United States
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

(Mark One)

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

            For the quarterly period ended June 30, 2005

                                       or

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

Commission File Number:  333-33134

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

             Georgia                                             58-2267238
             -------                                             ----------
(State or other jurisdiction                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)

                    12409 Telecom Drive, Tampa, Florida 33637
                    -----------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (813)-979-9222
                                 --------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the 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 for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [XX] No [__]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [__] No [XX]

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate  by check mark  whether  the  registrant  has filed all  documents  and
reports  required  to be filed by  Sections  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes [__] No [__]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date. At August 23, 2005, the Company
had 42,215  Series A  Preferred  Shares and 195,209  Series B  Preferred  Shares
outstanding and 83,354,981 of its $0.001 par value common shares outstanding.

<PAGE>

                               HYBRID FUEL SYSTEMS
                              Report on Form 10QSB
                       for the period ended June 30, 2005

                                    CONTENTS

                                     PART I

Item 1 - Financial Statements

         Consolidated Balance Sheet for the six month period
         ended June 30, 2005 and the annual period ended
         December 31, 2004                                                     2

         Statement of Operations for the three and six months
         periods ended June 30, 2005 and 2004                                  3

         Statement of Cash Flows for the three and six month                   4
         periods ended June 30, 2005 and 2004

         Notes to Financial Statements                                       5-9

Item 2 - Management's Discussion and Analysis of Financial
         Condition and Results of Operations                                  10

Item 3 - Controls and Procedures                                              13

                                     PART II

Item 1.   Legal Proceedings                                                   13

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds         13

Item 3.   Defaults Upon Senior Securities                                     13

Item 4.   Submission of Matters to a Vote of Security Holders                 13

Item 5.   Other Information                                                   13

Item 6.   Exhibits                                                            13


                                       1
<PAGE>

                            HYBRID FUEL SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEET
            For the Six Months Period Ended June 30, 2005 (unaudited)
               and annual period ended December 31, 2004 (audited)

                                     ASSETS

                                                       June 30,     December 31,
                                                         2005          2004
                                     ASSETS          (unaudited)     (audited)
                                                     -----------    -----------
Current Assets
   Cash                                              $    26,068    $     2,025
   Accounts Receivable                               $    52,065    $    27,005
   Deposit on Acquisition                            $   200,000    $        --
   Prepaid expenses and deposits                     $    79,360    $     7,845
   Other Assets                                      $     9,571    $        --
   Inventory                                         $    53,800    $    36,623
                                                     -----------    -----------
Total current assets                                 $   420,864    $    73,498
Property Plan & Equipment, net                       $    71,934    $     8,507
                                                     -----------    -----------
Total Assets                                         $   492,798    $    82,005
                                                     ===========    ===========
                                   LIABILITIES
Current Liabilities
   Accounts Payable                                  $   147,638    $   120,980
   Accounts Payable in settlement                    $    81,956    $   121,956
   Debt in litigation                                $   109,868    $   109,868
   Due to Related Parties                            $        --    $     7,197
   Due to Related Parties - Convertible Debt         $   127,752    $    18,866
   Notes Payable - Current                           $   300,000    $        --
   Notes Payable - Discount on Debt                  $  (262,500)   $        --
   Debts in Default                                  $   109,536    $   123,272
   Convertible Debt in Default                       $    78,200    $    78,200
   Sales and Payroll Taxes Payable                   $    93,794    $   130,094
   Other Current Liabilities                         $    48,334    $    42,824
                                                     -----------    -----------
Total current liabilities                            $   534,578    $   753,257
Long-Term Liabilities
   Notes Payable - Long Term                         $   300,000    $        --
   Discount on debt                                  $  (262,500)   $        --
                                                     -----------    -----------
Total Long-Term Liabilities                          $    37,500    $        --
                                                     -----------    -----------
Total Liabilities                                    $   872,078    $   753,257
                              SHAREHOLDERS' DEFICIT
Shareholders'  Deficit
Preferred Stock - A (.01 par value) 42,215           $       422    $       422
   shares authorized; 42,215 issued and
   outstanding (liquidation preference $8,021)
Preferred Stock - B (.01 par value) 954,563          $     1,952    $     1,952
   shares authorized; 195,209 shares issued
   and outstanding.  (liquidation preference
                                                                    $ 1,002,291)
Common Stock (.001 par value) 150,000,000            $    83,355    $    65,510
   shares authorized; 83,354,981 and 65,509,843
   shares issued and outstanding, respectively
   Additional Paid-In Capital                        $ 8,978,781    $ 7,582,270
   Deferred Compensation                             $  (350,000)   $  (500,000)
   Accumulated Deficit                               $(9,093,790)   $(7,821,406)
                                                     -----------    -----------
Total Shareholders' Deficit                          $  (379,280)   $  (671,252)
                                                     -----------    -----------
Total Liabilities and Shareholders' Deficit          $   492,798    $    82,005
                                                     ===========    ===========


