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

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

                                   FORM 10-KSB


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

                     For The Fiscal Year Ended June 30, 2005

     [ ] 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.
                              ---------------------
           (Name of small business issuer as specified in its charter)

                NEVADA                                   88-0384399
         -------------------------------          ------------------------
        (State of incorporation)          (IRS Employer Identification No.)

            237 Main Street, Box 880, Niverville,MB            R0A 1E0
          ------------------------------------------       --------------
           (Address of Principal Executive Offices)           (Zip Code)

Issuer's Telephone Number (888)550-2333

Securities registered pursuant to section 12 (b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:  Common stock with
                                               par value of $0.001.

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 last 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

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

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 shares issued and outstanding of the registrant's common stock as
of October 11,2005 is 25,869,433.

Amount of revenue for most recent fiscal year   $0.00

Aggregate market value of the common equity held by non-affiliates: $4,014,661

<PAGE>


                                TABLE OF CONTENTS

                                     PART I

 Item 1.   DESCRIPTION OF BUSINESS....................................Page   3

 Item 2.   DESCRIPTION OF PROPERTY....................................Page  15

 Item 3.   LEGAL PROCEEDINGS..........................................Page  15

 Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........Page  15


                                     PART II

 Item 5.   MARKET FOR REGISTRANT'S COMMON
           EQUITY AND RELATED STOCKHOLDER MATTERS.....................Page  16

 Item 6.   PLAN OF OPERATION..........................................Page  18

 Item 7.   FINANCIAL STATEMENTS.......................................Page F-1

 Item 8.   CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................Page  23

 Item 8A.  CONTROLS AND PROCEDURES....................................Page  23

 Item 8B.  OTHER INFORMATION..........................................Page  23

                                    PART III

 Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
           AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (A)
           OF THE EXCHANGE ACT........................................Page  24

 Item 10.  EXECUTIVE COMPENSATION.....................................Page  25

 Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
           OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
           MATTERS....................................................Page  26

 Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............Page  27

 Item 13.  EXHIBITS AND REPORTS ON FORM 8-K...........................Page  27

 Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.....................Page  27

 Signatures...........................................................Page  28


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                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS
-------------------------------

This Form 10-KSB contains forward-looking statements. The words "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "could", "may",
"foresee", and similar expressions identify forward-looking statements that
involve risks and uncertainties. Except for disclosures that report the
Company's historical results, the statements in this document are
forward-looking statements. You should not place undue reliance on
forward-looking statements because of their inherent uncertainty and because
they speak only as of the date hereof. Actual results could differ materially
from the results discussed in the forward-looking statements and the Company
assumes no obligation to update forward-looking statements or the reasons why
actual results may differ therefrom.

The following discussion and analysis should be read in conjunction with the
various disclosures made by us in this Report and in our other reports filed
with the SEC.

GENERAL INFORMATION ON THE COMPANY

Hybrid Fuels Inc. is a development-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 end of the quarter ending
December 31, 2005.

The Company acquired Hybrid Fuels, USA, Inc. on May 28, 1998, which was
accounted for as a reverse takeover. All historical financial statements are
those of Hybrid Fuels, USA, Inc. Since the inception date of Hybrid Fuels, USA,
Inc. was January 28, 1998, this is the inception date used in the presentation
of the Company's financial statements. In May 1998, the Company changed its
domicile to Nevada and, on June 10, 1998, changed to its current name, Hybrid
Fuels, Inc.

In May of 1998, in a stock for stock exchange, the Company issued 12,000,000
shares to Donald Craig to acquire all of the issued and outstanding shares of
Hybrid Fuels, U.S.A., Inc. and 330420 B.C. Ltd., (which subsequently changed its
name to Hybrid Fuels (Canada) Inc.) At the time of the acquisition, Mr. Craig
held all of the issued and outstanding shares of Hybrid Fuels, U.S.A., Inc., and
Hybrid Fuels (Canada) Inc., as Trustee for a group of individuals and companies
that had contributed to the development of the Hybrid technology. At the time of
the acquisition, Hybrid Fuels (Canada) Inc., owned the rights to the technology,
with the result that, as a part of the acquisition, the Company acquired control
over the technology necessary for the Company's intended operations. Prior to
the acquisition of Hybrid Fuels, U.S.A., Inc. and Hybrid Fuels (Canada) Inc.,
the Company had no significant operations and was seeking a business
opportunity.

Currently, the Company's intended principal business is to integrate cattle
feeding-to-finish with the production of wet ethanol. The main source of revenue
for the Company is expected to come from the sale of finished cattle and a blend
of wet ethanol and diesel fuel. It is intended that future facilities will be
constructed for the Company by independent contractors on privately-owned farms.
These facilities are intended to be operated by the farmer (s) under terms of an
agreement that will be determined once the Company has the data from operations
of the first facility.


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CONCERNS ABOUT PRESENT CATTLE FINISHING METHODS

a. THE USE OF ANTIBIOTICS AND GROWTH HORMONES
According to John Robbins in "Diet For A New America", the production of beef,
pork, poultry and dairy products has become focused on giant facilities. In
these "factories", antibiotics are used to prevent the animals from becoming
sick, growth hormones are implanted or fed to force weight gains and toxic
chemicals are used to kill flies and to protect the animals from other pests
that might interfere with productivity.

Robbins makes the case for consumers who are becoming concerned about the
adverse effects on their immune systems of consuming meat and poultry that has
been raised using antibiotics and growth hormones. He also refers to evidence
that suggests links between the increasing incidence of a number of diseases to
the consumption of meat, dairy products and other foods that contain
antibiotics, hormones and toxic chemicals.

b. GROUNDWATER CONTAMINATION
Typical beef operations produce manure and bedding which are expensive to
dispose of and cause tremendous groundwater contamination. The cover story from
Macleans Online for June 12, 2000 says in part about the dangers of factory
farms: "The monstrous size of these profitable operations has raised troubling
questions about water quality and threats to public health from coast to coast.
Manure from factory farms often contains a variety of heavy metals, lake-choking
nutrients and deadly pathogens such as e-coli 0157." This article says, in
describing the resulting groundwater pollution problem in great detail: "In the
US, the EPA estimates that agricultural runoff from animal factories and
traditional farms is the leading source of water pollution in that country." The
article then quotes Les Klapatiuk, who runs a firm specializing in water
treatment, that there isn't a single government in Canada with adequate
legislation to deal with these volumes of animal waste. The article says: "The
leakage from lagoons is incredible, and when you spread millions of gallons of
waste on a field it just runs into the surface water. If a city or oil company
operated in this way, they would be shut down."

Other concerns which led to the development of this "farm integration plan"
include:

c.declining farm income and the number of family farms;
d.declining fossil fuel reserves;
e.threats of global warming from use of fossil fuels.

This business is intended to be proactive in reducing air pollution and
conserving fossil fuels, reducing ground pollution through the destruction of
animal waste, producing cleaner food, and perhaps reducing some of the cause
behind the spread of auto-immune diseases. At the same time, it is intended to
create a new source of income for farmers.

HISTORY

The Company's technology has been continually developed and refined since the
early 1990s. Pilot testing of the first proprietary developments relating to
fermentation techniques and distillation procedures of ethanol were carried out
in Kelowna, B. C., Canada in the early 1990s. After initial tests, a confinement
type barn and adjoining buildings were leased at Dalum, Alberta in 1994 for
full-scale testing. These facilities were utilized for animal feed test trials,
fermentation testing, and other associated full-scale research and testing on
all aspects of the system for a period of two and a half-years. Encouraging test
results persuaded us to begin commercialization of the process.

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THE PROPOSED FACILITIES

The proposed facilities are planned to consist of a cattle barn,
ethanol-producing plant, gasifier/burner (manure burning unit), and a
hydroponics barley-grass growing system.

The cattle barn has been designed to accommodate 200 head of cattle and the
hydroponics barley-grass growing system. Once the facility is operational, 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.

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

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

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

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

The barns have been designed to raise beef cattle under controlled atmospheric
conditions. The buildings are constructed from prefabricated metal, insulated
sufficiently to keep the cattle warm in cold weather and cool in warm weather.
The barns are intended to include air-to-air heat exchangers that in cold
weather, exchange the warm, heavily moisture-laden barn air with fresh air from
outside, that is heated and dried as it passes through a heat exchanger. Based
on the heat exchanger equipment we plan to use, the calculations estimate heat
losses from the barn at a total of 404,052 BTU per hour with gain from animal
heat production of 407,078 BTU per hour at -17 Degrees F outside temperature. At
this outside temperature, the inside building temperature should remain around
50 Degrees F. Management believes that these heat exchangers will keep the barn
warm and dry in winter and that simple "swamp type" coolers common to the
greenhouse industry will be adequate to provide summer cooling.

The barns are to be equipped with Ultra Violet (UV) type fly control units -
Johnson Wax Co. Model 200A or 601T that are designed to control flies under the
worst conditions, according to the manufacturer. The Company believes that
regular removal and burning of the waste will also help to control flies and
other parasites and thus reduce or even eliminate the need for toxic chemicals
to control those pests.

                                       5
<PAGE>

Cattle being finished generally produce an average of approximately 12 pounds of
manure and urine each day, containing about 80% moisture. Moisture content in
the waste is controlled by spreading bedding, in the form of chopped straw, wood
shavings, or sawdust (depending on price and availability) into the pens to
absorb moisture from the manure and urine. The amount of bedding is adjusted so
that one week's accumulation of manure and urine in the bedding will generate
waste with moisture content of approximately 45%, which is ideal for waste
destruction within the gasifier, according to the manufacturer.

This commercially available gasifier unit is rated by its manufacturer at
900,000 BTU per hour and daily waste removal from one pen is estimated by the
company to yield +/- 6.5MM BTU. Estimated energy need for distillation and
cooking totals +/- 4MM BTU leaving a surplus of energy for other uses, including
a greenhouse if desired. This gasifier has five burning stages and, according to
the manufacturer, is expected to burn waste such as manure and bedding virtually
free of emissions and residual waste.

The cattle are expected to be started at a weight of between 600 and 1000 pounds
and finished in the range of 1100 to 1400 pounds. The cattle are introduced into
the barn in stages and thus are at various weights within the stages of the
finishing cycle.

It is expected that these facilities will be operated manually by two people -
the operator and one employee. These trained people are expected to be in
contact with the animals several times a day, while the cattle are being fed, or
moved from one pen to another. These operators are expected to be able to detect
any illness or disease early, separate any ill animal from the rest of the herd,
and treat it for that specific illness, rather than giving a general course of
antibiotics to all the animals as a precautionary measure. As a result, the
Company intends to have a policy that permits the use of antibiotics only as
required on any sick animal.

