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, 2004

     [ ] 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]

The number of shares issued and outstanding of the registrant's common stock as
of October 8,2004 is 23,679,733.

Amount of revenue for most recent fiscal year   $0.00

Aggregate market value of the common equity held by non-affiliates: $2,268,663


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                                TABLE OF CONTENTS

                                     PART I

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

 Item 2.   DESCRIPTION OF PROPERTY....................................Page 17

 Item 3.   LEGAL PROCEEDINGS..........................................Page 17

 Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........Page 17


                                     PART II

 Item 5.   MARKET FOR REGISTRANT'S COMMON
           EQUITY AND RELATED STOCKHOLDER MATTERS.....................Page 18

 Item 6.   PLAN OF OPERATION..........................................Page 20

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

 Item 8.   CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................Page 26

 Item 8A.  CONTROLS AND PROCEDURES....................................Page 26

 Item 8B.  OTHER INFORMATION..........................................Page 26

                                    PART III

 Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
           AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (A)
           OF THE EXCHANGE ACT........................................Page 26

 Item 10.  EXECUTIVE COMPENSATION.....................................Page 28

 Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
           OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
           MATTERS....................................................Page 29

 Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............Page 30

 Item 13.  EXHIBITS AND REPORTS ON FORM 8-K...........................Page 30

 Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.....................Page 30

 Signatures...........................................................Page 31




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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

Hybrid Fuels Inc. is a developmental stage company and has had no income since
the acquisition of the hybrid fuels technology in June 1998.

The Company was originally incorporated in the state of Florida on February 16,
1960 as Fiberglass Industries Corporation of America. On September 3, 1966, the
Company changed its name to Rocket-Atlas Corp. It changed its name again on
December 1, 1966 to Rocket Industries, Inc. On January 28, 1984, the Company
changed its name to Polo Investment Corp. of Missouri, Inc., and on October 7,
1985 changed it's name to Medical Advanced Systems, Inc. Then, by resolution
adopted May 14, 1993 and filed on June 3, 1993, the Company changed its name to
Polo Equities, Inc., and increased its authorized capital to 50,000,000 shares
with a par value of $0.001. 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, Donald 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.

Hybrid Fuels intended business is to market integrated farm-scale facilities
that combine ethanol production with a beef finishing operation. This
integration is to be achieved through certain procedures, process improvements
and mechanical devices the company has discovered or developed. The ethanol is
intended to be mixed with diesel to create a hybrid fuel. The Company expects to
act as the marketing agent for the hybrid fuel and the finished animals in order
to control quality and present a unified marketing presence as a way of
generating better returns from the sale of the products.


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SOME CONCERNS ABOUT PRESENT FINISHING METHODS

In "Diet For A New America", John Robbins describes how, in most conventional
beef feedlots, antibiotics are fed to the animals daily to prevent them from
becoming sick. In addition, growth hormones are implanted or fed to increase
weight gains and toxic chemicals are used to kill flies and to protect the
animals from parasites that might interfere with weight gains. He also reviewed
the evidence pointing to growing health concerns that seem to be the result of
those substances remaining in the meat, and being ingested when consumers eat
the end product.

Further, according to a report by noted security analyst, Edward Luttwalk,
published in the February 12, 2001 edition of the Toronto Globe and Mail,
factory farming involves the crowding, of thousands of animals, into an area
about the size of a city block. The report states, "to put it plainly, nearly
all beef cattle in North America and Europe survive in a chronic state of low
level sickness with the use of large amounts of antibiotics. Because they are
cheap and induce water retention that increases weight, antibiotics are just the
thing for feedlot operators whose animals could not survive a week without
them." Luttwalk goes on to say, "At a time when old diseases such as
tuberculosis are reappearing, along with bacteria strains that have become
highly resistant to antibiotics, their use in mass quantities by cattle raisers
is a real problem. Until recently, it was thought that humans couldn't absorb
antibiotics from cooked meat, but research prompted by bovine spongiform
encephalopathy (BSE) has disproved all that." These findings are further
supported by recent research at the University of Illinois, according to a
Canadian Press report. This research has documented the transfer of antibiotic
resistant genes from large-scale hog facilities to surrounding water and soil.
These scientists are reported to have concluded that this is evidence to tie
antibiotic resistance in humans to widespread use of antibiotics in the
livestock industry. Rustam Aminov, one of the scientists, is reported to have
said, "Its not an unreasonable conclusion with 75% of all the antibiotics in the
US finding their way into meat and poultry."

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:

     1.   declining farm income and the number of family farms;
     2.   declining fossil fuel reserves;
     3.   increasing ground water contamination from animal finishing
          operations;
     4.   the increase in antibiotic resistant "super bugs" as a result of
          over-use of antibiotics; and
     5.   threats of global warming from use of fossil fuels.

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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.

SOME 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.

The hybrid fuels technology was acquired by the Company in a reverse takeover in
June 1998 as described above, and a facility that was intended to be the first
commercial facility was constructed near Cardston, Alberta. Improvements to the
technology installed in that facility included an innovative separation column
that added a Company developed, vegetable based emulsifier and diesel fuel at
the point of condensation of the ethanol vapor.

Before the facility near Cardston could begin operating, the farmer sold the
land and removed the buildings and equipment without the authority to do so.
Although the facility never operated, much was learned from the construction.
That information has been used to refine the design that is expected to reduce
construction costs and improve operating efficiency.

THE PROPOSED FACILITIES

The proposed facilities are planned to consist of a barn where the cattle are to
be kept, a second building housing the ethanol making equipment and the
gasifier, that will be set up next to the barn and ethanol plant. The ethanol
making equipment consists of feedstock handling and preparation tanks, water
tanks, fermentation tank, separation columns, a spin dryer, necessary pumps and
the tanks to hold the ethanol.

In the Company's intended facilities, approximately 200 animals are kept in a
warm, dry and clean barn during the finishing process of approximately 100 to
120 days. The farm operator supplies the feedstock, that is used first to make
the ethanol and then to feed the animals.

In order to make ethanol, grain, referred to as feedstock, and heat for
fermentation and distillation, are needed. The heat is supplied from the burning
of the used bedding straw and manure. To avoid confusion, we need to make it
clear that the ethanol is not made from this waste. The ethanol is made from the
fermentation of the feedstock, followed by the separation of the mash from
liquid and then the distillation of the ethanol from the liquid.