                                       2
<PAGE>

                            HYBRID FUEL SYSTEMS, INC.
                             STATEMENT OF OPERATIONS
                   For the Three and Six Months Periods Ended
                       June 30, 2004 and 2005 (unaudited)

<TABLE>
<CAPTION>
                                    Three Months    Three Months     Six Months      Six Months
                                       Ended           Ended           Ended           Ended
                                      June 30,        June 30,        June 30,        June 30,
                                        2005            2004            2005            2004
                                    ------------    ------------    ------------    ------------
<S>                                 <C>             <C>             <C>             <C>
              REVENUES

Product Sales                       $     35,574    $      9,079    $     53,737    $     89,171
Cost of product sales               $     18,175    $      8,622    $     29,007    $     32,627

Gross Profit                        $     17,399    $        457    $     24,730    $     56,544
                                    ------------    ------------    ------------    ------------

              EXPENSES

Operating Expenses
   Consulting Fees                  $     65,750    $     10,500    $    158,789    $     21,000
   Research & Development           $     38,208    $     33,520    $     79,854    $     49,453
   Compensation                     $    197,949    $    106,164    $    571,504    $    191,462
   Legal & Professional Fees        $    171,947    $     38,697    $     24,709    $     51,056
   Other operating expenses         $     88,920    $     42,772    $    142,983    $     73,568
                                    ------------    ------------    ------------    ------------
Total Operating Expenses            $    562,774    $    231,653    $  1,200,225    $    386,539
                                    ------------    ------------    ------------    ------------

Loss from operations                $   (545,375)   $   (231,196)   $ (1,175,495)   $   (329,995)
                                    ------------    ------------    ------------    ------------

Other Expenses
   Interest Expense                 $     95,020    $         --    $     97,246              $-
   Other income                     $       (357)   $         --    $       (357)             $-
                                    ------------    ------------    ------------    ------------

Loss from other Expenses            $    (94,663)   $         --    $    (96,889)             $-
                                    ------------    ------------    ------------    ------------

Net Loss                            $   (640,038)   $   (231,091)   $ (1,272,384)   $   (329,995)
                                    ============    ============    ============    ============

Basic and diluted weighted            83,354,971      12,163,646      82,239,165      12,163,646
average common shares outstanding


Basic and diluted loss per share    $      (0.01)   $      (0.02)   $      (0.01)   $      (0.03)
</TABLE>


                                       3
<PAGE>

                            HYBRID FUEL SYSTEMS, INC.
                             STATEMENT OF CASH FLOWS
                   For the Three and Six Months Periods Ended
                       June 30, 2004 and 2005 (unaudited)

<TABLE>
<CAPTION>
                                                        Six Months     Six Months
                                                          Ended          Ended
                                                         June 30,       June 30,
                                                           2005           2004
                                                       -----------    -----------
<S>                                                    <C>            <C>
Cash flows from operating activities
Net Loss                                               $(1,272,384)   $  (329,995)
Adjustments to reconcile net income to
   net cash provided (used) by operating activities)
     Common stock issued for services                  $   151,000
     Depreciation                                      $     8,806    $     4,807
     Amortization of Deferred Compensation             $   150,000
     Amortization of debt discount                     $    75,000

Change in operating assets and liabilities
     Accounts Receivable                               $   (25,060)   $   (62,196)
     Inventory                                         $   (17,177)   $    (8,034)
     Prepaid & Deposits                                $  (271,515)
     Accounts Payable                                  $    26,658    $    (8,364)
     Taxes Payable
     Accrued Liabilities                               $   (30,791)   $   (45,248)
                                                       -----------    -----------
Net Cash Provided (used) by operating activities       $(1,205,463)   $  (449,030)

Cash flows from Investing Activities
     Purchase of Equipment                             $   (72,234)
     Loan                                              $    (9,571)
                                                       -----------    -----------
Net cash provided (used) by investing activities       $   (81,805)

Cash flows from Financing Activities
     Loans from Related Parties                        $   772,093    $   479,974
     Proceeds from exercise of warrants                $       150
     Payment on related party note                     $    (7,000)
     Proceeds from notes payable                       $   600,000
     Payments on Notes payable                         $   (53,932)
                                                       -----------    -----------
Net cash provided (used) by financing activities       $ 1,311,311    $   479,974

Net increase (decrease) in cash and cash equivalents   $    24,043    $    30,944
Beginning cash and cash equivalents                    $     2,025    $         6
                                                       -----------    -----------
Ending cash and cash equivalents                       $    26,068    $    30,950

Supplement disclosure of cash flow information
Cash paid during the year for interest                 $    16,263    $        --
Common stock issued for services                       $   151,000    $        --
Amortization of Comon Stock issued
   for defferred compensation                          $   150,000    $        --
                                                       ===========    ===========
Amortization on debt discount                          $    75,000
                                                       ===========    ===========
Stock issued for debt conversion to related party      $   663,206    $        --
                                                       ===========    ===========
</TABLE>


                                       4
<PAGE>

                            HYBRID FUEL SYSTEMS, INC.
                     Notes to Unaudited Financial Statements
                   for the three and six months periods ended
                         June 30, 2005 and June 30, 2004

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Hybrid Fuel Systems,  Inc. (the  "Company")  is a  small-scale  manufacturer  of
systems  which  convert  mobile  gasoline  and  diesel  engines  to  operate  on
alternative fuels such as natural gas and propane.

