assets

          Intangible assets consist of intellectual property, including
          engineering and proprietary design of a hydroponics green grass
          growing system and are recorded at cost. Amortization of these costs
          will begin upon the commencement of revenue producing activities.

     (m)  Long-lived Assets

          In accordance with SFAS No. 144, "Accounting for the Impairment or
          Disposal of Long-Lived Assets", the carrying value of intangible
          assets and other long-lived assets is reviewed on a regular basis for
          the existence of facts or circumstances that may suggest impairment.
          The Company recognizes impairment when the sum of the expected
          undiscounted future cash flows is less than the carrying amount of the
          asset. Impairment losses, if any, are measured as the excess of the
          carrying amount of the asset over its estimated fair value.

     (n)  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"). 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.


                                      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)

     (n)  Recent Accounting Pronouncements (continued)

          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.


3.   Asset Purchase Agreement

     On December 14, 2006, the Company entered into an Asset Purchase Agreement
     ("Agreement") to acquire certain assets that includes a steel-construction
     cattle barn and ethanol plant, interior operating systems and equipment, a
     gasifier, facility designs and intellectual property at a total fair value
     of $1,413,600. Pursuant to the terms of the Agreement, the Company issued
     3,720,000 shares of common stock at a fair value of $0.38 per share. Of
     these issued shares a director of the Company and the President of the
     Company received a total of 1,860,000 shares and a shareholder received
     1,193,333 shares.


4.   Property and Equipment

<TABLE>
<CAPTION>

                                                                                   December 31,        June 30,
                                                                                       2006              2006
                                                                   Accumulated     Net Carrying      Net Carrying
                                                      Cost         Amortization        Value            Value
                                                        $               $                $                $

<S>                                                  <C>               <C>              <C>                <C>
      Buildings                                      765,160           3,564            761,596              -
      Equipment                                       86,458             403             86,055              -
      --------------------------------------------------------------------------------------------------------------

                                                     851,618           3,967            847,651              -
      ==============================================================================================================


5.   Intangible Assets

                                                                                   December 31,        June 30,
                                                                                       2006              2006
                                                                   Accumulated     Net Carrying      Net Carrying
                                                      Cost        Amortization        Value             Value
                                                       $                $               $                 $

      Intellectual property rights                   561,982               -            561,982              -
      ==============================================================================================================
</TABLE>


                                      F-7
<PAGE>

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

6.   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 $2,770 has been accrued for the six
          month period ended December 31, 2006 (2005 - $1,970) and is included
          in accrued liabilities. The note payable was $42,905 after translation
          into U.S. dollars as at December 31, 2006 (June 30, 2006 - $44,655).

     (b)  As at December 31, 2006, cash advances totalling $2,574 (Cdn$3,000)
          (June 30, 2006 - $2,679) from unrelated parties are non-interest
          bearing, unsecured and due on demand.


7.   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 $14,953 (2005 - $14,953), 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. On December 14, 2006, the Company issued 1,193,333
          shares of common stock to this shareholder at a fair value of $0.38
          per share pursuant to an Asset Purchase Agreement (see Notes 3 and
          10).

     (b)  During the six month period ended December 31, 2006, the Company
          recognized a total of $15,000 (2005 - $15,000) for donated services
          provided by the President of the Company.

     (c)  At December 31, 2006, officers of the Company are owed $14,500 (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.

     (d)  On December 14, 2006, the Company issued a total of 1,860,000 shares
          of common stock to a director and to the President of the Company at a
          fair value of $0.38 per share pursuant to an Asset Purchase Agreement.
          (see Notes 3 and 10).


8.   Amounts Owing to a Former Director

     The former President, who was also a director of the Company, is owed
     $326,701 as at December 31, 2006 (June 30, 2006 - $326,701). This amount is
     unsecured, non-interest bearing and due on demand. During the six months
     ended December 31, 2006, imputed interest of $24,503 (2005 - $24,503),
     calculated at a rate of 15% per annum, was charged to operations and
     treated as donated capital.


9.   Commitments and Contingencies

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

          i)   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-8
<PAGE>

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

9.   Commitments and Contingencies

          ii)  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.

     (b)  On December 16, 2006, the Company, entered into a Joint Venture
          Agreement with a third party to develop two facilities that will
          utilize the Company's proprietary technology. The Company is obligated
          to contribute its proprietary technology and cash at an agreed upon
          value totaling $7,722,670 (Cdn$9,000,000).


