UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                         WASHINGTON, D.C. 20549
            ------------------------------------------------
                            FORM 10-KSB/A/5


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

                For The Fiscal Year Ended June 30, 2001

        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.)

        PO Box 41118, Winfield B.C.,                     V4V 1Z7
    ------------------------------------------       --------------
     (Address of Principal Executive Offices)           (Zip Code)

Issuer's Telephone Number (250) 868-0600

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
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 [ ]  No [X]

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]

The number of shares issued of the registrant's common stock as of October 5,
2001 is 21,056,353

The number of shares outstanding of the registrant's common stock as of October
5, 2001 is 20,818,600

Amount of revenue for most recent fiscal year  $0.00

DOCUMENTS INCORPORATED BY REFERENCE: NONE






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                         TABLE OF CONTENTS

PART I...........................................................Page 3

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

 Item 2.   DESCRIPTION OF PROPERTY...............................Page 19

 Item 3.   LEGAL PROCEEDINGS.....................................Page 20


PART II .........................................................Page 21

 Item 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS...............................................Page 21

 Item 6.   MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF
           OPERATION.............................................Page 24

 Item 7.   FINANCIAL STATEMENTS..................................Page 31

 Item 8.   CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS..........Page 43


PART III ........................................................Page 43

 Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
           PERSONS...............................................Page 43

 Item 10.  EXECUTIVE COMPENSATION................................Page 44

 Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
           MANAGEMENT............................................Page 46

 Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........Page 47

 Item 13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
           REPORTS ON FORM 8- K..................................Page 47


Signatures.......................................................Page 48


Exhibits.........................................................Page 49


















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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.

The  Company is a developmental stage company and has had no income since
the acquisition of the hybrid fuels technology in June  1998, nor is it likely
to have any significant cash flow until after the end of its current fiscal
period ending June 30, 2002. The Company is currently seeking additional capital
to pay operating costs and develop operating activities, but there can be no
assurance that the Company will be able to fulfill its capital needs in the
future. Moreover, due to Company's poor liquidity, lack of operations and the
absence of a listing  for its  common  stock  on a major exchange, the cost  of
obtaining additional  capital  is  expected to be significant.  Management
cannot  provide  assurance  that  the  Company  will  ultimately achieve
profitable operations or become cash flow positive.  If the Company is unable to
obtain funds from external sources,  it is probable that it will be unable to
continue to operate in the long term.

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 in us or to maintain or increase
your investment. 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 suffer. 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 for 2002 with our current cash, which was obtained from
    the sale of securities. However, our cost estimates may not include enough
    provisions for any contingency, unexpected expenses or increases in costs
    that may arise.
  2.   We may not be able to raise the capital we need. 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.




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  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 suffer 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 substantial 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, 2001, of $1,057,212.
  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 and have
    not been able to raise the capital necessary to build our first facility and
    commence operating activities and as such, we do not know when we may be
    able to begin operations. 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 which 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. There can be no assurance that we can raise the
    money to build the first plant and if we succeed in building the first
    operating plant, 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 plants fails to develop, or develops more slowly than anticipated,
    we may not be able to meet our expenses and may not achieve profitable
    results.
  8.   Our common stock is not widely traded, and, as a result, the prices
    quoted for our stock may not reflect its fair market value. Because of the
    low volume of trading in our common stock, our stockholders may find it
    difficult to sell their shares.
  9.   Our Common Stock is traded on the "pink sheets" and there is no assurance
    that it will ever be listed on any major stock exchange. While our stock is
    on the "pink sheets", it has an effect on the perception of us amongst
    potential investors which makes it very difficult to raise capital. It can
    also impact the dilution associated with any financing.
  10.  We have no insurance covering our operations, potential products,
    services or directors and officers.
  11.  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.




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  12.  We may experience a period of expansion and growth, which would likely
    place significant strain upon management, employees, systems, and resources.
    Because the market could develop rapidly, it is difficult to project the
    rate of growth, if any. Failure to properly manage growth and expansion, if
    and when it occurs, may jeopardize our ability to sustain our business.
    There can be no assurance that we will properly be able to manage growth,
    especially if such growth is more rapid than anticipated.

The following discussion has been prepared assuming the Company will continue as
a going concern; however, the audit report for the financial statements as of
and for the periods ended June 30, 2000 and 2001, includes a caveat on this
point. In reading the following, one should consult the audit report, financial
statements and footnotes, and keep in mind the significant losses generated by
the Company.