Cash and Cash Equivalents

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash equivalents.

Accounts Receivable

Accounts  receivable,  are stated at estimated net  realizable  value.  Accounts
receivable  are  comprised  of  balances  due  from  customers.  In  determining
collectibility, historical trends are evaluated and specific customer issues are
reviewed to arrive at appropriate allowances.

Inventories

Inventories, are stated at the lower of cost or market. Cost is determined using
the first-in,  first-out method.  Inventories consist of component parts used in
the manufacture and assembly of retrofit  systems for the conversion of gasoline
and diesel engines to non-petroleum based fuels such as compressed natural gas.

Property, Plant and Equipment

Depreciation  is  provided  for  using  the  straight-line  method,  in  amounts
sufficient to relate the cost of  depreciable  assets to  operations  over their
estimated  service  lives  (asset  categories  range  from two to seven  years).
Leasehold  improvements  are amortized using the  straight-line  method over the
lives  of the  respective  leases  or the  service  lives  of the  improvements,
whichever is shorter.  Leased  equipment under capital leases is amortized using
the  straight-line  method over the lives of the  respective  leases or over the
service  lives of the  assets  for  those  leases  that  substantially  transfer
ownership. Accelerated methods are used for tax depreciation.

Impairment of Assets

The  Company's  policy  is to  evaluate  whether  there  has  been  a  permanent
impairment in the value of long-lived assets,  certain identifiable  intangibles
and  goodwill  when  certain  events  have taken  place that  indicate  that the
remaining  balance  may not be  recoverable.  When  factors  indicate  that  the
intangible assets should be evaluated for possible impairment,  the Company uses
an estimate of related undiscounted cash flows. A deficiency in these cash flows
relative to the carrying  amounts is an  indication of the need for a write-down
due to impairment. The impairment write-down would be the difference between the
carrying  amounts and the fair value of these assets.  Losses on impairment  are
recognized by a charge to earnings.  Factors considered in the valuation include
current  operating  results,  trends and  anticipated  undiscounted  future cash
flows.

Income Taxes

The Company utilizes the guidance provided by Statement of Financial  Accounting
Standards No. 109,  Accounting for Income Taxes (SFAS 109).  Under the liability
method specified by SFAS 109, deferred tax assets and liabilities are determined
based on the difference between the financial  statement and tax bases of assets
and  liabilities  as  measured  by the enacted tax rates which will be in effect
when these differences reverse. Deferred tax expense is the result of changes in
deferred  tax assets and  liabilities.  Valuation  allowances  are  provided  if
necessary to reduce deferred tax assets to the amount expected to be realized.


                                       5
<PAGE>

Earnings (Loss) Per Common Share

Earnings (loss) per share are computed using the basic and diluted  calculations
on the face of the statement of operations.  Basic earnings (loss) per share are
calculated  by dividing  net income  (loss) by the  weighted  average  number of
shares of common stock  outstanding for the period.  Diluted earnings (loss) per
share is calculated by dividing net income (loss) by the weighted average number
of shares of common stock outstanding for the period,  adjusted for the dilutive
effect  of common  stock  equivalents,  using the  treasury  stock  method.  The
warrants  outstanding  were determined to be  antidilutive  and therefore do not
affect earnings per share.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting  principles,  requires  management to make estimates and  assumptions
that affect the reported  amounts of assets and  liabilities  and disclosures of
contingent  assets and liabilities,  as well as the reported amounts of revenues
and  expenses  for the period then ended.  The actual  outcome of the  estimates
could  differ  from  the  estimates  made in the  preparation  of the  financial
statements.

Revenue Recognition

Revenues are recognized when the  merchandise is shipped to the customer,  which
is when title and risk of loss has passed to the customer.

Stock Based Compensation

The  Company  has  adopted  the  disclosure-only  provisions  of SFAS  No.  123,
Accounting for Stock Based Compensation, but applies Accounting Principles Board
Opinion No. 25 and related  interpretations  in accounting for options issued to
employees.  Under  Opinion  No. 25, the  intrinsic  method is used to  determine
compensation  expense  when  the fair  market  value of the  stock  exceeds  the
exercise price on the date of grant.  As of the date of this report,  no options
had been granted under the plan and therefore no  compensation  expense has been
recognized.