In the proposed facilities, grains, that are referred to as feedstock, are to be
used for the dual purpose of ethanol production and as livestock feed. Grains
such as barley, wheat, rye, corn, etc., are all suitable. Barley is most
attractive because of its abundance and high starch content. It ferments well
and has long been used for alcohol production.

ETHANOL ENERGY BALANCE INFORMATION

The term "energy balance" associated with ethanol production, means the
relationship or ratio between the energy in the ethanol compared to the energy
used to produce the ethanol and is written as 2:1, 4:1, etc. Energy contained in
a gallon of fuel (when referring to liquids) is measured in BTUs (British
Thermal Units). Those ratios would mean 2 or 4 BTU's of energy in a quantity of
ethanol compared with 1 BTU of energy from some external source required to make
that quantity of ethanol.

The production of ethanol requires expenditure of energy and is one of the major
costs. Ethanol per gallon contains about 80,000 BTUs. If production of that
gallon requires burning of 1 gallon of diesel fuel which is rated at 125,000
BTUs per gallon then there is a negative "Energy Balance." Modern distilleries
should run with approximately 3:1 favourable "Energy Balance."

Management believes that a ratio of around 4:1 is probably fairly representative
of the Company's intended facilities.

In our case we recover the energy required to produce ethanol from the
gasifying/burning of manure and waste bedding. Our final "energy balance" is
therefore highly favourable and is as low as shown only because we include the
energy costs of growing the grain and most calculations do not take this into
account.

                                       6
<PAGE>

HYBRID FUELS ETHANOL PRODUCTION

The Hybrid Fuels process starts with the feedstock grain being soaked in water
overnight, crushed and then heated to prepare it for fermentation. An enzyme
reaction is then started, using commercially available enzymes. The entire
fermentation process is carried out in the feedstock preparation tanks, that are
part of the ethanol plant. A proprietary, trade secret process is then used to
promote rapid fermentation. This process, which was discovered by the Company
and is not patented, will be protected by non-disclosure agreements that each
operator will be required to sign. The total cost of all the enzymes and other
fermentation additives are expected to cost the Company about $500.00 per month.

At a pre-determined stage of fermentation the resulting mash is passed through a
centrifugal type separator, or "spinner", which separates the liquid "beer" from
the solids, called wet distillers grains, or WDGs. The separation of the liquid,
called stillage water (or beer) from these WDGs, dries them to an appropriate
moisture content for feeding, and they are then conveyed to the animal feed
troughs. At the same time, the "beer" is drained off to be used for the
distillation of the ethanol.

Distillation of the ethanol from the "beer" is the next step in the process. The
Company uses a proprietary separation column that is inexpensively produced and
has no moving parts. The beer from the fermentation is run through this column
and heat from the gasifier is used to separate, or distill, the ethanol from the
stillage water. This ethanol, containing approximately five percent (5%) water,
is hydrous. To produce anhydrous (dry) ethanol, either molecular sieves or
azeotropic distillation equipment is required. This equipment, and the energy
costs associated with operating it are expensive, and are not necessary for the
Hybrid Fuels process, because we use the ethanol in its wet form.

Management believes that the combination of the Company's proprietary
fermentation process and distillation column, will result in completion of the
entire process in about 12 to 15 hours. In most typical distillation operations,
the process takes approximately 60 hours. The proprietary fermentation process
referred to above is considered a "trade secret" as it was developed by the
Company, and is not used by anyone else so far as we are aware.

In more typical ethanol producing plants, the WDGs are dried so they can be
transported without becoming moldy. The energy and other costs of drying the
WDGs to make dry distillers grains (DDGs) and then transporting them elsewhere
are eliminated in the hybrid process by using the wet distillers grains onsite.
Using such "co-products" onsite is important in reducing costs and improving the
economics of the operations.

At the completion of distillation, the de-alcoholized stillage water is
recovered and stored for delivery to appropriate feed containers for the animals
in the barn. According to the research described below under the heading
"Feeding Wet Distillers Grains and Stillage Water", the feeding of wet
distillers grains and stillage water to cattle promotes weight gains. In
addition, feeding the WDGs and stillage water to the animals in the adjacent
barn is very important because it uses another co-product on-site, eliminates
transport and drying costs and addresses the challenge of stillage disposal. The
Biomass Energy Monograph by Edward Hiler and Bill Strout of Texas A. & M.
University, states: "If the nation were to replace 10 percent of its gasoline
consumption with ethanol, the liquid stillage from ethanol fuel production would
constitute a biochemical oxygen demand (BOD) load equivalent to all its domestic
sewage. Therefore, expensive water pollution controls must be major goals of the
emerging fuel-alcohol industry." These "expensive water pollution controls" are
not necessary in our process, as the stillage becomes a valuable animal feed
supplement, not a by-product destined for disposal.

                                       7
<PAGE>

Aside from the capital costs of the facility, the two major costs of ethanol
production are the feedstock and the input energy required for fermentation and
distillation. For ethanol to be accepted as a fuel extender, it must be
available in a practical price range. By using the feedstock for the dual
purpose of producing ethanol and feeding cattle, our process effectively reduces
the cost of producing the ethanol. Also, by using the heat from burning the
waste as an energy source for the fermentation and distillation processes, the
Company believes it will not have to pay for energy from an outside source to
produce the ethanol, which means the process will not incur that input energy
cost. Producing ethanol also generates another stream of income for the Company.

The distillers grains that are left over from the ethanol-producing process have
a low moisture content of around 5% and are fed as wet distillers grains (WDGs).
The stillage water is also to be fed to the animals. The facilities are designed
to run in a balanced state, producing 200 Imperial (240 US) gallons of ethanol
per day and enough distillers grains to supply enough food for 200 head of
cattle.

FEEDING WET DISTILLERS GRAINS AND STILLAGE WATER

There is a considerable body of literature that indicates that the feed value of
the distillers grains is superior to that of ordinary grain, and feeding
stillage water increases weight gains. For example, see Dr. T. J. Klopfenstein
of the University of Nebraska, in an article entitled: "How Do Wet Distillers
Grains (Byproducts) Compare To Dry Distillers Grains?" in a report to the 31st
Distillers Feed Conference on the "Digestibility of Distillers Grains", and G.
M. Erickson and G. R. Tisher, writing in a Beef Science article #72-980 in 1989;
"Barley Distillers Grains As Supplements For Beef Cattle". These articles
generally indicate a significantly higher feed value of dried distillers grains
(DDG) over ordinary grain, and higher still for wet distillers grains (WDG),
that our process uses, over DDG.

The Company believes the results mentioned in the last paragraph, related to
feeding wet distillers grains, originate from the results of Cargill's kill
record dated September 23, 1994, for 123 heifers from the Company's experimental
Dalum facility. The kill record is a record of the number of animals processed,
and the weight and grade of the carcass. In addition, we have the Slaughter Sale
Summary for these animals dated September 13, 1994 that shows the price paid for
the animals and their average weight, along with the information for all of the
other animals sold at that auction on that day. Those documents show that these
animals brought the highest price of the day at that auction and by comparing
the average weight at auction to the carcass weight from the kill record, we can
calculate the average live weight to carcass ratio.

These animals, that were fed wet distillers grain and stillage water at the
Dalum facility, had a packout grade of 62% AAA, 34% AA and 4% A. This
categorization represents a meat grading system that helps the consumer
distinguish the quality of the meat. AAA represents a superior grade of meat
based on a variety of factors including the amount of back fat, the color of the
fat, the marbling of fat in the meat, and the size of the rib eye. AA is a lower
level of these factors, A is less desirable still, and B is less desirable than
A.

The packout grade for these 123 animals was higher than average in the AAA
category according to statistics published by CCA (The Canadian Cattleman's
Association). Their figures typically show industry average of about 48% AAA,
48% AA and 4% A. From those same records, the conversion rate from live weight
to carcass was 60%, meaning there was more edible meat per carcass, and
therefore less waste, than the industry average of 57 to 58%, according to CCA.


                                       8
<PAGE>

Both these figures translate into greater revenue to those who raised the
animals because they represent more meat at higher grades.

The same kill report showed there was no death loss, no liver damage and none
were condemned. Industry average for death loss and rejected animals is about 1%
according to CCA. Because of these processing results, Cargill offered a premium
of $0.10 per pound, for all animals that could be produced using this process,
FOB the facility, which eliminates trucking and auction costs.

HORMONE-FREE BEEF

There is a growing market for beef that is free of added hormones or
antibiotics. This beef also commands a higher price in the marketplace.

In order to access the hormone-free beef market, the Company intends to require
that when animals are brought in for finishing that they are certified "hormone
free" in accordance with an existing certification protocol. This program
requires that calves be registered and ear-tagging records be kept of the
ancestry, ranch of origin and every inoculation, injection and implant.

Company policy will also require compliance with the hormone-free protocol and
that antibiotics not be used generally on the animals, although use on an ill
animal as prescribed by a vet will be allowed.

Hormones are generally used to reduce the cost of weight gains. The Company
believes that feeding the wet distillers grains and stillage water will result
in lower cost weight gains without resorting to hormones.

NEW TECHNOLOGIES

During the period between the closure of the Cardston-area facility and the
present time, the Company has developed a simple to operate, hydroponics-growing
system that will be tested for internal housing purposes in the cattle-feeding
barn. This technology has the potential to produce daily rations of fresh feed
grasses for the cattle regardless of outside weather conditions.

Analyses of the green feed performed by Norwest Labs of Lethbridge, Alberta in
May, 2001, indicates that with a barley grass feed ration of fifteen (15) pounds
per day for each animal, the company could eliminate the use of feeding hay. The
Company also has a feed enrichment process that has been described in reports
previously filed with the SEC. As the green grass from this system is expected
to be more beneficial to the cattle at less cost than the feed enrichment
process, that process will no longer be included in each facility. The equipment
to produce this green feed is expected to cost around $15,000 and to fit into
the barn so that feeding is relatively easy.

The growth and use of hydroponics grass in feeding cattle is a process with
minimal research data. The Company has learned that mold and fungi are real and
persistent problems that can be perilous to the animals.

After months of research and testing we recognized the benefits inherent in the
application of ozonated water using recently developed equipment and techniques.
We believe the judicial use of ozonated water in the field of hydroponics grass
will result in absolute destruction to molds, fungi and disease carrying
bacteria.

We believe the use of ozonated water also offers freedom from bacterial problems
associated with fermentation and this will eliminate the concerns always
inherent in ethanol production.

We intend to utilize the ozone equipment in the cattle barn as well. Following
removal of manure and bedding which are destructed through gasification, the


                                       9
<PAGE>

floor of the pen will be washed with ozonated water which we believe can
virtually sterilize the area and thus inhibit spread of disease. We also intend
to install misting spray heads over the pens. Every few days the animals are
thereby treated to prevent harmful bacterial spread.