The operator is to supply the cattle, straw or other bedding, electricity,
diesel, emulsifier and about 2500 gallons of water per day. These 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. Each barn is to
be divided into six pens, measuring 40 feet by 30 feet, one of which is empty
and five that contain the animals. This means that there will be approximately
40 animals per pen, depending on the size of the animals.

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<PAGE>

These 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.

Cattle being finished generally average about 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 soak up 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 the gasifier,
according to the manufacturer.

Each day the empty pen is cleaned and new bedding is placed in the clean pen.
Then the animals from the next occupied pen are moved into the newly cleaned
pen. When the manure and used bedding is removed, it is shoveled into a central
waste removal system that carries it into a gasifier/burner to be transformed
into heat.

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 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 to cause pollution.

The cattle are expected to be started between 600 and 1000 pounds and finished
to about 1100 to 1400 pounds. Not all of the cattle are brought in to the barn
at the same time and so are at various weights and stages of finishing.

These facilities are expected to be operated manually by two people, which would
usually be the operator and one employee. Thus trained people are expected to be
in contact with the animals several times a day, while they are being fed, or
moved from one pen to another. These operators should 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 feedstocks, 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.

                                       6
<PAGE>

ETHANOL ENERGY BALANCE INFORMATION

The history of ethanol production for fuel worldwide is well documented, and
covers a period of more than 75 years. The term "energy balance" associated with
ethanol production, means the relationship or ratio between the energy
(generally expressed in British Thermal Units or BTU's) in the ethanol compared
to the energy used to produce the ethanol and is written as 2:1, 4:1, etc. 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.

According to the publication "Advances in Biochemical Engineering - Alcohol
Production and Recovery" by Maiorella, Wilke, and Blanch, of Lawrence Berkley
Laboratory and Department of Chemical Engineering, University of California,
Berkley, CA 94720: "Distillation until now has been considered to be very
inefficient - utilizing as much energy as is produced in the alcohol product."

The Peoria, IL pilot plant built by the US Department of Agriculture illustrates
that energy in the product is only 30% of energy consumed for distillation. The
commercial Peoria plant indicates a more favorable energy balance in the range
of 2:1. Management believes that a ratio of around 4:1 is probably fairly
representative of newly built ethanol making facilities.

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 operator 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
whole process in about 12 to 15 hours. In most typical distillation operations,
the process takes around 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.

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<PAGE>

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.

Aside from the capital costs of the facility, the two major costs of ethanol
production are the feedstocks 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 making ethanol and feeding cattle, our process effectively reduces
the cost of making 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 make the
ethanol, which means the process will not incur that input energy cost. Making
ethanol also generates another stream of income, that should make the operation
more economical.

The distillers grains that are left over from the ethanol making process have a
low moisture content around 5% and are fed as wet distillers grains (WDGs). The
stillage water is also to be fed to the animals. The plants 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.

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<PAGE>

The Company believes the results mentioned in the last paragraph, related to
feeding wet distillers grains, are born out in 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.

Processors, like Cargill, and consumers, pay higher prices for the superior
grades because they are generally more tender and taste better.

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.
Both these figures mean higher returns to those who raised the animals because
they represent more meat at higher grades which means higher prices.

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. We see no reason
why operators should not be able to achieve similar results using this system,
or better results if good beef cattle are used.

HORMONE-FREE BEEF

There are a growing number of stores that are offering hormone-free beef.
Consumers generally pay higher prices for this beef, and the cattle raiser
receives a higher price per pound as well. The Company wishes to have its
operators use the process to raise hormone free beef for this market, partly
because of these higher prices.

In order to access the hormone-free beef market, the Company intends to require
that when the operators bring animals in for finishing they be 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. The
Company anticipates accessing such animals in order to assure our operators of
receiving the type and quality of beef we require. 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.

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<PAGE>

The operator selection process will seek to ensure that prospective operators
are in favor of producing animals free of added hormones. In addition, random
drug tests are anticipated to detect any use of hormones and those who violate
this policy may be subject to penalties. It is also expected to be in the
operators best interests to market hormone and antibiotic free beef as it
commands higher prices. 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. The
Company intends to seek out markets for these animals as a way of generating
higher returns for the operators, which is also expected to generate an
incentive revenue for the Company.

MISCELLANEOUS 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 HYBRID FUEL

The ethanol is "de-natured" by mixing 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 and this chemical
mixture is stored in an appropriate tank (3500 to 5000 gallons) on site until it
is picked up, similar to bulk milk pickup, and delivered to a mixing plant to be
further mixed 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 test 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. For example,
diesel/water mixtures are being independently developed and tested by Elf
Acquitane and retired MIT Professor, Keith Johnson, according to an article in
the March 13, 1999 edition of New Scientist. The article reports that these
mixtures reduce particulate emissions by 45% and Nox by 15%. On its website, The
University of Illinois reports similar reductions regarding the use of a mixture
of diesel and dry ethanol. Compared to both of those mixtures, Hybrid's mixture
showed greater reduction of emissions at 65.5% and 22.2% respectively in the
BCIT tests.

                                       10
<PAGE>

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 mix locally and use the fuel for testing and evaluation by local
users. Two local firms have agreed to evaluate the fuel made by the first plant
as soon as we produce it. This evaluation is expected to begin at no cost to the
operators. The price is somewhat tied to the retail price of diesel. Although we
have not yet agreed on benchmarks, the price is expected to gradually increase
over time as the evaluation progresses. Handling and mixing 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 mixing plants that have the capacity to
handle the production on a contract basis. The plan is for the Company to
purchase the resulting chemical mixture from each plant, and transport it to
mixing plants for further mixing to achieve the appropriate ratio. This is
designed to ensure control over all of the ethanol produced to ensure the over
all best price and equitably distribute that amongst the operators. The Company
expects to earn revenue for providing this service.

When a larger number of facilities are operating and producing sufficient
quantities, the Company intends to sell the mixed fuel to end users and diesel
fuel distributors encompassing all industries. Ultimately the Company may
consider building and operating its own mixing 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.

There is research by others which reviews the environmental and other benefits
of ethanol-diesel mixes 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 mix 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 is required.

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

For the short term, until resources permit, services we need to hire will be
supplied by consultants, contractors or commissioned salespeople.



                                       11
<PAGE>

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 building of the first facility. 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 as and when needed 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 supply and
install the buildings, the flooring materials, pumps, tanks and other
"off-the-shelf" 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

Each facility will require some form of government permit in order to operate.
In the United States, the Bureau of Alcohol Firearms and Tobacco is the
appropriate agency and they have verbally indicated to the Company that it would
be able to obtain the appropriate permits. In Canada, the appropriate agency is
Excise Canada which has taken the position that since the facilities produce
ethanol, each will require a distillers license. This would require the
installation of equipment in each facility that is designed to measure the
amount of alcohol.