Research and Development Costs

The Company charges research and development costs to expense as incurred.

Fair Value of Financial Instruments

The Company, in estimating its fair value disclosures for financial instruments,
uses the following methods and assumptions:

Cash, Accounts Receivable, Accounts Payable and Accrued Expenses:

The  carrying  amounts  reported  in  the  balance  sheet  for  cash,   accounts
receivable,  accounts payable and accrued expenses  approximate their fair value
due to their relatively short maturity.

Long-Term Obligations:

The fair value of the Company's  fixed-rate  long-term  obligations is estimated
using discounted cash flow analyses,  based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

NOTE 2 - DEBT IN DEFAULT

The  Company  did not meet the payment  terms on the note  payable to  Peachtree
National  Bank through June 30, 2005. On April 1, 2005, we paid $20,000 to begin
a  payment  plan  with  Peachtree  National  Bank  which  requires  us to  remit
approximately  $10,000 a month until the debt is fully repaid. During June 2005,
we reached  agreement  with Peachtree  National Bank to pay off the  outstanding
amount of  approximately  $69,000 upon  receipt of the proceeds  from the second
traunch of financing provided by Alpha Fund. The Company is scheduled to receive
the Alpha Fund financing  upon the  effectiveness  of a  registration  statement
relating to the securities underlying the financing.


                                       6
<PAGE>

NOTE 3 - COMMITMENTS AND CONTINGENCIES

The Company is delinquent  in the payment of payroll and state sales taxes.  The
Company is currently  following payment schedules,  developed after negotiations
with the taxing authorities. Amounts in arrears for delinquent taxes, along with
estimated  penalties  and  interest  assessed by the taxing  authorities  are as
follows, as of June 30, 2005 and 2004.

                             2005       2004
                             ----       ----

Payroll and sales taxes   $ 71,897   $142,058
Penalties and interest      21,896     60,881

Total                     $ 93,793   $202,939

During June, 2004, the Company entered a negotiated  settlement with the IRS and
began  making  monthly  payments  including  an initial  payment of $15,000 plus
$5,000 a month through such date as the obligation is repaid in full.

NOTE 4 - SHAREHOLDERS' EQUITY

Preferred Stock

Effective  February 1, 2002, the Company designated 999,779 shares of previously
undesignated  preferred  stock as Series A  Preferred  Stock,  for which  45,216
shares are  authorized  and Series B Preferred  Stock,  for  954,563  shares are
authorized.

Series A Preferred  Stock is  convertible,  at the option of the holder,  at any
time,  into shares of the Company's  common stock as determined by dividing $.19
by a  conversion  price  determined  on the  date  the  related  certificate  is
surrendered.  The  conversion  price is subject to  periodic  adjustment  and is
initially  established  at $.01632.  Series A Preferred  Stock is  automatically
convertible  into  shares  of the  Company's  common  stock  upon  (i) the  date
specified  by vote or written  consent or agreement of holders of at least three
quarters  of the  shares of  Series A  Preferred  outstanding,  or (ii) upon the
closing  of the  sale  of  the  company's  common  stock  in a firm  commitment,
underwritten  public offering  registered  under the Securities Act in which the
Company receives gross proceeds of no less than $20 million.  Series A Preferred
Stock  has a  liquidation  preference  of the  greater  of $.19 per share or the
amount that such share would be entitled to upon  liquidation  or  distribution.
The Series A Preferred  Stock has voting  rights,  except as to the  election of
debtors,  equal to the number of shares of common  stock into which the Series A
Preferred Stock is  convertible.  The Series A preferred  Stockholders  have the
right to elect one director of the Company.

Series B  Preferred  Stock is  convertible,  at the  option of the holder at any
time,  into shares of the  Company's  common stock as determined by dividing the
lower  of $.09 or the  price  per  share  paid by the  holder  of the  Series  B
Preferred  Stock by a  conversion  price  determined  on the  date  the  related
certificate  is  surrendered.  The  conversion  price  is  subject  to  periodic
adjustment and is initially established at $.00773.  Series B Preferred Stock is
automatically convertible into shares of the Company's common stock upon (i) the
date  specified  by vote or written  consent or agreement of holders of at least
three quarters of the shares of Series B Preferred  Stock  outstanding,  or (ii)
upon the closing of the sale of  Company's  common  stock in a firm  commitment,
underwritten  public offering  registered  under the Securities Act in which the
Company receives gross proceeds of no less than $20 Million.  Series B Preferred
Stock  has a  liquidation  preference  of the  greater  of $.09 per share or the
amount that such share would be entitled to upon  liquidation  or  distribution.
The Series B Preferred  Stock has voting  rights,  except as to the  election of
directors, equal to the number of shares of common stock into which the Series B
Preferred Stock is  convertible.  The Series B Preferred  Stockholders  have the
right to elect one director of the Company.