(a) BUSINESS DEVELOPMENT
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 the name changed 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 changed to its current name, Hybrid Fuels, Inc., on June 10, 1998.

In May of 1998, the Company recalled 12,000,000 shares held by 3 individuals:
Justeen Blankenship, Shane Duffin, and Danni Uyeda, 4M shares each. So far as
the Company is aware, no consideration was paid to those three individuals in
return for the cancellation of the shares. Then, 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.

(a)  BUSINESS OF THE ISSUER

Hybrid Fuels intended business is to sell integrated farm scale facilities that
combine ethanol production with a beef finishing operation.  This integration is
achieved through certain procedures, process improvements and mechanical devices
the company has discovered or developed. The Company also expects to act as the
marketing agent for the hybrid fuel and the finished animals 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

The Company believes beef cattle do not do well using what may be referred to as
"factory farming 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 a 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. See the cover story
from Macleans Online for June 12, 2000, which 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."












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Concerns such as these and others about:
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 led the
     development of this "farm integration" plan.

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 technology was developed over more than a decade. 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
1990's. 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. The Company does not have written records of the
test results, as those records were lost when that plant was shut down. However,
those 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 plant that was intended to be the first
commercial plant was constructed near Cardston, Alberta. Improvements to the
technology installed in that plant 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 plant near Cardston could begin operating, the farmer sold the land
and improperly removed the buildings and equipment. Although the plant never
operated, much was learned from the construction. That information has been used
to refine the design which is expected to reduce construction costs and improve
operating efficiency. As a consequence of the Cardston plant being dismantled,
there are no prototypes in existence at this time

THE PROPOSED FACILITIES

The proposed plants are planned to consist of a barn in which the cattle are
kept, a second building housing the ethanol making equipment and the gasifier,
which 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, which is used first to make
the ethanol and then to feed the animals.







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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 prefabricated metal, insulated sufficiently to keep them warm in
cold weather and cool in warm weather. Each barn is to be divided into eight
pens, 20 feet by 30 feet, 1 of which is empty and 7 of which have animals in
them. This means that there will be approximately 29 animals per pen, depending
on the size of the animals.

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.  Del
Air Systems, Humbolt, Saskatchewan, manufacture the heat exchanger equipment we
plan to use. Their 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. (See Saskatchewan Agriculture 1988, ISBN
0-88656-475-1) 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 weeks 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 which 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.






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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.
The lighter animals eat less and the heavier ones eat more, generating an
average that achieves a balance that management believes will average out over
the whole operation.

These plants are expected to be operated manually by 2 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, Company
intends to have a policy that permits the use of antibiotics only as required on
any sick animal.

In the proposed facilities, grains, which 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.

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. That
ratio would mean 4 BTU's of energy in a quantity of ethanol compared with 1 BTU
of energy from some 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, which
are part of the ethanol plant. A proprietary, trade secret process is then used
to promote rapid fermentation. This process, which 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 the completion 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
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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 wet.

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. See "Biomass Energy Monograph" published by
Texas Engineering Station, Texas A+M University System, page 121, or
"Saccharification and Fermentation of Barley", by Drs. M.Wayman, R.S.Parekh,
O.Trass, and E.Gondolfi, Dept of Chemical Engineering, University of Toronto,
Canada. 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. It is not protected by patent and therefore could
be used by others which could reduce our competitive advantage.

In more typical ethanol producing plants, the WDGs are dried so they can be
transported without becoming mouldy. 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 plant, 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, which should
make the operation more economical.


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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 cattle.

FEEDING WET DISTILLERS GRAINS AND STILLAGE WATER

There is a considerable body of literature which 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),
which our process uses, over DDG.

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 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 which 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 which 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 plant, 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.



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HORMONE FREE BEEF

There are a growing number of stores that are offering hormone free beef. For
example, Laura's Lean Beef is now available in 3000 grocery stores in 33 states
in the US, according to their website, www.laurasleanbeef.com. 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.

The operator selection process will seek to ensure that prospective operators
are in favor of producing hormone free animals. 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 loss 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 plant. 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. 200 gallons are intended to be produced each day, 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.




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In June of 1996, the Company contracted with The British Columbia Institute of
Technology (BCIT) to test the hybrid fuel for a fee. 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.