While ozone is simply a gas composed of three oxygen atoms it has proven to be
an extraordinary sanitizing agent, economical to use and is remarkably effective
in direct application as well as for multi-surface cleaning and sanitation of
equipment, drains, floors, chutes, tanks, barrels, etc.

We believe 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.

THE HYBRID FUEL

The ethanol is "de-natured" by blending about 2% emulsifier and diesel into the
ethanol in the vaporization column so there is no pure ethanol accessible in the
plant. Each day, 200 gallons are expected to be produced. This chemical mixture
is stored in an appropriate tank (3500 to 5000 gallons) on site until it is
collected and delivered to a mixing plant to be further blended into the final
ratio.

In June of 1996, the Company contracted with The British Columbia Institute of
Technology (BCIT) to test the hybrid fuel. The tests were conducted using a 1994
Dodge diesel truck with 215,717 kilometers (134,176 miles) on the odometer. The
truck was first tested using regular diesel, then run on the hybrid fuel for 2
days and re-tested. The tests of this fuel showed opacity (black smoke) readings
reduced by 65.5% and NOx emissions by 22.2%. These tests indicated that this
fuel is more effective in reducing particulate and nitrogen oxide emissions from
diesel than any other diesel mixture of which the Company is aware.

In addition to reducing pollution from diesel engines, this hybrid fuel helps to
extend our known reserves of fossil fuels. The tests that were conducted at BCIT
used a mixture of 80% diesel, 10% emulsifier and 10% ethanol. Further tests are
planned using various ratios. The end ratio is expected to be 70% to 80% diesel,
10% to 15% ethanol, and 10% to 15% emulsifier. This is consistent with the
University of Illinois E-Diesel research referred to below.

In the beginning, with the small quantities of the fuel from the first plant,
the plan is to blend locally and use the fuel for testing purposes. Handling and
blending costs are expected to be minimal, in the range of 5 to 7 cents per
gallon.

After the first facility is operating, subsequent facilities are expected to be
built in the vicinity of commercial blending plants that have the capacity to
handle the production on a contract basis. The plan is for the Company to
transport the resulting chemical mixture from each plant to blending plants for
further blending to achieve the appropriate ratio. This is designed to ensure
control over all of the ethanol produced.

When a larger number of facilities are operating and producing sufficient
quantities, the Company intends to sell the blended fuel to end users and diesel
fuel distributors encompassing all industries. Ultimately the Company may
consider building and operating its own blending facilities, if that becomes
economically feasible.

Because the hybrid fuel can be used in an unaltered diesel engine, it can be
used economically where it is available and the engine needs no modifications to
switch back to regular diesel fuel if the hybrid fuel is not available.

                                       10
<PAGE>

There are research studies available pertaining to environmental and other
benefits of ethanol-diesel blends similar to the Company's. For example, there
was a report written by the University of Illinois Agricultural Engineering
Department for the 2001 ASEA Annual International Meeting in Sacramento on July
30 & August 1, 2001. This report reviews in detail the findings of scientists
working with diesel-ethanol blends starting in 1980, and indicates that there is
generally a small loss of power, in the order of 3.5% to 5%, using these blends.

Our fuel is different because it contains a small amount of water, and it will
therefore require separate evaluation. The Company believes that the small
amount of water in the blend will reduce the power loss from using the blend.
The testing that was done at BCIT in June 1996, did not disclose any significant
power loss, but further evaluation will be conducted with the ethanol produced
by the test facility in Oyama, BC, Canada.

As regulators work to decrease engine emissions and users look for cleaner
burning, less expensive fuels, the Company believes it will be able to attract
users for the hybrid fuel.

EMPLOYEES

At present, the Company does not have any employees. Until resources allow, the
Company will continue to use consultants or independent contractors for the
various tasks required to be performed on a quarter-to-quarter basis.

SIGNIFICANT CONSULTANTS

Sir Donald Craig is the individual who is most responsible for the development
of the concepts and invention of much of the equipment or improvements to the
equipment. Mr. Craig is supervising the construction of the first facility in
Oyama, BC. He has agreed to supervise construction of the first facility without
remuneration until the facility is generating cash flow. The Company does not
have a written employment contract with Mr. Craig.

SUPPLIERS

The Company is not dependent on a limited number of suppliers as most of the
equipment and materials required for the facilities are readily available in all
areas where the Company expects to be operating. The Company plans to obtain its
raw materials from local suppliers. In addition, we expect to arrange with
independent contractors to manufacture the columns and separators as necessary.

The Company intends to seek quotes from independent contractors to construct the
buildings and to supply and install the flooring materials, pumps, tanks and
other items required for each facility. As the Company develops a history of
operations and experience with particular sources of supply, the Company may
enter into exclusive supply contracts in the future if it is advantageous to the
Company and its operators.

GOVERNMENTAL REGULATION

Governmental regulation will affect the Company most in the areas of compliance
with environmental regulations and those regarding the production of ethanol.
Each jurisdiction will require the Company to obtain the appropriate permits to
comply with its specific set of regulations. The Company plans to initially
build in those jurisdictions where the process for obtaining the necessary
permits to produce the hybrid fuel and to operate in accordance with these
regulations, are the easiest and least expensive to comply with. The Company
anticipates it will have little difficulty in complying with environmental
regulations as the process does not create any pollution. The Company does not
anticipate any significant delays in obtaining the necessary permits for the


                                       11
<PAGE>

production of the hybrid fuel in the Province of British Columbia and in most
states of the US.

The Company believes that the impact of the cost and effects of the Company's
compliance with environmental laws should be minimal as the Company's process is
believed to be very environmentally friendly.

MARKETING AND ADVERTISING

The Company's target market for the construction of the facilities is the
farming communities from which there appears to be a strong and growing
interest.

Upon establishing the economic feasibility of the facilities the Company intends
to issue press releases, advertise in trade journals, local newspapers and
through seminars and presentations at trade shows. The Company is also in
contact with a number of government agencies and industry organizations whose
role it is to locate and promote new opportunities for the economic benefit of
farmers.

The Company plans to promote the beef produced using its process as being free
of antibiotics and added hormones. As consumers become more selective about the
beef they consume, the Company anticipates capitalizing on these products being
free of these substances. The Company also intends to "brand" the finished
product with a name, trade marks and logos to make the product more easily
recognizable in order to generate consumer loyalty and capitalize on brand
quality.

COMPETITION

Major oil and petroleum companies as well as alternative energy companies may be
potential competitors of the Company. The Company is not aware of any
competitors who offer farm-scale feedlot-fuel plants, although there are several
competitors who produce ethanol on a very large-scale basis. Generally speaking,
they produce dry ethanol for the gasohol market. The tests being done by Archer
Daniels Midland suggest they are looking for ways to expand their ethanol
production into use in the diesel fuel business. The Company believes it has a
competitive advantage because of the quality of its hybrid fuel combined with
the potential of significantly reduced environmental impact in both producing
and using the hybrid fuel.

TRENDS THAT MAY AFFECT THE COMPANY'S BUSINESS

The Company has identified the following trends as potentially having an impact
on the business of the Company.

Fuel prices have risen dramatically over the past year. Ethanol prices are
closely correlated with the price of gasoline, diesel fuel and blending
components associated with these fuels. In a typical ethanol facility, natural
gas accounts for approximately 15 percent of ethanol production costs. However,
our process does not depend on the use of fossil fuels to produce the ethanol.
We believe rising fuel prices would be a net benefit to the Company's
profitability.

Businesses that have a positive environmental impact have received an increasing
amount of support. The Company seeks to take advantage of this trend by
providing technology that produces a hybrid fuel that reduces diesel engine
emissions. In addition, the animal finishing operation will be promoted as
having an environmentally positive impact in that it produces no groundwater
pollution and virtually no odor.

We believe that consumers will pay more for beef that is guaranteed good
quality. The Company believes that cattle which are fed distillers grains,


                                       12
<PAGE>

without added hormones, antibiotics or protein from animal sources, will draw a
positive response from health-conscious consumers looking for healthier food
sources.

Management is of the view that if overall beef consumption declines, it should
have little or no adverse effect on the Company's business as our process is
expected to produce exceptional quality beef which we anticipate marketing as
guaranteed quality beef that is free of added hormones and antibiotics.

Canada, and many other countries are signatories to the Kyoto Emission Standards
Agreement that requires them to adhere to the Kyoto Protocol commitments to
reduce pollution by the year 2010. In addition, many states, such as California,
have or are considering legislation to eliminate the use of MTBE as an octane
enhancer and "clean air" additive. This should work to the advantage of the
Company, as most media reports indicate that ethanol appears to have the edge as
the product to reduce the use of fossil fuels and the "clean air" additive of
choice to replace MTBE. Also, the Company expects to be able to produce ethanol
relatively inexpensively, as the proprietary emulsifier allows the blrnding of
wet ethanol and diesel fuel which reduces emissions, without incurring drying
costs.

RESEARCH AND DEVELOPMENT

During the next twelve months, 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.

If resources permit, the amount we anticipate spending on research and
development for the fiscal year ending June 30, 2006 is approximately $50,000.

PRODUCT PROTECTION

The Company has not patented any of its proprietary technologies, on the advice
of legal counsel. Their reasoning is that obtaining patents tends to publish the
discoveries that others can then copy and a small company will have difficulty
protecting itself from infringement. As a consequence, the Company has
determined that it will protect its trade secrets and proprietary technologies
by careful screening of potential operators and then having them sign
non-disclosure agreements. All operators will be well briefed on protecting the
proprietary information in their own best interests and all reasonable steps
will be taken to ensure that they take all reasonable precautions. Also, the
column and the spinner will be manufactured elsewhere, delivered and installed,
without the operators knowing how they are constructed.

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 may not be 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 our current cash, that was 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.

                                       13
<PAGE>

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.

4. We have a history of operating losses and an accumulated deficit, as of June
30, 2005, of $2,192,677

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,


                                       14
<PAGE>

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. Giant 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. Our subsidiary, Hybrid Fuels (Canada) has entered into a verbal agreement
with a group of Hybrid Fuels Inc. shareholders to construct a fully operational
facility at Oyama, B.C., Canada. No written contracts have been made. This group
is bearing the financial burden of constructing this commercial facility and
retains legal ownership. Once the facility has been completed, the Company will
negotiate with this group to acquire or lease the facility on mutually agreeable
terms.