                                       7
<PAGE>

NOTE 5 - RELATED PARTY

The Company has  received  financing  from White Knight SST,  Inc.  (WK) a major
stockholder and had converted  $583,206 into 14,580,138 common shares as of June
30, 2005 these amounts  include a conversion  of a related  party  receivable of
$72,248.  WK had advanced  funds to the Company in 2004 and provided  management
services to the Company for which it was  compensated  by issuance of 26,438,508
shares of common stock through December 31, 2004 for the loans and approximately
3,004,338 shares of common stock for management services.

NOTE 6 - DEBT FINANCING

On April 1, 2005, we held our first closing pursuant to a Subscription Agreement
we entered into with several  accredited  investors  dated as of March 31, 2005,
pursuant to which the investors  subscribed  to purchase an aggregate  principal
amount of $1,200,000 in secured convertible promissory notes, and Class A common
stock purchase warrants which would be issued on each closing date assuming full
conversion of the convertible  notes issued on each such closing date. We issued
the  aforementioned  securities  to  the  investors  pursuant  to  Rule  506  of
Regulation D as  promulgated  under the  Securities Act of 1933, as amended (the
"Act"), and/or Section 4(2) of the Act.

$600,000 of the  purchase  price was paid to us by the  investors on the initial
closing date of April 1, 2005 and $600,000 of the purchase price will be paid to
us  pursuant to the second  closing,  which will take place on the 5th day after
the actual effectiveness of the registration  statement which we are required to
file with the Securities and Exchange  Commission  registering the shares of our
common  stock,  par value  $.001 per  share,  issuable  upon  conversion  of the
convertible notes and exercise of the warrants.

The convertible  notes bear simple interest at rate equal to the "prime rate" as
published  in the Wall  Street  Journal  from  time to time  plus 3% per  annum,
provided however that the interest shall not be less than 8% per annum. Interest
is calculated on the basis of a 360 day year and is payable monthly,  in arrears
commencing on August 1, 2005.  The  principal  amount of the  convertible  notes
shall be amortized over a two-year period with payments  commencing on August 1,
2005. Each investor shall have the right to convert the convertible  notes after
the date of issuance and at any time, until paid in full, at the election of the
investor  into fully  paid and  nonassessable  shares of our  common  stock at a
conversion  price of $0.55 per share.  The conversion price is adjustable in the
event  of  any  stock   split  or   reverse   stock   split,   stock   dividend,
reclassification of common stock, recapitalization,  merger or consolidation. In
addition,  the conversion price of the convertible notes will be adjusted in the
event that we spin off or otherwise  divest  ourselves of a material part of our
business  or  operations  or  dispose  all  or a  portion  of  our  assets.  The
convertible  notes are secured by all of our assets,  pursuant to the terms of a
Security  Agreement,  dated as of March 31, 2005 between us and Barbara Mittman,
who is acting as collateral  agent  pursuant to the terms of a collateral  agent
agreement dated as of March 31, 2005.


                                       8
<PAGE>

We issued an aggregate of 1,636,364  Class A common stock  purchase  warrants to
the  investors  and will  issue an  additional  1,636,364  Class A common  stock
purchase  warrants at the second  closing.  The Class A warrants are exercisable
until five years from the initial closing date at an exercise price equal to the
lower of $0.81 per share or 101% of the closing bid price of our common stock on
the last trading day preceding the initial  closing.  The exercise  price of the
Class A warrants  will be  adjusted  in the event of any stock  split or reverse
stock split, stock dividend, reclassification of common stock, recapitalization,
merger or consolidation. In addition, the exercise price of the warrants will be
adjusted  in the  event  that we spin off or  otherwise  divest  ourselves  of a
material  part of our business or  operations or dispose all or a portion of our
assets.

Due to there being detachable  warrants and a beneficial  convertible feature of
the note,  the  Company  will  record a  discount  to the debt in the  amount of
$1,200,000  (assuming  both draws are made),  in accordance  with EITF Issue No.
98-5 "Accounting For Convertible  Securities With Beneficial Conversion Features
or Contingently  Adjustable  Conversion Ratios",  and EITF 00-27 "Application of
EITF  Issue  No.  98-5 To  Certain  Convertible  Instruments".  The value of the
detachable  warrants was  determined  to be  $1,945,594  using the Black Scholes
option  pricing  model with a volatility of 234.42 % and risk free interest rate
of  4.13%.  In  accordance  with EITF  00-27,when  the  calculated  value of the
detachable  warrants  exceeds the amount of the debt, the discount is limited to
the amount of the debt.  Since the debt is $1,200,000,  the discount  associated
with the  warrants  would be  limited  to that  amount.  In the  calculation  of
discount for the warrants and the embedded  conversion feature with the warrants
to be calculated  first,  the entire discount is being allocated to the warrants
since  that  exceeds  the  maximum  discount  allowed.  Therefore,  there  is no
allocation of the discount to the embedded  conversion  feature of the debt. The
discount of $1,200,000 will then be amortized over the life of the debt which is
twenty four months or approximately  $50,000 per month. As of June 30th 2005 the
company received  $600,000 of the $1,200,000 where the company amortized $75,000
for the three months ended.