10.  Common Stock

     On December 14, 2006, the Company issued 3,720,000 shares of common stock
     at a fair value of $1,413,600 pursuant to an Asset Purchase Agreement. See
     Note 3.





                                      F-9
<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 March
31, 2007.

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 December
31, 2006, the Company has a working capital deficit of $(728,292).

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.

The Company's intended principal business is to integrate cattle feeding and
finishing with the production of wet ethanol and electrical power generation.
The main source of revenue for the Company is expected to come from the sale of
electrical power, finished cattle and denatured wet ethanol.

On December 14, 2006 the Company acquired a commercial-ready facility situated
in Oyama, BC, Canada from a Hybrid Fuels Inc. shareholder consortium that
financed the construction of the facility. This facility includes all equipment
and infrastructure necessary to utilize the Company's proprietary technology
including a cattle barn, ethanol-producing plant, gasifier/burner (manure/straw
burning unit) and a hydroponics barley-grass growing system. The facility was
acquired for total consideration of 3.72 million restricted common shares of
Hybrid Fuels Inc. valued at $1,413,600. (incorporated by reference to Form 8K
filed December 15, 2006).

The purpose of this facility is to demonstrate the economic feasibility of the
`Hybrid Fuels' system. Once this first facility is operating, the intention is
to use it as a demonstration and training facility and to earn revenue from its
operation. Our projections indicate that the facility will show sufficient
profitability to make it possible for us to get approval for financing
subsequent facilities.


                                       4
<PAGE>

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.

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.

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 June 30, 2007 total $280,000. This estimate
includes $120,000 for cattle and feed, $90,000 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.

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 March 31, 2007. 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.


                                       5
<PAGE>

The Oyama 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 from all sources 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 1,650 litres of ethanol daily, generate
up to one 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).

On December 16, 2006 a formal agreement was signed between the Company's
wholly-owned subsidiary Hybrid Fuels (Canada) Inc. and the A4 Bar Cattle Company
Ltd., covering the joint venture between the two companies, known as the
'Siksika A4 Bar Farm Operations Project.' The site of the project is located
approximately 60 miles east of Calgary, Alberta, Canada on the land of the
Siksika First Nations. (incorporated by reference to Form 8K filed December 15,
2006).

The Project will initially consist of the construction of two facilities - each
utilizing Hybrid Fuels' proprietary technology together with the industry
expertise and cattle provided by A4 Bar Cattle Company Ltd. Construction is
expected to start in the third quarter ending March 31, 2007.

The two facilities are expected to produce a combined daily volume of up to
3,300 litres of ethanol, generate up to 2 megawatts of power, finish up to 2,400
head of cattle annually, and provide up to 10 full time jobs. The internal
hydroponics barley grass growing system is designed to produce a 12-pound ration
of grass per head of cattle per day.

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 generate revenue from the sale of electrical power, finished
cattle and denatured wet ethanol.

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.


                                       6
<PAGE>

Results of Operations For The Three Months Ended December 31, 2006
------------------------------------------------------------------

The net loss for the present quarter is $(75,194) compared to $(63,603) for the
comparable quarter last year.

At the end of the quarter, the Company had cash of $680 compared to $3,533 at
June 30, 2006. As at December 31, 2006, the Company had a working capital
deficit of $(728,292) compared to $(646,051) as at June 30, 2006. The difference
is mainly attributable to the increase in accounts payable of $53,294 since 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,
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.


                                       7
<PAGE>

4. We have a history of operating losses and an accumulated deficit, as of
December 31, 2006, of $2,590,157.

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. 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.


                                       8
<PAGE>

14. There are a number of technological challenges that must be successfully
addressed to complete our development and commercialization efforts. Our
inability to address such technological challenges could adversely affect our
ability to acquire customers for our technology. Delays in development, as a
result of technological challenges or other factors, may result in the
introduction or commercial acceptance of our technology later than anticipated.

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

Set forth below is information regarding the issuance and sales of our
securities without registration during the three months ended December 31, 2006.
No such sales involved an underwriter and no commissions were paid in connection
with the sale of any securities.

On December 14, 2006, 3,720,000 shares of restricted common stock were issued to
four individuals (including two Directors) as consideration for a commercial
facility valued at $1,413,600.

The foregoing issuance of common stock were made in reliance upon the exemption
from registration set forth in Regulation S promulgated under of the Securities
Act of 1933 for transactions not involving a US person.

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

N/A

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

N/A

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

N/A


                                       9
<PAGE>

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: February 20, 2007



                                       10