14. Since May 2003, the Canadian beef market has suffered as a consequence of
the United States limiting imports from Canada because of an isolated case of
Bovine Spongiform Encephalopathy (BSE). If beef sales do not return to earlier
levels, this could have an adverse effect on the Company although the age of
finished cattle raised within our controlled facilites are expected to be under
the current 30-month age restriction on beef imported into the U.S..

Item 2.  DESCRIPTION OF PROPERTY
--------------------------------

The Company does not have any offices at the present time but maintains a
mailing address in Niverville, Manitoba, Canada.

The Company's wholly-owned subsidiary, Hybrid Fuels (Canada) Inc., has a verbal
agreement with the owner of a 12-acre parcel of land where a commercial facility
is currently being built in Oyama, British Columbia.

A group of Hybrid Fuels, Inc. shareholders is bearing the financial burden of
construction and retains legal ownership of the facility. Once the facility has
been completed for the Company's intended operations, the Company will negotiate
with this group to acquire or lease the facility on mutually agreeable terms.
The owner of the land is not related to the Company.


Item 3.  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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------

None.

                                       15
<PAGE>

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------

The Company has authorized capital of 50,000,000 share of common stock with a
par value of $0.001, of which 25,407,733 were issued and outstanding as at June
30, 2005 and the Company had 259 shareholders of record.

The Company's common stock is traded on the OTC Bulletin Board under the symbol
"HRID."

The following table sets forth the high and low closing bid prices for the
periods indicated, as reported by the National Quotation Bureau:


                                                2003
                                        High             Low
                                        ----             ---
                   1st Quarter          0.50             0.09
                   2nd Quarter          0.40             0.11
                   3rd Quarter          0.37             0.20
                   4th Quarter          0.30             0.14
                                                2004
                                        High             Low
                                        ----             ---
                   1st Quarter          0.25             0.13
                   2nd Quarter          0.25             0.09
                   3rd  Quarter         0.25             0.25
                   4th Quarter          0.25             0.25
                                                2005
                                        High             Low
                                        ----             ---
                   1st Quarter          0.21             0.12
                   2nd Quarter          0.40             0.15


The Company has never paid cash dividends. The Directors of the Company
currently anticipate that it will retain all available funds for use in the
operation of the business and does not anticipate paying any cash dividends in
the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES.

Set forth below is information regarding the issuance and sales of our
securities without registration during the past three years. No such sales
involved an underwriter and no commissions were paid in connection with the sale
of any securities. All shares were issued with restrictive legends. Restricted
securities 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.

All of the purchasers/share recipients are residents of Canada, ie. non-U.S.
persons. Therefore, the shares issued are exempt from registration under
Regulation S of the Securities Act.

On March 27, 2002, the Company issued 68,700 shares of common stock to an
investor for cash at a price of $0.08 per share.

On May 6, 2002, the Company issued 31,300 shares of common stock to an investor
for cash at a price of $0.08 per share.

On May 31, 2002, the Company issued 147,000 shares of common stock to an
investor for cash at a price of $0.08 per share.

                                       16
<PAGE>

On September 12, 2002, the Company issued 40,000 shares of common stock to an
investor for cash at a price of $0.095 per share.

On November 4, 2002, the Company issued 10,000 shares of common stock to an
investor for cash at a price of $0.19 per share.

On January 23, 2003, the Company issued 600,000 shares of common stock to three
directors, to settle debt of $78,000 owing for management, legal and accounting
services rendered to the Company.

On September 10, 2003, the Company issued 40,000 shares of common stock to a
consultant for services valued at $10,000.

On September 10, 2003, the Company issued 7,500 shares of common stock to a
consultant for services valued at $1,875.

On September 23, 2003, the Company issued 7,500 shares of common stock to a
consultant for services valued at $1,875.

On October 23, 2003, the Company issued 7,500 shares of common stock to a
consultant for services valued at $1,050.

On March 29, 2004, the Company issued 600,000 shares of common stock to two
directors for management/consulting services valued at $81,896.

On March 29, 2004, the Company issued 431,106 shares of common stock to eleven
investors for cash, at a price of $0.14 per share.

On March 29, 2004, the Company issued 27,778 shares of common stock to an
investor to settle an outstanding debt, at a price of $ .14 per share.

On April 1, 2004, the Company issued 100,000 shares of common stock to a
consultant, at a price of $0.23 for services provided to the Company.

On April 1, 2004, the Company issued 33,333 shares of common stock to a former
director for consulting services valued at $7,667.

On April 1, 2004, the Company issued 166,663 shares of common stock to five
investors for cash, at a price of $0.14 per share.

On September 23, 2004, 75,000 shares of common stock were issued to two
investors for cash at a price of $0.08 per share for total proceeds of $5,697
(CAD$7,500).

On October 20, 2004, 30,000 shares of common stock were issued to an investor
for cash at a price of $0.08 per share for total proceeds of $2,387 (CAD$3,000).

On October 28, 2004, 120,000 shares of common stock were issued to one investor
for cash at a price of $0.08 per share for total proceeds of $9,788
(CAD$12,000).

On January 24, 2005, 300,000 shares of common stock were issued to six investors
for cash at a price of $0.08 per share for total proceeds of $24,606
(CAD$30,000).

On January 25, 2005, 700,000 shares of common stock were issued to three
Directors at a price of $0.15 per share in consideration for consulting services
valued at $105,000 to be rendered up to December, 2006.

On March 30, 2005, 400,000 shares of common stock were issued to six consultants
at a price of $0.15 per share in consideration for consulting services rendered
and valued at $60,000.

                                       17
<PAGE>

On March 31, 2005, 50,000 shares of common stock were issued to one investor for
cash at a price of $0.08 per share for total proceeds of $4,144 (CAD$5,000).

On April 1, 2005, 100,000 shares of common stock were issued to one investor for
cash at a price of $0.08 per share for total proceeds of $8,269 (CAD$10,000).

On June 16, 2005, 28,000 shares of common stock were issued to one investor for
cash at a price of $0.12 per share for total proceeds of $3,394 (CAD$4,200).


Item 6. PLAN OF OPERATION
-------------------------

As at June 30, 2005, our independent auditors raised a substantial doubt about
our ability to continue as a going concern because we have not generated any
revenues, have conducted operations at a loss since inception and have a working
capital deficit of $737,227.

Although our cash reserves at June 30, 2005 were limited to $946, related
parties have indicated a willingness at the present time to continue to pay
operating expenses and advance funds to pay legal, accounting and investor
relations expenses. These related parties are not obligated to pay Company
operating costs, and therefore, no assurances can be given that they will
continue to do so.

Management recognizes that to generate long-term cash flow, we need to develop
operating activities. An integral part of the Company's plan involves completing
and operating the first beef and ethanol facility to demonstrate to potential
operators, lenders and investors that the technology works as described.

Operating costs to the end of the second quarter (December 31, 2005) are
estimated at $250,000. This estimate includes $120,000 for cattle and feed,
$60,000 for payables (excluding related party loans and accrued executive
salaries), $40,000 for technical support and labor and $30,000 for contingencies
and other operating expenses. These estimates are subject to change based on
conditions outside of management's control and actual experience with operating
the first facility.

Our subsidiary has entered into a verbal agreement with a group of Hybrid Fuels
Inc. shareholders to construct a fully operational facility at Oyama, B.C.,
Canada on twelve acres of farmland. This group is bearing the financial burden
of constructing this commercial facility and retains legal ownership. Once the
facility has been completed, the Company will negotiate with this group to
acquire or lease the facility on mutually agreeable terms. The owner of the land
on which the facility is being constructed is owned by an unrelated third party.

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

The commercial facility being built by the shareholder group is to include all
items necessary for a fully operational facility utilizing the Company's Hybrid
Fuels technology.

The Company has not incurred any costs pertaining to the facility to date and
will not be obligated financially until the facility has been completed and the
Company enters into a formal agreement to either acquire or lease the facility
on mutually agreeable terms.

Operations are expected to commence in the quarter ending December 31, 2005.
This will coincide with the completion of testing the feed system and the first
delivery of cattle to the facility.

                                       18
<PAGE>

The Company has encountered delays in commencing operations that are largely
attributable to ongoing financing requirements and testing of the feed system.
Additional financing has been required from the previously-mentioned shareholder
group in order to complete the testing process and implement necessary
improvements to the facility such as the use of ozonated water as discussed in
Item 1. This process is time consuming and has contributed to the delay in
commencing operations. As noted in Item 1, Risk Factors, the Company is in the
development stage and cannot obtain financing from traditional lending sources.

The hydroponics unit is completed and we are running production trials on
various barley types, germination schedules, heating, cooling and lighting
schedules. This testing procedure has also contributed to the delay in
commencing operations. The Company wants to ensure that the overall feed system
is working properly before the first delivery of cattle.

The Oyama, BC, location provides Hybrid Fuels (Canada) Inc., supervisory
capability and site control. Upon completion of the facility, we anticipate
being able to arrange lease financing in order to pay the construction costs. We
anticipate that having a facility operating will make it possible to raise the
funds necessary to develop operations through the sale of securities through a
private placement.

PURPOSE OF TEST FACILITY

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

It is intended that future facilities will be constructed for the Company by
independent contractors on privately-owned farms. These facilities are intended
to be operated by the farmer (s) under terms of an agreement that will be
determined once the Company has the data from operations of the first facility.

The key purpose of placing the first facility in service is to demonstrate the
economic feasibility of the system. Once this first facility is operating, we
plan to use it as a demonstration and training facility and to earn revenue from
its operation. Assuming that it will be necessary for the Company to pay market
price for grain, bedding and other supplies and that we will receive no more
than market price for the finished animals, our projections indicate that the
facility should generate sufficient revenue to pay all of our operating costs,
plus a small surplus that may be used toward development of operating
activities.

Parties that have expressed interest in financing subsequent facilities want to
see this first facility generate sufficient cash flow to pay all operating costs
and debt service. We anticipate that the facility will show sufficient cash flow
to make it possible for us to get approval for financing subsequent facilities.

The proposed facilities are planned to consist of a cattle barn,
ethanol-producing plant, gasifier/burner (manure burning unit), and a hydroponic
barley-grass growing system.

Current estimates have the final cost of building this facility to be
approximately $450,000. An estimated $275,000 of this cost is for foundations
and flooring, buildings, the gasifier/burner, the ethanol-producing equipment,
tanks and machinery. Soft costs, for such items as permits, engineering and
other professional fees, survey and layout costs, site preparation, delivery of
buildings and materials, equipment rentals, tools and miscellaneous items, are
estimated to cost $75,000. Approximately $100,000 is expected to cover
construction labour and supervision expenses.

                                       19
<PAGE>

The previously mentioned shareholder group is bearing the financial burden of
constructing this commercial facility and retains legal ownership. Once the
facility and testing phase has been completed, the Company will negotiate with
this group to acquire or lease the facility on mutually agreeable terms.