We filed a  registration  statement  registering  the shares of our common stock
issuable upon  conversion of the  convertible  notes and exercise of the Class A
warrants on May 10, 2005 and we are obligated to cause it to be effective within
90 days after the initial closing date or approximately August 1, 2005. If we do
not meet the aforementioned filing and effectiveness  deadlines, we shall pay to
each investor an amount equal to 1% for the first 30 days or part thereof of the
pendency of such non-registration event and 2% for each 30 days or part thereof,
thereafter of the purchase price of the notes remaining unconverted and purchase
price of the shares of our common stock issued upon conversion of the notes.

The  above  descriptions  of the  convertible  note,  the  Class A common  stock
purchase warrants, the Subscription Agreement and the Security Agreement are not
complete and are qualified in their  entirety by the full text of such documents
which are included as exhibits to our Form 8-K Report filed April 5, 2005.


                                       9
<PAGE>

Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations

This Report contains forward-looking  statements,  within the meaning of Section
21E of the  Securities  Exchange  Act of 1934,  as  amended,  which  reflect our
expectation  or  belief   concerning   future  events  that  involve  risks  and
uncertainties.  Our actions and performance could differ materially from what is
contemplated by the forward-looking statements contained in this Report. Factors
that might cause differences from the  forward-looking  statements include those
referred  to or  identified  under "Risk  Factors" in our Annual  Report on Form
10-KSB  for the year  ended  December  31,  2004 and other  factors  that may be
identified  elsewhere in this Report.  Reference  should be made to such factors
and all forward-looking  statements are qualified in their entirety by the above
cautionary statements.

The following  discussion and analysis  provides  information  which  management
believes is relevant to an assessment  and  understanding  of the results of our
operations and financial condition. The discussion should be read in conjunction
with the financial statements and notes thereto.

Overview

Since 1996,  we have  sought to  commercialize  our  dual-fuel  technology  with
limited  success.  Between  2001  and  the  year  ended  December  31  2003,  we
experienced a substantial  slow-down in our operational state due principally to
under  capitalization.  We engaged White Knight on December 23, 2003 as a crisis
finance and management company.  Since that date, the principals of White Knight
have arranged for the majority of our financing and our Chief Executive Officer,
Chairman of our Board of Directors and a Director serve similar  capacities with
White  Knight.  White  Knight's  executives  also  served as our  interim  Chief
Financial Officer and financial administrator.

Notwithstanding  our  incorporation  in  1996,  Hybrid  is  still  considered  a
development  or start-up  stage  enterprise.  In this case,  the typical  issues
surrounding  a start-up have been  exacerbated  because we've spent the past two
years attempting to build a company while addressing a rather significant number
of financial legacy issues.  Further,  the alternative  fuels industry has, to a
large extent, grown up in an atmosphere where the sale of systems similar to our
conversion technology was predicated on the need to reduce harmful emissions and
was not based on an economic return to our customers. Finally, providing insight
into our  product  and  manufacturing  costs  as well as  expenses  incurred  in
delivering our technology  have been difficult  because we have  previously sold
our  systems at the rate of one or two a month.  We have not had the ability nor
demand for our  product  to take  advantage  of  quantity  discounts  in our raw
materials and component  parts. We address these three issues in this discussion
followed by a more specific analysis of our financial results.

Addressing historical financial legacy issues

We have  previously  reported  on the  various  payment  plans  or  straight-out
pay-offs we've had to under take during the past two years commencing  December,
2003. These includes a payment schedule with the IRS, the liquidation of various
debts in default  as well as the  payment of  various  vendors.  Our  ability to
address  these issues was made possible  exclusively  as a result of the capital
provided by White Knight.  To a meaningful  degree,  in the course of addressing
certain of the  financial  legacy issues as well as seeking to engage and retain
professionals,  we were  required to issue shares of our common stock which have
been additive to the net loss of operations  we've  accumulated.  Now that these
issues have been addressed, we do not foresee the need to use our cash or equity
resources in this manner.


                                       10
<PAGE>

Expanding our revenue model

Among our challenges was the one-product  nature of our enterprise.  We held the
license to a dual fuel  technology  which is  compatible  with heavy duty diesel
engines.  While this is a promising market,  this  single-product  focus did not
allow us to expand our revenue model. A major portion of our efforts during 2005
have been to identify  areas where we could expand our revenue  model within the
alternative fuels industry.