Unfortunately that equipment will not work because the ethanol is denatured by
the addition of diesel and the emulsifier in the column which means that it is
impossible to detect, access or measure any pure ethanol in the process. The
Company is therefore seeking an exemption for its operations and has enlisted
the assistance of a number of people and politicians to assist in persuading
Excise Canada to issue the necessary exemption. Until such an exemption is made,
the facilities may be built without the ethanol equipment. If there are
significant delays in obtaining the desired exemption, the Company anticipates
that it will commence building facilities in the U.S.. The prototype facility
will have the ethanol making equipment and is expected to operate with a special
permit.

COST AND EFFECTS OF 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
production of the hybrid fuel in the Province of British Columbia and in most
states of the US. The necessary building permit has already been issued for the
first facility.

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.

                                       12
<PAGE>

TARGET MARKET AND ADVERTISING

The Company's target market for the sale 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
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.

COMPETITION

Major oil and petroleum companies as well as alternative energy companies will
all 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.

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.

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.

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.

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.

                                       13
<PAGE>

Over the past year the Canadian beef market has suffered as a consequence of the
US closing its border to all beef imports from Canada because of a case of "mad
cow" disease. The US has recently permitted the resumption of beef shipments
which will likely return to "pre-scare" levels over time. If beef sales do not
return to earlier levels, this could have an adverse effect on the Company.
However, Successful Farming Online reported in January 2000, that consumers will
pay more for beef that is guaranteed good quality. The Company believes that
beef fed distillers grains, 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.

As a result of environmental and fuel price concerns in both Canada and the US,
there is a push to increase the production of ethanol. A recent press release
issued by Agriculture Canada reads, "Ottawa Has Big Plans For Ethanol." The
release says in part that, "government officials state that as part of Canada's
commitment to reducing emissions from vehicle exhaust, Ottawa will soon announce
a package that includes extension and expansion of a plan to guarantee loans for
ethanol plant construction or expansion. There will be provision for direct
government aid to build new facilities. Recommending a goal of increasing
ethanol production capacity to close to one billion liters by 2005, (250,000,000
US gallons) Canadian Agriculture Minister, Lyle Vanclief, at the time of that
recommendation then said producing alcohol from grain would be "the main ticket"
for future rural incomes. The Company believes that initiatives such as these
create a more favorable climate for the expansion of the Company's business,
even though the Bush administration seems to have much less enthusiasm for
ethanol than the previous administration under the Democrats and Bill Clinton.

The United States and Canada 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, although the Bush administration has been
balking at complying with those commitments. 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 mixing of wet ethanol
and diesel which reduces emissions, without incurring drying costs.

Another trend that may work to our advantage is the trend of governments and
health regulators to mandate environmental clean-ups and reduce pollution. Local
authorities are implementing stricter environmental requirements, in particular
tighter restrictions on the handling of animal waste that has been found to
contaminate ground water.

In addition, with rising fuel prices in general, the price of ethanol has
increased over the last few years. This trend should work to the advantage of
the operators and the Company.

                                       14
<PAGE>

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.


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. They would essentially
have to destroy the column to find out how it was made and how it works. While
the Company intends to take all appropriate measures to protect secrecy, as far
as the Company is aware, we are the only ones that are developing small scale
plants. Other ethanol plants that are being considered, that we are aware of,
are large operations that will produce millions of gallons per year. Our
technology is useless to those operations. Management therefore believes that
the risk associated with the lack of patent protection, described under RISK
FACTORS below is reasonably acceptable.

RISK FACTORS

You should carefully consider the following risks and the other information
contained in this report and in our other filings with the Securities and
Exchange Commission before you decide to invest, maintain or add to your
investment in the Company. The risks and uncertainties described below are not
the only ones facing us. Additional risks and uncertainties may also adversely
impact and impair our business. If any of the following risks actually occur,
our business, results of operations or financial condition would likely be
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.

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.

                                       15
<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, 2004, of $1,791,246.

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.

                                       16
<PAGE>

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

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

11. The production of beef and fuel are both highly competitive. 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.

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 6-acre parcel of land where the first facility is
currently being built in Oyama, British Columbia. The owner 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.

                                       17
<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 23,371,980 were issued and outstanding as at June
30, 2004 and the Company had 258 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.


                                                2002

                   1st Quarter          0.28             0.05
                   2nd Quarter          0.14             0.045
                   3rd Quarter          0.20             0.06
                   4th Quarter          0.22             0.08
                                                2003
                   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
                   1st Quarter          0.25             0.13
                   2nd Quarter          0.25             0.09


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. 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 September 19, 2001, 200,000 shares of common stock were issued to a
director/officer of the Company to settle $10,000 owing as at June 30, 2001.

On October 18, 2001, the Company issued 100,000 shares of common stock to a
consultant in consideration of services valued at $5000.

On October 18, 2001, the Company issued 130,000 shares of common stock to an
investor for cash at a price of $0.08 per share.

                                       18
<PAGE>

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.

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.

                                       19
<PAGE>

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

As at June 30, 2004, our independent auditors raised a substantial doubt about
our ability to continue as a going concern because we have not generated any
revenues and have conducted operations at a loss since inception.

The independent auditors' report expressed similar concern as at June 30, 2003
and management recognizes the need to avoid complacency in the development of
existing technologies and new opportunities.

The current Board, together with several members of the Technical Advisory
Committee (see Item 9), has been aggressively pursuing the expansion of the
Hybrid Fuels technology to meet the changing demands of the agricultural
industry and to create additional economic and renewable energy opportunities.

Although our cash reserves at June 30, 2004 were limited to $7,907 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.

Our ability to continue to operate in the future depends in part on the
completion of the first operating facility. We estimate it will cost
approximately $1 million to cover payables, build the first facility, begin the
development of operating activities and deal with potential claimants. This
estimate includes $350,000 for facility construction, $110,000 for cattle,
$36,000 for payables (excluding shareholder loans and accrued executive
salaries), $80,000 for salaries, consumables and other operating expenses until
the facility begins to generate cash flow, and $250,000 for contingencies and
the development of operating activities. The remaining $190,000 constitutes a
reserve for any shortfalls in our estimation process or any unforeseen
contingencies.

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.