The cattle barn has been designed to accommodate 200 head of cattle and the
hydroponics barley-grass growing system. Once the facility is operational, 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 will begin the finishing operation in quieting pens where they spend
approximately two weeks being transitioned from their prior diet to the wet
distillers grains diet. After completing the diet transition, the cattle are
moved into the barn, where, on average, they will spend approximately 100 days
being fed the finishing diet.

At the end of the finishing operation, our plans for this demonstration facility
call for the cattle to be sold at auction. As one group of cattle is sold,
another takes its place, as both the finishing operation and our staggered plan
of acquisition are scheduled to take approximately three to four months,
depending on how long the finishing takes. As a result of using this plan of
acquisition, we will not run the facility at full capacity until approximately
four months have passed from the facility becoming operational.

We plan to add, on average, between 400 and 500 pounds per head during the
finishing operation. The weight per head when we acquire the cattle will vary,
principally due to the time of year when the cattle are acquired (most calves
are born in the spring and are ready to be sold as feeder cattle seven months to
a year later). Generally in the cattle industry feeder cattle sell at a higher
price per pound than finished cattle. The increase in weight during the
finishing operation is a key element for the initial set of data from which to
prepare information for purposes of estimating cash flows and generating a more
comprehensive business plan.

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

Once we have a fully operational facility available for our use and have proven
the technology and processes, we expect that our subsidiary, Hybrid Fuels
(Canada) Inc., will operate it and revenue will be generated from the sale of
the finished cattle and wet ethanol.

If our assumptions prove wrong or we encounter unforeseen obstacles, our ability
to demonstrate the facility's economic feasibility may be delayed, or, in the
worst case, we may not be able to establish the economic feasibility of the
facility.

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



                                       20
<PAGE>


OPERATING RESULTS FOR THE YEAR ENDED JUNE 30, 2005

During the fiscal year ended June 30, 2005 the Company had no revenue and
incurred losses of $401,431 compared to $312,249 for the comparable period the
previous year.

The difference of $89,182 is largely attributable to a payment of an outstanding
debt and an increase in stock-based compensation.

In April, 1998, a creditor advanced $50,000, bearing interest at 1% per month.
However, as the Company did not receive the cash, as it was unknowingly kept by
an agent of the Company, no liability was previously recognized in the financial
statements. During the year ended June 30, 2005, the Company was notified of the
debt and recognized the full amount and accrued interest of $43,000, resulting
in a charge to operations of $93,000. On August 16, 2005, the Company issued
225,000 shares of common stock and 150,000 restricted shares of common stock to
settle the outstanding debt and accrued interest.

Stock-based compensation was $113,799 compared with $59,128 in the previous
fiscal year. The Company incurred non-cash financing activities by issuing
700,000 shares in January, 2005 to three Directors in consideration for
consulting services to be rendered up to December, 2006. The Company also issued
400,000 shares in March, 2005 to six consultants for services. The amount of
$113,799 was pro-rated for the period ending June 30, 2005.

The current President, Paul Warkentin, donated services valued at $30,000 during
the period from July 1, 2004 to June 30, 2005 inclusive.

Imputed interest for the year was comparable to the previous fiscal year and
included $48,330 attributed to former President Clay Larson. Imputed interest is
interest that is imputed on non-interest bearing amounts such as deferred
executive compensation or amounts that are advanced to, or paid on behalf of the
Company.


LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended June 30, 2005 the Company received $59,205
including:

     a)   $58,286 from issuing restricted common stock
     b)   $939 from related parties. These advances are non-interest bearing,
          unsecured and due on demand.


A total of $64,296 was used in operating activities.

During the year ending June 30, 2005 the Company incurred non-cash financing
activities by issuing 700,000 shares in January, 2005 and 400,000 shares in
March, 2005 for services valued at a total of $165,000.

Related parties have indicated a willingness at the present time to continue to
pay operating expenses and advance funds to pay legal, accounting and investor
relations expenses. These related parties are not obligated to pay Company
operating costs, and therefore, no assurances can be given that they will
continue to do so.

For the Company to emerge from the development stage with respect to any planned
principal business activity is dependent upon our successful efforts to raise
additional equity, financing and/or attain profitable operations. There is no
guarantee that we will be able to complete any of the above objectives. At June
30, 2005 we had a working capital deficit of $737,227 and an accumulated deficit
from inception of $2,192,677.

                                       21
<PAGE>

The Oyama facility, including the testing of the feed system, is expected to be
completed in the quarter ending December 31, 2005. At that time, the Company
will need to enter into either an acquisition or lease agreement so it can begin
its commercial operations.

The Company has encountered delays in commencing operations that are largely
attributable to financing requirements and testing of the feed system.

Once we have a fully operational facility available for our use and have proven
the technology and processes, we expect that our subsidiary, Hybrid Fuels
(Canada) Inc., will operate it and revenue will be generated from the sale of
the finished cattle and wet ethanol.

The facility will not be run at full capacity until approximately four months
have passed from the facility becoming operational. We believe that at the end
of the fourth month of operations, we will be in a position to generate revenue
by selling the first group of finished cattle.

We expect to incur the costs associated with the operating facility once the
Company has entered into an agreement that allows it to commence operations at
the facility. This is expected to occur during the quarter ending December 31,
2005.

As the facility will be fully operational upon completion of testing the feed
system, the Company will only be required to incur capital expenditures at that
time.

The Company expects that future capital requirements for developing and
expanding technologies will bet met through stock offerings by way of private
placements. The amount we anticipate spending on research and development for
the fiscal year ending June 30, 2006 is approximately $50,000.

                                       22
<PAGE>

Item 7. Financial Statements
----------------------------

Hybrid Fuels, Inc.
(A Development Stage Company)



                                                                           Index



Report of Independent Registered Public Accounting Firm......................F-1

Consolidated Balance Sheets..................................................F-2

Consolidated Statements of Operations........................................F-3

Consolidated Statements of Cash Flows........................................F-4

Consolidated Statement of Stockholders' Deficit..............................F-5

Notes to the Consolidated Financial Statements...............................F-7


                                      F-1
<PAGE>


                               [GRAPHIC OMITTED]
<TABLE>
<S>                                                               <C>
MANNING ELLIOTT                                                   11th floor, 1050 West Pender Street, Vancouver, BC, Canada V6E 3S7
CHARTERED ACCOUNTANTS                                                Phone: 604.714.3600  Fax: 604.714.3669  Web: manningelliott.com
</TABLE>


             Report of Independent Registered Public Accounting Firm
             -------------------------------------------------------


To the Stockholders and Board of Directors
of Hybrid Fuels, Inc.
(A Development Stage Company)

We have audited the accompanying consolidated balance sheets of Hybrid Fuels,
Inc. (A Development Stage Company) as of June 30, 2005 and 2004 and the related
statements of operations, cash flows and stockholders' deficit accumulated for
the period from January 28, 1998 (Date of Inception) to June 30, 2005 and the
years ended June 30, 2005 and 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hybrid Fuels, Inc.
(A Development Stage Company), as of June 30, 2005 and 2004, and the results of
its operations and its cash flows accumulated for the period from January 28,
1998 (Date of Inception) to June 30, 2005 and the years ended June 30, 2005 and
2004 in conformity with accounting principles generally accepted in the United
States.

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has not generated any revenues
and has accumulated losses since inception. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also discussed in Note 1. These
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.


/s/ "Manning Elliott"


CHARTERED ACCOUNTANTS

Vancouver, Canada

October 7, 2005


<PAGE>



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


<TABLE>
<CAPTION>
                                                                                           June 30,        June 30,
                                                                                             2005            2004
                                                                                               $               $
ASSETS
<S>                                                                                          <C>             <C>

Current Assets

  Cash                                                                                          946           7,907
--------------------------------------------------------------------------------------------------------------------
Total Assets                                                                                    946           7,907
====================================================================================================================

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

  Accounts payable                                                                           67,220          50,265
  Accrued liabilities                                                                        47,000           3,250
  Note payable and other advances (Note 3)                                                   93,153          39,432
  Due to related parties (Note 4)                                                           204,099         205,050
  Due to a former director (Note 5)                                                         326,701         326,701
--------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                                   738,173         624,698

Redeemable and Restricted Common Shares (Note 7(b))                                         223,000         223,000
--------------------------------------------------------------------------------------------------------------------
Total Liabilities                                                                           961,173         847,698
--------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Note 7)
Subsequent Events (Note 9)

Stockholders' Deficit

Common Stock (Note 6): $0.001 par value; 50,000,000 shares authorized
25,174,980 and 23,371,980 shares issued and outstanding, respectively                        25,175          23,372

Additional Paid-in Capital                                                                  847,311         625,828

Donated Capital                                                                             438,464         329,554

Deferred Compensation                                                                       (78,500)        (27,299)

Deficit Accumulated During the Development Stage                                         (2,192,677)     (1,791,246)
--------------------------------------------------------------------------------------------------------------------
Total Stockholders' Deficit                                                                (960,227)       (839,791)
--------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Deficit                                                     946           7,907
====================================================================================================================
</TABLE>




(The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements)

                                       F-2
<PAGE>


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


<TABLE>
<CAPTION>
                                                              Accumulated from
                                                              January 28, 1998
                                                            (Date of Inception)          For the Year Ended
                                                                to June 30,
                                                                    2005                      June 30,
                                                                                       2005              2004
                                                                     $                   $                $

<S>                                                                    <C>                <C>               <C>
Revenue                                                                    -                  -                 -
--------------------------------------------------------------------------------------------------------------------

Expenses

Deposits and advances written-off (Note 3 (c))                       305,512             50,000                 -
Foreign exchange loss                                                  9,246              4,515             1,263
General and administrative (Note 4)                                1,251,193            154,207           164,481
Imputed interest (Note 4 and 5)                                      400,964             78,910            78,452
Research and development                                              16,925                  -             8,925
Stock-based compensation (1)                                         208,837            113,799            59,128
--------------------------------------------------------------------------------------------------------------------
Total Expenses                                                     2,192,677            401,431           312,249
--------------------------------------------------------------------------------------------------------------------
Net Loss                                                          (2,192,677)          (401,431)         (312,249)
====================================================================================================================
Net Loss Per Share - Basic and Diluted                                                    (0.02)            (0.01)
====================================================================================================================
Weighted Average Shares Outstanding                                                  24,332,000        22,584,000
====================================================================================================================

(1) Stock-based compensation is excluded from the following:

     General and administrative                                      208,837              113,799            59,128
====================================================================================================================
</TABLE>




(The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements)