Our first  effort in this  regard was to  finalize  the design of our  dual-fuel
diesel system.  As previously  reported,  we completed this redesign during 2004
and have since  conducted  independent  tests on three occasions to maximize the
emission  reductions which could be achieved  through the use of our system.  We
then  sought to expand  our  revenue  model in two ways.  First,  we have  begun
construction and anticipate completing the build-out of our emission testing lab
and engine room facility in PeachTree City, Georgia during September, 2005. Once
completed, we will be in a position to solicit the use of our facility for a fee
from firms and individuals interested in independent emission  measurements.  We
further  determined  to expand our  revenue  model by  acquiring  the ability to
market EPA certified  systems to the light and medium weight  vehicle market and
to include the use of propane as an alternative fuel in addition to natural gas.
As we reported on a Form 8-K on August 12, 2005, we completed the acquisition of
DRV Energy,  Inc. (DRV). DRV, a nine-year old company,  offers a series of light
and medium weight EPA certified  conversion  systems. We now believe our ability
to offer  light,  medium and heavy  duty  systems  in  configurations  which can
utilize natural gas or propane  offering  solutions for both gasoline as well as
diesel  powered  vehicles  positions  us  to  take  a  meaningful  role  in  the
alternative fuels industry.

The Alternative Fuels Industry

Unlike  most  industries,   the  alternative  fuels  industry  in  the  domestic
marketplace  was  primarily  born out of the need to  comply  with EPA  mandates
relating to emissions  discharge.  The sale of systems  similar to our dual fuel
approach were sold without regard to the economic  consequences of the buyer. In
the course of  implementing  the EPA plan,  federal and state  authorities  made
available  financing  through grants in that each grant was designed to seek out
technologies which could bring vehicles into EPA compliance.  Since there was no
economic factor involved in the sale, i.e., the product didn't have to promise a
return on  investment,  these  systems were priced at rates that were not in any
manner  consistent with an economic based sale and since the granting  authority
was concerned  with  emissions and not profits,  there was no incentive to offer
systems at conventional rates.

This factor more than anything else, in our opinion,  has led to the demise of a
number  of  companies  in the  alternative  fuels  industry.  Our  system  is an
excellent example of this faulty pricing model. In our case, at December,  2003,
we had historically  sought to sell our systems in prices ranging from $8,000 to
$12,000.  We have since  lowed our price to $4,500 and based on that  structure,
our  margins,  before  administrative  expenses,  will be in the 50% or  greater
range. We believe that bring our technology into a economic driven model instead
of an environmental model will have a lasting impact of our performance.

Calculating the comparisons between our reporting periods

Providing meaningful insight into our product and manufacturing costs as well as
expenses  incurred in delivering our technology  have been difficult  because we
have previously sold our systems at the rate of one or two a month under federal
and/or  state  grants.  We have  not had the  ability  for our  product  to take
advantage  of quantity  discounts  in our raw  materials  and  component  parts.
Further,  our labor costs in our present environment would appear unusually high
given our revenues. However, in order for us to position the company to maximize
revenue  opportunities,  we have found it necessary to engage  professionals and
mechanics  in  sufficient  number to complete  the  build-out of our facility in
Atlanta as well as developing new systems for certain clients.

We have attempted in the following two sections to provide some insight into the
changes in our financial  results.  However,  given the factors sited above,  we
don't  believe  these   comparisons  are  indicative  of  our  future  operating
performance.


                                       11
<PAGE>

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

The  following  compares our  financial  statements  for the three months period
ended June 30, 2004 and 2005.  However,  2004 was a period of reengineering  our
principal  product as well as addressing a number of legal and financial matters
which had been created over a period from our inception in 1996 through December
2003.  During the first six months of 2005, we  encountered a number of one-time
expenses in the outfitting and build-out of our Atlanta, Georgia facilities.  We
therefore  believe the following  may not be indicative of our future  operating
results.

Our current  assets  increased  473% from $73,498 at the year ended December 31,
2004 to $420,864  for the six month  period  ended June 30, 2005 and during this
same period our total  assets  increased by  approximately  501% from $82,005 to
$492,798. Total liabilities during this period increased by16 % from $753,257 at
the year ended  December 31, 2004 to $872,078 at June 30, 2005.  The increase in
liabilities  is principally  the result of a convertible  note obtained on April
1st 2005. Our Shareholders'  Deficit decreased during this six month period from
$(671,252)  at the year ended  December 31, 2004 to  $(379,280) at June 30, 2005
primarily due to 18% increase in additional paid in capital.