Our subsidiary, Hybrid Fuels (Canada) Inc., entered into a verbal agreement with
an independent third party to construct a fully operational facility at Oyama,
B.C. Part of the agreement will make the facility availability to the Company
for training and demonstration purposes, through a lease or an operating
agreement. The terms under which this facility will be operated are to be
finalized when the construction is complete and all of the construction and
start-up costs are known.

The first facility is being built at Oyama, on approximately six acres of
farmland just north of Kelowna, British Columbia. As of June 30, 2004 the
flooring for the facility was completed as well as the enclosure for the ethanol
equipment. The gasifier (manure burning unit) and the Greener Pastures grass
growing system was also on site.

                                       20
<PAGE>

The Oyama location provides Hybrid Fuels (Canada) Inc., supervisory capability
and site control. Upon completion of construction, 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.

PLAN OF OPERATION ASSUMING ADEQUATE CAPITAL RAISED

The major goal 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 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. The
financial institutions 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.

An operating facility includes the barn, the ethanol making equipment, the
bio-furnace or gasifier, "Greener Pastures" grass growing system, and the right
to use the proprietary information and technology, as more fully described
above. The cost of building this facility is anticipated to be approximately
$350,000. Approximately $220,000 of this cost is for foundations and flooring,
buildings, the gasifier, the ethanol making equipment, tanks and machinery. Soft
costs, for such items as permits, engineering and other professional fees,
survey and layout, site preparation, delivery of buildings and materials,
rentals, small tools and miscellaneous, are estimated at $60,000. We estimate we
will spend approximately $70,000 for construction labor and supervision.

We have designed the barn to accommodate 200 head of cattle. As we near the end
of testing the facility, we plan to begin the finishing operation for the
cattle, with an initial group of 20 to 25 cattle. The finishing operation is
designed to function on a staggered basis, so that every two weeks (initially)
we will bring in an additional 20 to 25 cattle. We will sell the cattle on the
same staggered basis as they complete the finishing process. As we gain
experience with the facility, we intend to bring cattle in 40 to 50 at a time on
three to five week intervals to take maximum advantage of the size of the trucks
used to transport the cattle.

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 acquisition scheme are scheduled to take
approximately three to four months, depending on how long the finishing takes.


                                       21
<PAGE>

As a result of using this staggered acquisition scheme, we will not run the
facility at full capacity until approximately four months have passed from the
facility becoming operational. As a result the cattle we begin selling during
the fourth month, which will generate our initial revenues, will bear a
disproportionate amount of fixed costs compared to cattle sold beginning in the
eighth month. We believe, however, that at the end of the fourth month, when we
sell the first group of finished cattle, we will have an initial set of data
with which to prepare pro forma information for purposes of estimating cash
flows to prospective financiers of future facilities, rather than having to wait
until the end of the eighth month, to present this information.

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 speaking, the older they are, the more they weigh. One
of our fundamental assumptions is that the facility will have the potential to
break even if we can sell finished cattle at prices per pound that are less than
the prices per pound at which we purchase them. 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 provides the potential for
generating a profit or at least breaking even when selling finished cattle at a
lower price per pound. For example, assume we purchase a 600-pound animal for
$0.90 per pound, or $540, that we finish to 1000 pounds and sell at $0.85 per
pound, or $850. The $310 difference between our purchase price and the sale
price would have to cover the consumables purchased to prepare wet distillers
grains for the animal and a pro rata share of the facility's operating
costs,including debt service.

At this time we do not have financial data to support the breakeven pricing
spread for the facility. Developing this relationship between the facility's
cost structure and tolerable price differentials will provide critical
information for prospective financiers of future facilities.

We expect that as sale prices move close to or exceed purchase prices, the
facility's cattle finishing operation will make a profit. Cattle prices are
volatile, however, so there is a distinct risk that sale prices for finished
cattle could be below the pricing threshold, resulting in a loss on cattle
finishing. The greater the price spread, the more important ethanol sales become
to the overall profitability of the facility. Farmers with integrated operations
who grow their own consumables could have greater price flexibility on the
cattle finishing operation if their cost of producing the consumables is less
than the market price for consumables. We do not plan to have an integrated
operation at the first facility, so we will have to pay market prices for our
consumables.

We do not plan to sell the ethanol produced by the first facility during at
least the first two to three months of its operation. We have discussed with a
local owner of a sawmill and trucking company giving him the ethanol for this
two-to three-month period, with a view toward charging him in the future once he
has determined that he can use the ethanol economically without harm to his
equipment. Once the ethanol plant is at full capacity, we project that the
plant will produce approximately 240 US gallons of ethanol per day, that could
be sold at market prices slightly below the price of the diesel fuel with which
it will be blended. The price of ethanol will vary, usually in tandem with the
price of diesel. For example, assuming a price of $0.70 per gallon for ethanol,
monthly sales of ethanol would be approximately $5,000.

                                       22
<PAGE>

Once we have operated the facility for four months, we believe that the actual
financial results for the finishing operation and ethanol sales will provide us
with the data needed to prepare pro forma financial information assessing the
economic feasibility of the facility. If the data establishes the economic
feasibility of the facility, we will then be able to implement our business
plan, which is based on identifying third parties who will work with us to
construct and operate their own facilities. 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 established the economic feasibility of our demonstration facility,
we intend to operate it and earn revenue from the sale of cattle and ethanol.

We intend to license our technology and provide our expertise to third parties
that want to construct facilities. We expect to earn a profit and recognize
revenue on the sale of each facility. We plan to charge fees in connection with
the sale of each facility, based on the value to the operator of having us
organize and supervise the construction of the facility and train the operator.
We expect the fees from the sale of the facilities to be sufficient to cover all
of the operating costs we will incur in qualifying candidates, training
operators, supervising construction and start-up, etc., until royalties are
received. It should be recognized that once the first facility is operational,
that may lead to modifications of the planned methods of operation.

Once we have demonstrated our demonstration facility's economic feasibility for
purposes of obtaining financing of subsequent facilities, we expect to have
selected four operators. After operators have been selected, based on a
screening process to select suitable candidates, we plan to train them and
assist in constructing facilities.

We intend to lease to the operators, on a permanent basis, the separation
column, that is used to distill the ethanol, and the spinner, that is used to
separate the mash from the water after the fermentation process. These two items
are integral parts of the facilities, and leasing them is designed to protect
the secrecy of these most vital pieces of the technology. The lease payments
will generate revenue for us and will be payable monthly in amounts yet to be
finalized.