                                      F-3
<PAGE>


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


<TABLE>
<CAPTION>
                                                                        Accumulated from
                                                                        January 28, 1998
                                                                      (Date of Inception)     For the Year Ended
                                                                          to June 30,
                                                                              2005                 June 30,
                                                                                            2005           2004
                                                                               $              $              $
<S>                                                                        <C>            <C>            <C>
  Cash Flows To Operating Activities

    Net loss                                                               (2,192,677)    (401,431)      (312,249)

    Adjustments to reconcile net loss to net cash used in
    operating activities
      Accrued executive compensation                                          324,000            -         36,000
      Amortization of deferred compensation and other
      stock-based compensation                                                298,837      113,799         90,338
      Deposits and advances written-off                                       305,512       50,000              -
      Donated services                                                         37,500       30,000          7,500
      Imputed interest                                                        400,964       78,910         78,452
      Foreign exchange loss                                                     7,189        3,721              -
      Other adjustment                                                           (502)           -              -

    Change in operating assets and liabilities
      Accounts payable and accrued liabilities                                126,121       60,705         19,111
---------------------------------------------------------------------------------------------------------------------
  Net Cash Used In Operating Activities                                      (693,056)     (64,296)       (81,148)
---------------------------------------------------------------------------------------------------------------------
  Cash Flows To Investing Activities

    Deposits and advances                                                    (255,512)           -              -
---------------------------------------------------------------------------------------------------------------------
  Net Cash Used In Investing Activities                                      (255,512)           -              -
---------------------------------------------------------------------------------------------------------------------
  Cash Flows From Financing Activities

    Proceeds from issuance of note payable                                     33,732            -             94
    Proceeds from advances                                                    136,700            -          2,232
    Advances from a former director                                             2,701            -              -
    Advances from related parties                                             205,989         (951)         3,745
    Proceeds from issuance of restricted common stock                         223,000            -              -
    Proceeds from issuance of common stock                                    347,392       58,286         81,737
---------------------------------------------------------------------------------------------------------------------
  Net Cash Provided By Financing Activities                                   949,514       57,335         87,808
---------------------------------------------------------------------------------------------------------------------
  Net Increase (Decrease) in Cash                                                 946       (6,961)         6,660

  Cash - Beginning of Period                                                        -        7,907          1,247
---------------------------------------------------------------------------------------------------------------------
  Cash - End of Period                                                            946          946          7,907
=====================================================================================================================
  Non-cash Investing and Financing Activities

    Common shares issued for services                                         287,337      165,000        117,337
    Common shares issued to settle debt                                       226,259            -         13,791
=====================================================================================================================
  Supplemental Disclosures

    Interest paid                                                                                -              -
    Income taxes paid                                                                            -              -
=====================================================================================================================
</TABLE>




(The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements)

                                       F-4
<PAGE>


Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit
Accumulated from January 28, 1998 (Date of Inception) to June 30, 2005
(expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                                                                         Deficit
                                                                                                       Accumulated
                                                  # of               Additional                         During the        Total
                                                Shares                Paid-in    Donated    Deferred    Development    Stockholders'
                                              Issued and  Par Value   Capital    Capital  Compensation     Stage         Deficit
                                             Outstanding      $          $          $          $             $              $
<S>                                           <C>          <C>       <C>        <C>        <C>         <C>                 <C>
Balance at January 28, 1998 (Date
of Inception)                                          -        -          -          -          -              -                 -
Shares issued to effect a reverse merger      15,000,000   15,000      3,398          -          -        (18,398)                -
Net loss for the period                                -        -          -          -          -        (93,633)          (93,633)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998                      15,000,000   15,000      3,398          -          -       (112,031)          (93,633)
Issuance of 1,900,000 shares                   1,900,000    1,900     (1,900)         -          -              -                 -
Issuance of shares for cash                       23,600       24     13,576          -          -              -            13,600
Imputed Interest                                       -        -          -     26,000          -              -            26,000
Net loss for the year                                  -        -          -          -          -       (308,377)         (308,377)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999                      16,923,600   16,924     15,074     26,000          -       (420,408)         (362,410)
Cancellation of shares previously issued      (1,900,000)   1,900          -          -          -              -                 -
Issuance of shares for no consideration        3,000,000    3,000     (3,000)         -          -              -                 -
Issuance of shares pursuant to a
  subscription agreement                       1,500,000    1,500    148,500          -          -              -           150,000
Imputed Interest                                       -        -          -     30,735          -              -            30,735
Net loss for the year                                  -        -          -          -          -       (324,144)         (324,144)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000                      19,523,600   19,524    162,474     56,735          -       (744,552)         (505,819)
Issuance of shares to settle debt              1,100,000    1,100    123,368          -          -              -           124,468
Imputed interest                                       -        -          -     59,202          -              -            59,202
Net loss for the year                                  -        -          -          -          -       (312,660)         (312,660)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2001                      20,623,600   20,624    285,242    115,937          -     (1,057,212)         (634,809)
Issuance of shares to settle debt                200,000      200      9,800          -          -              -            10,000
Issuance of shares for services                  100,000      100      4,900          -          -              -             5,000
Issuance of shares for cash                      377,000      376     30,810          -          -              -            31,186
Imputed interest                                       -        -          -     58,932          -              -            58,932
Net loss for the year                                  -        -          -          -          -       (167,850)         (167,850)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2002                      21,300,600   21,300    331,352    174,869          -     (1,225,062)         (697,541)
Issuance of shares to settle debt                600,000      600     77,400          -          -              -            78,000
Issuance of shares for cash                       50,000       50      5,633          -          -              -             5,683
Imputed interest                                       -        -          -     68,733          -              -            68,733
Net loss for the year                                  -        -          -          -          -       (253,935)         (253,935)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2003                      21,950,600   21,950    414,385    243,602          -     (1,478,997)         (799,060)
Issuance of shares to settle debt                 67,778       68     13,723          -          -              -            13,791
Issuance of shares for services                  755,833      756    116,581          -          -              -           117,337
Issuance of shares for cash                      597,769      598     81,139          -          -              -            81,737
Imputed interest                                       -        -          -     78,452          -              -            78,452
Donated services                                       -        -          -      7,500          -              -             7,500
Deferred compensation                                  -        -          -          -    (27,299)             -           (27,299)
Net loss for the year                                  -        -          -          -          -       (312,249)         (312,249)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004                      23,371,980   23,372    625,828    329,554    (27,299)    (1,791,246)         (839,791)
====================================================================================================================================
</TABLE>




(The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements)

                                       F-5
<PAGE>


Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit
Accumulated from January 28, 1998 (Date of Inception) to June 30, 2005
(expressed in U.S. dollars)


<TABLE>
<CAPTION>
                                                                                                    Deficit
                                                                                                   Accumulated
                                           # of               Additional                           During the        Total
                                         Shares                Paid-in    Donated     Deferred     Development    Stockholders'
                                       Issued and  Par Value   Capital    Capital   Compensation      Stage         Deficit
                                      Outstanding      $          $          $           $              $              $

<S>                                     <C>         <C>        <C>        <C>          <C>          <C>           <C>
Balance at June 30, 2004                23,371,980  23,372     625,828    329,554      (27,299)     (1,791,246)   (839,791)
Issuance of shares for services          1,100,000   1,100     163,900          -            -               -     165,000
Issuance of shares for cash                703,000     703      57,583          -            -               -      58,286
Imputed interest                                 -       -           -     78,910            -               -      78,910
Donated services                                 -       -           -     30,000            -               -      30,000
Deferred compensation                            -       -           -          -      (51,201)              -     (51,201)
Net loss for the year                            -       -           -          -            -        (401,431)   (401,431)
-----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2005                25,174,980  25,175     847,311    438,464      (78,500)     (2,192,677)   (960,227)
=============================================================================================================================
</TABLE>




(The Accompanying Notes are an Integral Part of the Consolidated Financial
Statements)

                                       F-6
<PAGE>


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


1.   Nature of Operations and Continuance of Business

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

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

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

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

     The Company is a development stage company with management devoting most of
     its activities in investigating business opportunities and further
     advancing its technologies. The ability of the Company to emerge from the
     development stage with respect to any planned principal business activity
     is dependent upon its successful efforts to raise additional equity
     financing and/or generate significant revenue. There is no guarantee that
     the Company will be able to complete any of the above objectives. At June
     30, 2005, the Company had a working capital deficit of $737,227 and an
     accumulated deficit of $2,192,677. 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

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

     (b)  Cash and Cash Equivalents

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

     (c)  Use of Estimates

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



                                      F-7
<PAGE>


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

2. Summary of Significant Accounting Policies (continued)

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

          The Company computes net income (loss) per share in accordance with
          SFAS No. 128, "Earnings per Share" (SFAS 128) 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. At June 30, 2005, the redeemable and
          restricted shares disclosed in Note 7(b) have not been included in
          either basic or diluted EPS.

     (e)  Foreign Currency Translation

          The Company's functional and reporting currency is the United States
          dollar. Foreign currency transactions are primarily undertaken in
          Canadian dollars and are translated into United States dollars using
          exchange rates at the date of the transaction. Monetary assets and
          liabilities denominated in foreign currencies are re-measured at each
          balance sheet date at the exchange rate prevailing at the balance
          sheet date. Foreign currency exchange gains and losses are charged to
          operations. The Company has not, to the date of these financial
          statements, entered into derivative instruments to offset the impact
          of foreign currency fluctuations.

     (f)  Comprehensive Loss

          SFAS No. 130, "Reporting Comprehensive Income," establishes standards
          for the reporting and display of comprehensive loss and its components
          in the financial statements. As at June 30, 2005 and 2004, the Company
          has no items that represent a comprehensive loss and, therefore, has
          not included a schedule of comprehensive loss in the financial
          statements.

     (g)  Financial Instruments

          The fair values of cash, accounts payable, accrued liabilities, notes
          and advances payable, due to related parties and due to former
          director approximate their carrying values due to the immediate or
          short-term maturity of these financial instruments.

     (h)  Income Taxes

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

     (i)  Stock-based Compensation

          The Company accounts for stock-based awards using the intrinsic value
          method of accounting in accordance with Accounting Principles Board
          Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25).
          Under the intrinsic value method of accounting, compensation expense
          is recognized if the exercise price of the Company's employee stock
          options is less than the market price of the underlying common stock
          on the date of grant. SFAS 123 "Accounting for Stock-Based
          Compensation" established a fair value based method of accounting for
          stock-based awards. Under the provisions of SFAS 123, companies that
          elect to account for stock-based awards in accordance with the
          provisions of APB 25 are required to disclose the pro forma net income
          (loss) that would have resulted from the use of the fair value based
          method under SFAS 123.