Since  December  2003,  White Knight has provided  substantially  all of capital
requirements.  During the 2nd quarter  2005,  we obtained  financing  from White
Knight SST in the amount of $200,000.  We have and will  periodically  converted
amounts owed to White Knight at a conversion rate equal to $0.04 per share. This
conversion  rate was  determined  in December  2003 as our trading price at that
time was $0.03 per share.  White Knight does not charge interest and there is no
requirement to repay amounts owed in cash. A related party  receivable  from the
1st quarter 2005 for $72,248 was applied against the 2nd quarter financing.  Our
Chairman and Chief Executive Officer serve similar  capacities with White Knight
and both individuals are operating under two-year  employment  agreements to our
Company.  All  conversions of White Knight debt are issued as restricted  common
stock and there are no registration rights.

In comparing  the three month  period ended June 30, 2004 and 2005,  our revenue
and gross profits increased by 292% and 3707%, respectively from $9,079 and $457
to $35,574  and  $17,399.  Pending  our CARB  certification  which is  discussed
elsewhere  in this  report,  our systems are only  eligible  for sale in foreign
markets and through State and Federal grant  programs.  The increase in revenues
and gross profits  during this period were  principally  due to a grant received
from New York State to BAF a licensee of Hybrid.  Comparing  these two  periods,
our expenses  increased to 135% from  $231,196 for the three months period ended
June 30, 2004 to $545,375 for the period  ended June 30, 2005.  Our net loss for
the three months period  increased  approximately  177% from  $(231,091) for the
three months ended June 30, 2004 to $(640,038)  for the three month period ended
June 30, 2005.

Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

The following compares our financial  statements for the six months period ended
June 30,  2004  and  2005.  However,  2004 was a  period  of  reengineering  our
principal  product as well as addressing a number of legal and financial matters
which had been created over a period from our inception in 1996 through December
2003.  During the first six months of 2005, we  encountered a number of one-time
expenses in the outfitting and build-out of our Atlanta, Georgia facilities.  We
therefore  believe the following  may not be indicative of our future  operating
results.

Certain expectations for 2005

We believe our dual-fuel  technology has immediate market  potential  outside of
the  United  States  with  particular  emphasis  on  areas  with  a  significant
differential  between the cost of diesel and natural  gas. We will  continue our
primary objective to complete the EPA/CARB verification.

The Company is also pursuing the use of its technology  with  stationary  diesel
engines and on new vehicles  manufactured  after 2004. We are also exploring the
use of our technology in bio-diesel and synthetic field applications.


                                       12
<PAGE>

Item 3 Controls and Procedures

Evaluation of disclosure controls and procedures.

An evaluation was performed under the supervision and with the  participation of
our management,  including the Chief Executive Officer,  of the effectiveness of
the design and operation of our  disclosure  procedures.  Based on  management's
evaluation as of the end of the period  covered by this  Quarterly  Report,  our
principal executive and financial officer concluded that our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange  Act of 1934,  as  amended  (the  "Exchange  Act"))  were  sufficiently
effective to ensure that the  information  required to be disclosed by us in the
reports  that the we file  under the  Exchange  Act is  gathered,  analyzed  and
disclosed with adequate timeliness, accuracy and completeness.

Changes in internal controls.

There have been no  significant  changes in our  internal  controls  or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation referred to above, nor were there any significant deficiencies or
material weaknesses in our internal controls. Accordingly, no corrective actions
were required or undertaken.

Item 1 - legal Proceedings

There is no other pending litigation or other proceedings against the Company.

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

On April 1, 2005, we held our first closing pursuant to a Subscription Agreement
we entered into with several  accredited  investors  dated as of March 31, 2005,
pursuant to which the investors  subscribed  to purchase an aggregate  principal
amount of $1,200,000 in secured convertible promissory notes, and Class A common
stock purchase warrants which would be issued on each closing date assuming full
conversion of the convertible notes issued on each such closing date.
We issued an aggregate of 1,636,364  Class A common stock  purchase  warrants to
the  investors  and will  issue an  additional  1,636,364  Class A common  stock
purchase  warrants at the second  closing.  The Class A warrants are exercisable
until five years from the initial closing date at an exercise price equal to the
lower of $0.81 per share or 101% of the closing bid price of our common stock on
the last trading day preceding the initial closing. We issued the aforementioned
securities to the investors  pursuant to Rule 506 of Regulation D as promulgated
under the Securities Act of 1933, as amended (the "Act"), and/or Section 4(2) of
the Act.

Item 3 - Defaults Upon Senior Securities

None.

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

None.

Item 5 - Other Information

None.

Item 6. Exhibits

      No.   Description of Exhibit

      31.1  Chief  Executive  Officer and Chief  Financial  Officer  Section 302
            Certification

      32.1  Chief Executive Officer and Chief Financial Officer Certification


                                       13
<PAGE>

                                   SIGNATURES

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

                                           Hybrid Fuel Systems, Inc.


                                          By:/s/ MARK CLANCY
                                             ------------------------
                                             Mark Clancy
                                             Chief Executive Officer,
                                             Chief Financial Officer
Date:  August 26, 2005