We plan to charge a royalty for the use of the trade secrets and proprietary
information. The royalty, which is expected to be $2500US per month, per
facility, based on the projected benefits of the use of trade secrets to the
operator, will begin when each facility begins operation. Incentives in the form
of reduced royalties may be offered to the first 10 to 20 operators who make
early commitments to purchase facilities.

We also expect to charge each operator service fees to cover the cost of ongoing
training, service, technical support, and quality control. We expect these fees
to be in the $150 to $250 per month range.

                                       23
<PAGE>

We expect to enter into contracts with our operators to act as their marketing
arm for the beef and fuel. We expect this arrangement to generate revenue for us
and give us control over greater quantities of both products than any individual
operator would have. We believe this arrangement will provide us with the
ability to make better deals with, and provide more secure delivery to,
distributors and other purchasers. We believe that operators will appreciate
being relieved of these marketing responsibilities, particularly if beef sales
at premium prices generate greater revenue for them. Revenue for the Company is
expected to come from the resale of the fuel and from a portion of any premium
that the Company can obtain from the sale of the beef.

OPERATING RESULTS FOR THE YEAR ENDED JUNE 30, 2004

During the fiscal year ended June 30, 2004 the Company had no revenue and
incurred losses of $312,249 compared to $253,935, for the comparable period the
previous year. Management has met with various technical researchers,
agriculture officials and consultants over the past year to discuss development
and expansion of the Company's technology. This resulted in additional expenses
for Travel and Promotion ($15,450) and Research and Development ($8,925) as
compared to nil and $5 in fiscal 2003. The loss for the year also includes
Executive Compensation for former Presidents Clay Larson ($36,000) and Alan
Urschel ($13,670) for a total of $49,670 compared with $72,000 for the fiscal
year ended June 30, 2003. 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. Investor relations expense also increased to
$52,974 from nil in the prior year as the Company retained a consultant to be a
contact for the Company and to handle various administrative and promotional
duties.

LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended June 30, 2004 the Company received $87,808
including:

     a)   $81,737 from issuing common stock
     b)   $3,745 from related parties. These advances are non-interest bearing,
          unsecured and due on demand.
     c)   $2,232 from non-related parties. These advances are non-interest
          bearing, unsecured and due on demand.

A total of $81,148 was used in operating activities. This resulted in an
increase of cash of $6,660 and increased the Company's cash position from $1,247
at June 30, 2003 to $7,907 at June 30, 2004.

During the year ending June 30, 2004 the Company incurred non-cash financing
activities by issuing 755,833 shares for services valued at $117,337 and issuing
another 67,778 shares to settle debt valued at $13,791.

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.

                                       24
<PAGE>

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, 2004 we had a working capital deficit of $616,791 and an accumulated deficit
from inception of $1,791,246.

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


                                       25
<PAGE>


Item 7. FINANCIAL STATEMENTS
----------------------------

[GRAPHIC OMITTED]

MANNING ELLIOTT
CHARTERED ACCOUNTANTS

                   11th floor, 1050 West Pender Street, Vancouver, BC, V6E 3S7
                   Phone: 604.714.3600 Fax: 604.714.3669 Web: manningelliott.com


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

To the Stockholders
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, 2004 and 2003 and the related
statements of operations, stockholders' deficit and cash flows accumulated for
the period from February 16, 1960 (Date of Inception) to June 30, 2004 and the
years ended June 30, 2004 and 2003. 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 aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of Hybrid Fuels, Inc.
(A Development Stage Company), as of June 30, 2004 and 2003, and the results of
its operations and its cash flows accumulated for the period from February 16,
1960 (Date of Inception) to June 30, 2004 and the years ended June 30, 2004 and
2003 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 6, 2004



<PAGE>

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

                                                                                  June 30,              June 30,
                                                                                    2004                  2003
                                                                                     $                      $
<S>                                                                              <C>                   <C>
ASSETS

Current Assets

  Cash                                                                                7,907                 1,247
                                                                                 ----------            ----------
Total Assets                                                                          7,907                 1,247
                                                                                 ==========            ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

  Accounts payable                                                                   50,265                35,695
  Accrued liabilities                                                                 3,250                12,500
  Note payable and other advances (Note 3)                                           39,432                37,106
  Amounts owing to related parties (Note 4)                                         205,050               201,305
  Amounts owing to a former director (Note 5)                                       326,701               290,701
                                                                                 ----------            ----------
Total Liabilities                                                                   624,698               577,307
                                                                                 ----------            ----------
Redeemable and Restricted Common Stock (Note 7(c))                                  223,000               223,000
                                                                                 ----------            ----------

Commitments and Contingencies (Notes 1 and 7)
Subsequent Event (Note 9)

Stockholders' Deficit

Common Stock: $0.001 par value (Note 6)
  50,000,000 shares authorized
  23,371,980 shares are issued and outstanding (2003 - 21,950,600)                   23,372                21,950

Additional Paid-in Capital                                                          625,828               414,385

Donated Capital                                                                     329,554               243,602

Deferred Compensation                                                               (27,299)                   --

Deficit Accumulated During the Development Stage                                 (1,791,246)           (1,478,997)
                                                                                 ----------            ----------
Total Stockholders' Deficit                                                        (839,791)             (799,060)
                                                                                 ----------            ----------

Total Liabilities and Stockholders' Deficit                                           7,907                 1,247
                                                                                 ==========            ==========
</TABLE>




   (The Accompanying Notes are an Integral Part of the 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                   Years ended
                                                                   February 16, 1960        --------------------------------
                                                                   (Date of Inception)        June 30,              June 30,
                                                                    to June 30, 2004            2004                  2003
                                                                           $                      $                     $
<S>                                                                 <C>                     <C>                     <C>

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


Expenses
Deposits and advances written-off                                       255,512                     --                      --
Consulting fees                                                         157,417                 62,897                  88,000
Donated services (Note 4)                                                 7,500                  7,500                      --
Executive compensation (Note 5)                                         337,670                 49,670                  72,000
Filing and regulatory fees                                               26,130                  7,486                   1,014
General and administration                                               68,667                  5,327                   3,665
Imputed interest (Notes 4 and 5)                                        322,054                 78,452                  68,733
Interest                                                                 14,377                  4,437                   5,089
Investor relations                                                       69,672                 52,974                      --
Disputed compensation (Note 7(b))                                       243,463                     --                      --
Professional fees                                                       197,121                 16,978                  14,885
Rent and telephone                                                       45,295                  2,153                     544
Research and development                                                 16,925                  8,925                      --
Travel and promotion                                                     29,443                 15,450                       5
                                                                    -----------            -----------             -----------
                                                                      1,791,246                312,249                 253,935
                                                                    -----------            -----------             -----------
Net Loss                                                             (1,791,246)              (312,249)               (253,935)
                                                                    ===========            ===========             ===========
Net Loss Per Share - Basic and Diluted                                                           (0.01)                  (0.01)
                                                                                           ===========             ===========