          The Company follows the disclosure requirements of SFAS No. 148,
          "Accounting for Stock-Based Compensation -- Transition and Disclosure
          an Amendment of FASB Statement No. 123", which requires more prominent
          disclosures in both annual and interim financial statements regarding
          the method of accounting for stock-based employee compensation and the
          effect of the method used on reported results. As of June 30, 2005,
          the Company has not issued any stock options.


                                      F-8
<PAGE>


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

2. Summary of Significant Accounting Policies (continued)

     (j)  Recent Accounting Pronouncements

          In May 2005, the Financial Accounting Standards Board (FASB) issued
          SFAS No. 154, "Accounting Changes and Error Corrections - A
          Replacement of APB Opinion No. 20 and SFAS No. 3". SFAS 154 changes
          the requirements for the accounting for and reporting of a change in
          accounting principle and applies to all voluntary changes in
          accounting principle. It also applies to changes required by an
          accounting pronouncement in the unusual instance that the
          pronouncement does not include specific transition provisions. SFAS
          154 requires retrospective application to prior periods' financial
          statements of changes in accounting principle, unless it is
          impracticable to determine either the period-specific effects or the
          cumulative effect of the change. The provisions of SFAS No. 154 are
          effective for accounting changes and correction of errors made in
          fiscal years beginning after December 15, 2005. The adoption of this
          standard is not expected to have a material effect on the Company's
          results of operations or financial position.

          In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107
          ("SAB 107") to give guidance on the implementation of SFAS NO. 123R.
          The Company will consider SAB 107 during implementation of SFAS NO.
          123R.

          In December 2004, the FASB issued SFAS No. 123R, "Share Based
          Payment". SFAS No. 123R is a revision of SFAS No. 123, and supersedes
          APB Opinion No. 25, "Accounting for Stock Issued to Employees" and its
          related implementation guidance. SFAS No. 123R establishes standards
          for the accounting for transactions in which an entity exchanges its
          equity instruments for goods or services. It also addresses
          transactions in which an entity incurs liabilities in exchange for
          goods or services that are based on the fair value of the entity's
          equity instruments or that may be settled by the issuance of those
          equity instruments. SFAS No. 123R focuses primarily on accounting for
          transactions in which an entity obtains employee services in
          share-based payment transactions. SFAS No. 123R does not change the
          accounting guidance for share-based payment transactions with parties
          other than employees provided in SFAS 123 as originally issued and
          Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
          Instruments That Are Issued to Other Than Employees for Acquiring, or
          in Conjunction with Selling, Goods or Services". SFAS No. 123R does
          not address the accounting for employee share ownership plans, which
          are subject to AICPA Statement of Position 93-6, "Employers'
          Accounting for Employee Stock Ownership Plans". SFAS No. 123R requires
          a public entity to measure the cost of employee services received in
          exchange for an award of equity instruments based on the grant-date
          fair value of the award (with limited exceptions). That cost will be
          recognized over the period during which an employee is required to
          provide service in exchange for the award - the requisite service
          period (usually the vesting period). SFAS No. 123R requires that the
          compensation cost relating to share-based payment transactions be
          recognized in financial statements. That cost will be measured based
          on the fair value of the equity or liability instruments issued. The
          scope of SFAS No. 123R includes a wide range of share-based
          compensation arrangements including share options, restricted share
          plans, performance-based awards, share appreciation rights, and
          employee share purchase plans. Public entities that file as small
          business issuers will be required to apply SFAS No. 123R in the first
          interim or annual reporting period that begins after December 15,
          2005. The adoption of this standard is not expected to have a material
          effect on the Company's results of operations or financial position.

          In December 2004, the FASB issued SFAS No. 153, "Exchanges of
          Nonmonetary Assets - An Amendment of APB Opinion No. 29". The guidance
          in APB Opinion No. 29, "Accounting for Nonmonetary Transactions", is
          based on the principle that exchanges of nonmonetary assets should be
          measured based on the fair value of the assets exchanged. The guidance
          in that Opinion, however, included certain exceptions to that
          principle. SFAS No. 153 amends Opinion No. 29 to eliminate the
          exception for nonmonetary exchanges of similar productive assets and
          replaces it with a general exception for exchanges of nonmonetary
          assets that do not have commercial substance. A nonmonetary exchange
          has commercial substance if the future cash flows of the entity are
          expected to change significantly as a result of the exchange. The
          provisions of SFAS No. 153 are effective for nonmonetary asset
          exchanges occurring in fiscal periods beginning after June 15, 2005.
          Early application is permitted and companies must apply the standard
          prospectively. The adoption of this standard is not expected to have a
          material effect on the Company's results of operations or financial
          position.

          The FASB has also issued SFAS No. 151 and 152, but they will not have
          any relationship to the operations of the Company therefore a
          description and its impact for each on the Company's operations have
          not been disclosed.

     (l)  Reclassifications

          Certain reclassifications have been made to the prior year's financial
          statements to conform to the current year's presentation.
                                      F-9
<PAGE>


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

3.   Note Payable and Other Advances

     (a)  On September 15, 2000, the Company issued a note for CAD$50,000
          (US$40,710) 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 $3,714 has been accrued for
          the year ended June 30, 2005 (2004 - $3,433). The note payable was
          $40,710 after translation into U.S. dollars at June 30, 2005. For the
          year ended June 30, 2005, the Company incurred a foreign currency
          translation loss of $3,510 that was charged to operations. Accrued
          interest from September 15, 2000 of $15,136 is included in accounts
          payable as of June 30, 2005.

     (b)  Cash advances totalling $2,443 (CAD$3,000) from unrelated parties are
          non-interest bearing, unsecured and due on demand.

     (c)  In April 1998, a creditor advanced $50,000, bearing interest at 1% per
          month. However, as the Company did not receive the cash, as an agent
          of the Company unknowingly kept it, no liability was previously
          recognized in the financial statements. During the year ended June 30,
          2005, the Company was notified of the debt and recognized the full
          amount and accrued interest of $43,000, resulting in a charge to
          operations of $93,000.

4.   Related Party Transactions

     (a)  A shareholder is owed $199,371 (June 30, 2004 - $199,371) for payment
          of rent, office expenses and professional fees on behalf of the
          Company. Imputed interest of $29,905 (2004 - $30,122), calculated at a
          rate of 15% per annum, was charged to operations and treated as
          donated capital. An amount of $1,890 (June 30, 2004 - $1,890) is owing
          to another shareholder. Amounts owing are unsecured, non-interest
          bearing and due on demand.

     (b)  At June 30, 2004, the President of the Company was owed $3,789 for
          advances and expenses paid for on behalf of the Company. This amount
          was unsecured, non-interest bearing and due on demand. During the year
          ended June 30, 2005, the amount was repaid in full.

     (c)  During the year ended June 30, 2004, 600,000 shares were issued to two
          directors at a fair value of $81,896 for consulting services rendered
          and to be rendered. As at June 30, 2004, $27,299 was set up as
          deferred compensation and was charged to operations during fiscal
          2005.

     (d)  During the year ended June 30, 2005, the Company recognized a total of
          $30,000 (2004 - $7,500) for donated services provided by the President
          of the Company.

     (e)  At June 30, 2005, the Vice-President of the Company is owed $4,728 for
          expenses paid on behalf of the Company. This amount is unsecured,
          non-interest bearing and due on demand.

5.   Amounts Owing to a Former Director

     The former President, who was also a director of the Company, is owed
     $2,701 for office and related expenses paid for on behalf of the Company.
     Effective July 1, 1999 the former President was entitled to a salary of
     US$6,000 per month or $324,000 in total and was owed a total of $326,701 at
     June 30, 2005. These amounts are unsecured, non-interest bearing and due on
     demand. Imputed interest of $49,005 (2004 - $48,330), calculated at a rate
     of 15% per annum, was charged to operations and treated as donated capital.
     The Company did not have a written employment contract with the former
     President.

6.   Common Shares

     (a)  Private Placements

          On June 16, 2005, 28,000 shares of common stock were issued for cash
          at a price of $0.12 per share for total proceeds of $3,394
          (CAD$4,200).

          On April 1, 2005, 100,000 shares of common stock were issued for cash
          at a price of $0.08 per share for total proceeds of $8,269
          (CAD$10,000).

          On March 31, 2005, 50,000 shares of common stock were issued for cash
          at a price of $0.08 per share for total proceeds of $4,144
          (CAD$5,000).

          On January 24, 2005, 300,000 shares of common stock were issued for
          cash at a price of $0.08 per share for total proceeds of $24,606
          (CAD$30,000).

                                      F-10
<PAGE>


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


6.   Common Shares (continued)

     (a)  Private Placements (continued)

          On October 28, 2004, 120,000 shares of common stock were issued for
          cash at a price of $0.08 per share for total proceeds of $9,788
          (CAD$12,000).

          On October 20, 2004, 30,000 shares of common stock were issued for
          cash at a price of $0.08 per share for total proceeds of $2,387
          (CAD$3,000).

          On September 1, 2004, 25,000 shares of common stock were issued for
          cash at a price of $0.08 per share for total proceeds of $1,905
          (CAD$2,500).

          On August 31, 2004, 50,000 shares of common stock were issued for cash
          at a price of $0.08 per share for total proceeds of $3,792
          (CAD$5,000).

          On April 1, 2004, 166,663 shares of common stock were issued for cash
          at a price of $0.14 per share for total proceeds of $22,893
          (CAD$30,000).

          On March 29, 2004, 431,106 shares of common stock were issued for cash
          at a price of $0.14 per share for total proceeds of $58,844.

     (b)  Non-cash Consideration

          All transactions in which goods or services are the consideration
          received for the issuance of equity instruments are accounted for
          based on the fair value of the consideration received or the fair
          value of the equity instrument issued, whichever is more reliably
          measurable. Equity instruments issued to employees and the cost of the
          services received as consideration are measured and recognized based
          on the fair value of the equity instruments issued.

          On March 30, 2005, 400,000 shares of common stock were issued at a
          price of $0.15 per share for a fair value of $60,000 in consideration
          for consulting services rendered.

          On January 25, 2005, 700,000 shares of common stock were issued at a
          price of $0.15 per share for a fair value of $105,000 in consideration
          for consulting services to be rendered up to December, 2006. During
          the year ended June 30, 2005, the Company charged $26,500 to
          operations, and the balance of $78,500 is recognized at deferred
          compensation at June 30, 2005.

          On April 1, 2004, 133,333 shares of common stock were issued at a fair
          value of $30,667 in consideration of services rendered.

          On March 29, 2004, 600,000 shares of common stock were issued to two
          directors at a price of $0.14 per share for a fair value of $81,896 in
          consideration of services rendered. 400,000 of these shares relate to
          future services for the period from January 1 to December 31, 2004. As
          a result $54,597 was charged to operations in 2004 and the remaining
          balance of $27,299 was set up as deferred compensation as at June 30,
          2004. The $27,999 was charged to operations during the year.