Weighted Average Shares Outstanding                                                         22,351,000              21,600,000
                                                                                           ===========             ===========
</TABLE>




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

                                      F-3
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Deficit Accumulated from
February 16, 1960 (Date of Inception) to June 30, 2004 (expressed in U.S.
dollars)
<TABLE>
<CAPTION>

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

<S>                                     <C>         <C>        <C>        <C>          <C>          <C>           <C>

Cumulative from February 16, 1960
(Date of Inception) to June 30, 1997    15,000,000  15,000       3,398          -            -         (18,398)          -

Shares returned to treasury for
  cancellation                         (12,000,000)(12,000)     12,000          -            -               -           -
Shares issued to effect a reverse
  merger                                12,000,000  12,000     (12,000)         -            -               -           -
Net loss for the year                            -       -           -          -            -         (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)      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 Financial Statements)

                                      F-4
<PAGE>


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

<TABLE>
<CAPTION>





                                                                     Accumulated from              Years ended
                                                                    February 16, 1960     ----------------------------
                                                                    (Date of Inception)      June 30,      June 30,
                                                                     to June 30, 2004          2004          2003
                                                                            $                   $              $
<S>                                                                    <C>                  <C>             <C>
  Cash Flows To Operating Activities

  Net loss                                                             (1,791,246)          (312,249)       (253,935)

  Adjustments to reconcile net loss to net cash
    Common shares issued for services                                     212,337            117,337          78,000
    Deferred executive compensation                                       324,000             36,000          72,000
    Other adjustment                                                         (502)                --              --
    Imputed interest                                                      322,054             78,452          68,733
    Deposits and advances written-off                                     255,512                 --              --
    Donated services                                                        7,500              7,500              --

  Change in operating assets and liabilities
    Prepaid expenses                                                      (27,299)           (27,299)             --
    Accounts payable and accrued liabilities                               67,306             19,111          23,830
                                                                       ----------           --------        --------
Net Cash Used In Operating Activities                                    (630,338)           (81,148)        (11,372)
                                                                       ----------           --------        --------
Cash Flows To Investing Activities

  Deposit 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                                           205,050              3,745           1,672
  Proceeds from issuance of restricted common stock                       223,000                 --              --
  Proceeds from issuance of common stock                                  289,106             81,737           5,683
                                                                       ----------           --------        --------
Net Cash Provided By Financing Activities                                 890,289             87,808           7,355
                                                                       ----------           --------        --------
Effect of Exchange Rate Changes on Cash                                     3,468                 --           3,468
                                                                       ----------           --------        --------
Net Increase (Decrease) in Cash                                             7,907              6,660            (549)
Cash - Beginning of Year                                                       --              1,247           1,796
                                                                       ----------           --------        --------
Cash - End of Year                                                          7,907              7,907           1,247
                                                                       ==========           ========        ========
Non-Cash Financing Activities

  Common shares issued for services                                       222,337            117,337              --
  Common shares issued to settle debt                                     148,259             13,791          78,000
                                                                       ==========           ========        ========
Supplemental Disclosures

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

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


                                      F-5
<PAGE>

1.   Nature of Operations and Continuance of Business

     The Company was originally incorporated in the State of Florida on February
     16, 1960. After a number of name changes the Company changed its name to
     Polo Equities, Inc. on June 3, 1993. Prior to May 1998 the Company had no
     business operations.

     In May 1998, the Company caused a Nevada corporation to be formed under the
     name Polo Equities, Inc., (Polo) (a Nevada corporation), with authorized
     capital of 50,000,000 common shares of $.001 par value. 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, which changed its domicile to
     Nevada.

     On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid
     Fuels, USA, Inc. 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". On June 10, 1998 the Company began trading on the OTC
     Bulletin Board under the symbol "HRID" and in December 1999 was moved to
     the "Pink Sheets". The Company was re-listed on the OTC Bulletin Board in
     March 2003 and received "active" status in April 2003.

     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 involves 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 attain profitable operations. There is no guarantee that
     the Company will be able to complete any of the above objectives. At June
     30, 2004, the Company had a working capital deficit of $616,791 and an
     accumulated deficit of $1,791,246. 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 bet 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 material
         assets, liabilities or operations, other than the verbal agreement as
         disclosed in Note 7(d).


                                      F-6
<PAGE>

2.       Summary of Significant Accounting Policies (continued)

     (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.

     (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). SFAS 128 requires
         presentation of both basic and diluted earnings per shares (EPS) on the
         face of the income statement. Basic EPS is computed by dividing net
         income (loss) available to common shareholders (numerator) by the
         weighted average number of common shares outstanding (denominator)
         during the period. Diluted EPS gives effect to all dilutive potential
         common shares outstanding during the period including stock options,
         using the treasury stock method, and convertible preferred stock, using
         the if-converted method. In computing Diluted EPS, the average stock
         price for the period is used in determining the number of shares
         assumed to be purchased from the exercise of stock options or warrants.
         Diluted EPS excludes all dilutive potential common shares if their
         effect is anti-dilutive.

     (e) Foreign Currency Translation

         The Company's functional currency is the Canadian 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, 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, and amounts due to related parties approximate
         their carrying values due to the immediate or short-term maturity of
         these financial instruments.


                                      F-7
<PAGE>
2.       Summary of Significant Accounting Policies (continued)

     (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 as of its inception. 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.

     (i) Stock-Based Compensation

         The Company has elected to apply the intrinsic value principles of
         Accounting Principles Board Opinion No. 25, "Accounting for Stock
         Issued to Employees" ("APB 25"), and related interpretations in
         accounting for its stock options granted to employees and directors.
         Under APB 25, compensation expense is only recorded to the extent that
         the exercise price is less than the market value of the underlying
         stock on the measurement date, which is usually the date of grant.
         Stock-based compensation for employees is recognized on an accelerated
         basis over the vesting period of the individual options. Stock options
         granted to non-employees are accounted for under SFAS No. 123
         "Accounting for Stock-Based Compensation" and are recognized as
         compensation expense based on the fair market value of the stock award
         or fair market value of the goods and services received, whichever is
         more reliably measurable.

     (j) Recent Accounting Pronouncements

         In December 2003, the United States Securities and Exchange Commission
         issued Staff Accounting Bulletin No. 104, "Revenue Recognition" ("SAB
         104"), which supersedes SAB 101, "Revenue Recognition in Financial
         Statements." The primary purpose of SAB 104 is to rescind accounting
         guidance contained in SAB 101 related to multiple element revenue
         arrangements, which was superseded as a result of the issuance of EITF
         00-21, "Accounting for Revenue Arrangements with Multiple
         Deliverables." While the wording of SAB 104 has changed to reflect the
         issuance of EITF 00-21, the revenue recognition principles of SAB 101
         remain largely unchanged by the issuance of SAB 104. The adoption of
         SAB 104 did not have a material impact on the Company's financial
         statements.

3.       Note Payable and Other Advances

     (a) On September 15, 2000, the Company issued a note for $50,000 CND
         ($33,638 US) 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 $3,433 has been accrued for
         the year ended June 30, 2004 (2003 - $3,138). The note payable was
         $37,200 after translation into US dollars at June 30, 2004. The Company
         incurred a foreign currency translation loss of $1,040 that was charged
         to operations. Accrued interest from September 15, 2000 of $11,422 is
         included in accounts payable as of June 30, 2004.

     (b) A cash advance of CAD$3,000 from an unrelated party is non-interest
         bearing, unsecured and due on demand.

                                      F-8
<PAGE>

4        Related Party Transactions/Balances

     (a) The controlling shareholder is owed $199,371 (2003 - $197,115) for
         payment of rent, office expenses and professional fees on behalf of the
         Company. This amount is non-interest bearing, unsecured and without
         specific terms of repayment. Imputed interest of $30,122 (2003 -
         $29,365), calculated at a rate of 15% per annum, was charged to
         operations and treated as donated capital. An amount of $1,890 is owing
         to another shareholder. This amount is unsecured, non-interest bearing,
         with no specific terms of repayment.

     (b) The current President loaned the Company $2,300 and paid $1,489 for
         office and other expenses from personal funds. These amounts are
         unsecured, non-interest bearing and due on demand. During the year
         ended June 30, 2004, the Company recognized a total of $7,500 for
         donated services provided by the President of the Company.

     (c) On April 1, 2004 33,333 shares were issued to a former director for
         consulting services valued at $7,667. (d) On March 29, 2004 a total of
         600,000 shares were issued to officers, who are also directors of the
         Company, for consulting services valued at $81,896. See Note 6(h).

     (e) During the year ended June 30, 2004 the Company paid CAD$8,000 to a
         former director.

     (f) On January 23, 2003 a total of 600,000 shares were issued to directors
         of the Company to settle debt of $78,000 owing for management, legal
         and accounting services rendered to the Company.


5.       Amounts Owing to a Former Director

     The former President, who was also a Director of the Company, was paid
     office and related expenses from personal funds in the amount of $16,486 of
     which $13,785 has been reimbursed with cash. Effective July 1, 1999 the
     President was entitled to a deferred salary of US$6,000 per month or
     $324,000 in total and was owed a total of $326,701 at June 30, 2004. These
     amounts are unsecured, non-interest bearing and due on demand. Imputed
     interest of $48,330 (2003 - $39,368), calculated at a rate of 15% per
     annum, was charged to operations and treated as donated capital. The
     Company does not have a written employment contract with the former
     President.


                                      F-9
<PAGE>

6.       Common Shares

     (a) During the year ended June 30, 2003, 40,000 shares were issued for cash
         of $3,793 at an average price of $0.095 per share and 10,000 shares
         were issued for cash of $1,890 at an average price of $0.19 per share.

     (b) On January 23, 2003, 600,000 shares of common stock were issued to
         settle debt referred to in note 4(f).

     (c) On September 10, 2003, 40,000 shares of common stock were issued at a
         price of $0.25 per share to settle outstanding debt.

     (d) On September 10, 2003, 7,500 shares of common stock were issued at a
         price of $0.25 per share in consideration of services rendered.

     (e) On September 23, 2003, 7,500 shares of common stock were issued at a
         price of $0.25 per share in consideration of services rendered.

     (f) On October 23, 2003, 7,500 shares of common stock were issued at a
         price of $0.14 per share in consideration of services rendered.

     (g) On March 29, 2004, 27,778 shares of common stock were issued at a
         price of $0.14 per share to settle outstanding debt.

     (h) On March 29, 2004, 600,000 shares of common stock were issued to two
         directors at a price of $0.14 per share in consideration of services
         rendered. 400,000 of these shares relate to future services for the
         period from January 1 - December 31, 2004. As a result $27,299 has
         been charged to operations and the remaining balance of $27,299 has
         been set up as deferred compensation.

     (i) On March 29, 2004, 431,106 shares of common stock were issued for cash
         at a price of $0.14 per share.

     (j) On April 1, 2004, 133,333 shares of common stock were issued at $0.23
         per share in consideration of services rendered.

     (k) On April 1, 2004, 166,663 shares of common stock were issued for cash
         at a price of $0.14 per share.


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, totalling 550,000 shares, have been endorsed
         and returned to the Company for cancellation. The contingencies


                                      F-10
<PAGE>
7.       Commitments and Contingencies (continued)

         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
         the former administration has failed to provide addresses despite a
         number of requests. (b) Unauthorized and/or unsupported payments in
         the amount of $243,463 were made from Company funds by past officers
         of the Company during the period May, 1998 to June, 1999. The Company
         has requested a full accounting from the President of the Company
         during that time. All amounts that were unauthorized by the Board of
         Directors at the time or amounts that were not properly documented
         with invoices and receipts have been accounted for as disputed
         executive compensation. At such time as Company resources permit, the
         Company will seek legal advice to determine whether or not it is
         possible to recover all such disputed and unauthorized amounts from
         the previous administration.

     (c) Between October 1998 and June 1999, the administration 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. 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.

     (d) The Company's subsidiary, Hybrid Fuels (Canada) Inc., entered into a
         verbal agreement with an independent third party that will construct a
         fully operational facility at Oyama, B.C. Part of the agreement will
         make the facility availability to the Company for training and
         demonstration purposes, through a lease or an operating agreement. The
         terms under which this facility will be operated are to be finalized
         when the construction is complete and all of the construction and
         start-up costs are known.