          On March 29, 2004, 27,778 shares of common stock were issued settle
          outstanding debt of $3,791.

          On October 23, 2003, 7,500 shares of common stock were issued at a
          fair value of $1,024 in consideration of services rendered.

          On September 23, 2003, 7,500 shares of common stock were issued at a
          fair value of $1,875 in consideration of services rendered.

          On September 10, 2003, 7,500 shares of common stock were issued at a
          fair value of $1,875 in consideration of services rendered.

          On September 10, 2003, 40,000 shares of common stock were issued to
          settle outstanding debt of $10,000.

                                      F-11
<PAGE>


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


7.   Commitments and Contingencies

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

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

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

8.   Income Taxes

     Potential benefits of income tax losses are not recognized in the accounts
     until realization is more likely than not. The Company has incurred net
     operating losses of $1,073,000 since inception on February 25, 1960.
     Pursuant to SFAS No. 109 the Company is required to compute tax asset
     benefits for net operating losses carried forward. Potential benefit 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.

     The components of the net deferred tax asset at June 30, 2005 and 2004, and
     the statutory tax rate, the effective tax rate and the elected amount of
     the valuation allowance are indicated below:

                                               2005                 2004
                                                 $                    $

Cumulative Net Operating Losses             1,073,000             894,000

Statutory Tax Rate                             35%                  34%

Effective Tax Rate                              -                    -

Deferred Tax Asset                           376,000              304,000

Valuation Allowance                         (376,000)            (304,000)
--------------------------------------------------------------------------------
Net Deferred Tax Asset                          -                    -
================================================================================

                                      F-12
<PAGE>


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


9.   Subsequent Events

     On August 16, the Company issued 225,000 shares of common stock and 150,000
     restricted shares of common stock to settle the outstanding debt and
     accrued interest as described in Note 3(c).

     In September 2005, the Company received total share subscriptions of
     CAD$9,590 and will issue 86,700 restricted shares of common stock.



                                      F-13
<PAGE>


Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
--------------------

N/A

Item 8A.  CONTROLS AND PROCEDURES
---------------------------------

Based on an evaluation as of the end of the period, the Company's Principal
Executive Officer and Acting 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.

CODE OF ETHICS

We have adopted a code of ethics that applies to our executive officers and
directors. This code of ethics is posted on our website at www.hybrid-fuels.com.
The Code of Ethics is filed as Exhibit 14.1 to this report.


Item 8B. OTHER INFORMATION
--------------------------

N/A

                                       23
<PAGE>


                                    PART III

Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (a) OF THE EXCHANGE ACT
---------------------------------------


As of June 30, 2004, the Board had a membership of three Directors: Paul
Warkentin (President/CEO and Acting CFO), Gordon Colledge (Vice President) and
David Krahn (Secretary-Treasurer).

On September 15, 2004, Dale Johnson was added as a Director to bring the Board
membership to four.

The following table sets forth the name, age, and position of each of the
persons who were serving as executive officers of Hybrid Fuels Inc. as of June
30, 2005:

NAME            AGE     POSITION                    DIRECTOR OR OFFICER SINCE

Paul Warkentin  38     President/Director                April 8, 2004

David Krahn     50     Secretary-Treasurer/              December 10, 2003
                       Director

Gordon Colledge 61     Vice-President/Director           September 26, 2000

Dale Johnson    54     Director                          September 15, 2004

The present and principal occupations of our directors and executive officers
during the last five years are set forth below:

Paul Warkentin
--------------
Mr. Warkentin (38) of Landmark, Manitoba, Canada has been a leading real estate
agent and land developer in the Winnipeg area since 1993 and brings a strong
track record of entrepreneurial vision, marketing, customer service and
leadership to Hybrid Fuels, Inc..

David Krahn
-----------

Mr. Krahn, (50) of Niverville, Manitoba, Canada is a professional Engineer with
a national consulting firm with 30 years of experince in Transportation
Engineering and Project Management in many large and complex projects throught
Manitoba and Western Canada.

Gordon Colledge
---------------
Mr. Colledge (61) of Lethbridge, Alberta, Canada, operates two privately held,
family-owned companies: Advance Communications Ltd. established 30 years ago and
Adcomm Research Ltd., formed in 1985. Both companies have a long history of
educational workshops, family mediation and succession planning for family-owned
businesses.

Dale Johnson
------------
Mr. Johnson (54) of Lethbridge, Alberta, Canada, is the President of Wind Power
Inc. based in Pincher Creek, Alberta, Canada. Mr. Johnson has over 20 years
experience in the independent power business including all aspects of regulatory
application, electrical interconnection requirements, wind power plant
construction, operation and maintenance.

                                       24
<PAGE>


TERMS OF OFFICE

All officers hold their positions at the will of the Board of Directors. All
directors hold their positions for one year or until their successors are
qualified and elected or appointed.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
the Company's outstanding Common Stock to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock. Such persons are required by SEC regulation to
furnish the Company with copies of all such reports they file.

We believe that all Section 16(a) Securities and Exchange Commission filing
requirements applicable to our directors and executive officers for the fiscal
year ended June 30, 2005 were timely met.

AUDIT COMMITTEE

Pursuant to the footnote by regulation S-B Item 401(f) and SEC Release 33-8220,
the Company is not subject to the audit committee disclosures at this time.

Item 10.  EXECUTIVE COMPENSATION
--------------------------------

On January 25, 2005, the Company issued 300,000 shares of restricted common
stock to Paul Warkentin, 200,000 shares to Gordon Colledge and 200,000 shares to
Dale Johnson at a price of $0.15 per share for management/consulting services
valued at $105,000 to be rendered up to December, 2006.

                           SUMMARY COMPENSATION TABLE
                   Annual compensation         Long term compensation
--------------------------------------------------------------------------------
                                 Other   Restricted Securities   LTIP    All
                                 Annual    stock    underlying   payouts other
Name &          Yr  Salary Bonus Compen-   awards   options/SARs  ($)    Compen-
Principal            ($)    ($)  sation($)  ($)        (#)               sation
Position
--------------------------------------------------------------------------------
Paul Warkentin 2005   nil   -0- 11,358      -0-         -0-       -0-     -0-
Paul Warkentin 2004   nil   -0-    -0-      -0-         -0-       -0-     -0-
Clay Larson    2004   nil   -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO      2003 72,000  -0-    -0-      -0-         -0-       -0-     -0-
Alan Urschel   2004 13,670  -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO
--------------------------------------------------------------------------------

At the present time, the Company does not have any other compensation agreements
or plans with any officers and/or directors of the Company. The Company does
intend to enter into such agreements in the future when resources allow.

It is the Company's intention to appoint not more than three new directors who
will be remunerated in accordance with their responsibilities with the Company.
At year end, no prospective directors had been identified. At such time as new
directors and/or officers are appointed, the Company will adopt an appropriate
compensation plan.

There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in Cash Compensation

                                       25
<PAGE>


set out above that would in any way result in payments to any such person upon
termination of their employment with the company or its subsidiaries, or any
change in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
---------------------------

The following table sets forth as of October 12, 2005, the name and the number
of shares of the Registrant's Common Stock, par value $.001 per share, held of
record or beneficially by each person who held of record, or was known by the
Registrant to own beneficially, more than 5% of the 25,869,433 issued and
outstanding shares (see Consolidated Statement of Shareholders Equity in
Financial Statements) of the Registrant's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.


Title  of   Name and Address of        Amount and Nature of      Percentage of
Class       Beneficial Owner           Beneficial Ownership      Class
--------------------------------------------------------------------------------
Common      Donald  Craig                    1,450,000               5.60%
            12650 Ponderosa Road
            Winfield, B.C. V4V 2G8

Common      David Krahn (1)                    253,000               0.98%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Paul Warkentin (1)                 535,000               2.07%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Gordon Colledge (1)              1,012,000               3.91%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Auchengrey Ltd.                  1,500,000               5.80%
            Diane Smith,
            PO Box 3321,
            Tortula, BVI.

Common      Killaloe Ltd.                    2,000,000               7.73%
            Don Murray,
            Drake Chambers,
            Tortula, BVI

Common      Dale Johnson (1)                   200,000               0.77%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0


--------------------------------------------------------------------------------
Common      Total Officers and Directors
            as a  Group (3 Persons)          2,000,000               7.73%
--------------------------------------------------------------------------------

(1) Officer and/or director.

                                       26
<PAGE>


There are no contracts or other arrangements that could result in a change of
control of the Company.


Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------

In 1998, Donald Craig, who owns more that 5% of the issued shares of the
Company, loaned $499,059 to the Company, of which $365,590 was repaid in cash.
He also paid expenses and loaned money to the Company of $62,786, with the
result that the Company owed him $199,371 as of June 30, 2005. The loan is
non-interest bearing, payable on demand with no fixed terms of repayment.
Imputed interest is calculated at 15% to reflect the risk of the loan and that
interest is charged to operations and treated as donated capital.

The current President, Paul Warkentin, donated services valued at $30,000 during
the period from July 1, 2004 to June 30, 2005 inclusive.

The Company does not expect to have any significant dealings with affiliates.
Presently, other than as described above, none of the officers and directors
have any transactions that they contemplate entering into with the Company.


Item 13.  EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------

a. EXHIBITS:

Exhibit 3.1 Articles of Incorporation (1)

Exhibit 3.2 Bylaws (1)

Exhibit 4.1 Specimen stock certificate (2)

Exhibit 14.1 Code of Ethics

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

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

(1) Incorporated by reference from the Company's Form 10-SB filed with the SEC
    on February 7, 2000.

(2) Incorporated by reference from the Company's Form 10-QSB filed with the SEC
    on May 15, 2001.


b.  REPORTS ON FORM 8-K:

N/A

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
------------------------------------------------

The following table discloses accounting fees and services that we paid to our
auditor, Manning Elliott:

                                       27
<PAGE>


Type Of Services Rendered        Fiscal Yr 2005    Fiscal Yr 2004

Audit Fees                            $9,850            $4,200
Audit-Related Fees                    nil               nil
Tax Fees                              nil               nil
All Other Fees                        nil               nil


                                   SIGNATURES
                                   ----------

Pursuant to the requirements of Section 13 or 15(d) 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 Fuels, Inc.

Date: October 14, 2005

By: /s/ Paul Warkentin                               By: /s/ Gordon Colledge
----------------------                               -----------------------

Name: Paul Warkentin                                 Name: Gordon Colledge
Title: President/CEO/Acting CFO                      Title: Vice President



                                       28