                                      F-11
<PAGE>

8.       Income Tax

     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 $894,000 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, 2004 and 2003, and
     the statutory tax rate, the effective tax rate and the elected amount of
     the valuation allowance are indicated below:

<TABLE>

                                                    2004           2003
                                                      $             $
<S>                                                <C>          <C>
          Net Operating Loss                       190,000      113,000

          Statutory Tax Rate                            34%          34%

          Effective Tax Rate                            --           --

          Deferred Tax Asset                        64,600       38,420

          Valuation Allowance                      (64,600)     (38,420)
                                                   -------      -------
          Net Deferred Tax Asset                        --           --
                                                   =======      =======

</TABLE>

9.       Subsequent Event

     On September 23, 2004 the Company issued 75,000 common shares at a price of
     CAD$0.10 per share for cash consideration of CAD$7,500.

                                      F-12
<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 have 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.


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

N/A

                                    PART III

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

On December 10, 2003, David Krahn and Alan Urschel were appointed to the Board
of Directors of Hybrid Fuels, Inc. This brought the Board membership to five
including incumbent members Clay Larson (President and CEO), John Morrison and
Gordon Colledge.

On January 22, 2004, Clay Larson and John Morrison resigned to honor other
business and personal commitments. The Board of Directors subsequently appointed
Alan Urschel as acting President and CEO.

On April 8, 2004, Paul Warkentin succeeded Alan Urschel as President and CEO.
Mr. Urschel relinquished his position on the Board to serve on the newly formed
Technical Advisory Committee that was created to assist with moving the Company
from the development stage to fully operational facilities. The Technical
Advisory Committee will bring together the expertise from individuals across
Canada to provide technical guidance for various Hybrid Fuels' proprietary
processes.

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).

                                       26
<PAGE>

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, 2004.

NAME            AGE     POSITION                    DIRECTOR OR OFFICER SINCE

Paul Warkentin  37     President/Director                April 8, 2004

David Krahn     49     Secretary-Treasurer/              December 10, 2003
                       Director

Gordon Colledge 60     Vice-President/Director           September 26, 2000


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

Paul Warkentin
--------------
Mr. Warkentin (37) of Landmark, Manitoba, Canada is a leading real estate agent
and land developer in the Winnipeg area and brings a strong track record of
entrepreneurial vision, marketing, customer service and leadership to Hybrid
Fuels, Inc.

David Krahn
-----------
Mr. Krahn, (49) of Niverville, Manitoba, Canada is a professional Engineer with
Dillon Consulting, a National Consulting firm and a consulting Engineer for The
Red River Floodway in Manitoba.

Gordon Colledge
---------------
Mr. Colledge (60) of Lethbridge, Alberta, Canada, operates two privately held,
family owned companies: Advance Communications Ltd. and Adcomm Research Ltd.,
both of which are involved in educational workshops,family mediation and
succession planning for small businesses.

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.

                                       27
<PAGE>

During the fiscal year ended June 30, 2004, there were a total of four reports
that were not filed on a timely basis:

Alan Urschel (Director) filed initial report of ownership (Form 3) on March 25,
2004 for his appointment as Director on December 10, 2003.

David Krahn (Director, Secretary-Treasurer)filed an initial report of ownership
(Form 3) on March 26, 2004 for his appointment as Director on December 10, 2003.

David Krahn (Director, Secretary-Treasurer)filed a report of changes in
ownership of Common Stock (Form 4) on May 19, 2004 for receipt of 200,000
restricted common shares on March 29, 2004.

Gordon Colledge (Director, Vice President)filed a report of changes in ownership
of Common Stock (Form 4) on May 19, 2004 for receipt of 400,000 restricted
common shares on March 29, 2004.

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

Mr. Larson, the Company's past President and Director, began accruing salary in
the amount of $6,000 per month from July 1, 1999, to December, 2003 inclusive
which is being deferred until such time as the Company has adequate funds to pay
compensation. Accrued salary for Mr. Larson totaled $36,000 for the fiscal year
ended June 30, 2004.

Alan Urschel, the Company's President from January 22 to April 7 inclusive, was
compensated with restricted common stock and cash for a total value of $13,670.

On March 29, 2004 David Krahn and Gordon Colledge each received 200,000
restricted shares for services. Gordon Colledge received an additional 200,000
shares for past services rendered.

                            SUMMARY COMPENSATION TABLE
                   Annual compensation         Long term compensation
-----------------------------------------------------------------------------
                              Other   Restricted Securities   LTIP    All
                              Annual    stock    underlying   payouts other
Name &      Year Salary Bonus Compen-   awards   options/SARs  ($)    Compen-
Principal         ($)    ($)  sation($)  ($)        (#)               sation
Position
-----------------------------------------------------------------------------
Clay Larson  2004   nil   -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO    2003 72,000  -0-    -0-      -0-         -0-       -0-     -0-
             2002 72,000  -0-    -0-      -0-         -0-       -0-     -0-
Alan Urschel 2004 13,670* -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO
-----------------------------------------------------------------------------
* comprised of 33,333 restricted common shares valued at $7,667 and cash of
$6,003.

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.

                                       28
<PAGE>

It is the Company's intention to appoint not more than four 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
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 8, 2004, 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 23,679,733 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.

<TABLE>
<CAPTION>

Title  of   Name and Address of     Amount and Nature of     Percentage of
Class       Beneficial Owner        Beneficial Ownership     Class
-------------------------------------------------------------------------
<S>                                          <C>                     <C>
Common      Donald  Craig                    1,475,000               6.23%
            12650 Ponderosa Road
            Winfield, B.C. V4V 2G8

Common      Clay  Larson                     1,200,000               5.07%
            740  Westpoint  Crt.
            Kelowna,  B.C. V1W 2Z4

Common      David Krahn (1)                    253,000               1.07%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Paul Warkentin (1)                 235,000               0.99%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Gordon Colledge (1)                812,000               3.43%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Auchengrey Ltd.                  1,500,000               6.33%
            Diane Smith,
            PO Box 3321,
            Tortula, BVI.

Common      Killaloe Ltd.                    2,000,000               8.45%
            Don Murray,
            Drake Chambers,
            Tortula, BVI

--------------------------------------------------------------------------------
Common      Total Officers and Directors
            as a  Group (3 Persons)          1,300,000              5.49%
--------------------------------------------------------------------------------
</TABLE>

(1) Officer and/or director.

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

                                       29
<PAGE>

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, 2004. 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 $7,500 during
the period from April 8, 2004 to June 30, 2004 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 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:

Type Of Services Rendered           Fiscal Yr 2004   Fiscal Yr 2003

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



                                       30
<PAGE>

                                   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: February 16, 2005


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

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






                                       31