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. However, later, as quantities increase, is expected to generate $1.00
to $1.40 per gallon in revenue from the sale of the ethanol to the local firms
that have agreed to conduct the evaluation. 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 plant is operating, subsequent facilities are expected to be
built in the vicinity of commercial mixing plants that have the capacity to
handle the production from the plants 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 plants 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 when the hybrid fuel is not available.

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.




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Some potential users will be concerned about using this product. Ethanol-diesel
mixes are presently being evaluated by Archer Daniels Midland, The Chicago
Transit Authority, and The University of Illinois. Their reports either are or
are expected to be available on The University of Illinois website. The Company
plans to provide end users with copies of these and subsequent evaluation
reports in order to help alleviate potential users concerns about the safety and
performance of the fuel. As a result of these evaluations and the testing done
at BCIT, the Company believes the fuel is safe for use.

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

Since his appointment on June 28, 1999, Clay Larson has been the President, a
Director and the only employee of the Company. He is entitled to a salary of
$6000.00 per month which is deferred until the Company has money to pay him. The
Company does not have a written employment contract with Mr. Larson. The Company
does not intend to hire any other employees for the immediate future. For the
short term, until resources permit, services we need to hire, will be supplied
by paid consultants, contractors or commissioned salespeople.

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 expected to supervise the building of the first plants,
and the preparation of the training and operations manuals. He has agreed to
donate his time without remuneration until the first plant is generating cash
flow. Thereafter, he may provide consulting service as needed at mutually
agreeable prices, and the Company intends to pay his Company related expenses.
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 plants 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. Fabrication of these items is expected to be on the basis that the
Company will supply the raw materials for each item, and the contractor will
fabricate each item only on request by the Company. Each item will be made to
our specifications, on a price that is agreed for each item. The price may
change over time.  Dale Hallaby Fabricating, the independent contractor we have
used to date, works from its own premises and management believes they have the
capacity to supply all of the items required by the Company for the next 12 to
24 months. We do not have contracts with any contractors at this time, although
they are still available to us.

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 plant.  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. No such arrangements are being
negotiated at this time.





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GOVERNMENTAL REGULATION

Each plant 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 plants produce ethanol, each
will require a distillers license.  This would require the installation of
equipment in each plant which 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 plants may be built without the ethanol equipment. The operators of these
plants would pay lower royalties until their ethanol equipment was installed. If
there are significant delays in obtaining the desired exemption, the Company
anticipates that it will commence building plants in the U.S. The prototype
plant 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 permit has already been issued for the first
plant.

During the last two years the Company has spent zero dollars on compliance with
environmental regulations. 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.

TARGET MARKET AND ADVERTISING

The Company's target market for the sale of the plants is the farming
communities. The Company intends to advertise its plants in trade journals,
local newspapers, on radio and television programs, 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.

There appears to be very strong interest in the Company's project from the
farming community. Even though we have not been advertising, to date the Company
has received applications from more than fifty farmers, and we receive more
phone calls each month.






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The Company is expecting to have a screening process in place and at least four
candidates approved by the time the first facility is ready to operate. These
individuals will need to qualify for financing in accordance with the
requirements of the particular financial institution. Financing will have to be
committed before the Company would start construction. It is anticipated that
the first operators will be fully trained and qualified by the time the second
plant is finished and ready to operate.

COMPETITION

The production of food 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.

Major oil and petroleum companies as well as alternate energy companies will all
be 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 gasahol 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 which contain
antibiotics, hormones and toxic chemicals.

The Company plans to promote the beef as being free of antibiotics and hormones.
As consumers become more selective about eating "clean" meat, 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 (not yet selected) to make the product more easily recognizable in
order to generate consumer loyalty and capitalize on brand quality.












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TRENDS THAT MAY EFFECT THE COMPANY'S BUSINESS

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

Trend toward supporting businesses which have a positive environmental impact.
The Company seeks to take advantage of this trend by providing technology that
produces a hybrid fuel which 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.

Over the last three decades, there has been a trend toward reducing consumption
of meat generally and beef in particular. Continuation of this trend could have
an adverse effect on the Company. However, in January 2000, Successful Farming
Online reported the first increase in consumer spending on beef since the early
1970s.  This was an increase of 4%.  This report further says that consumers
will pay more for beef that is guaranteed good quality.  The Company believes
that it will be able to take advantage of this, and a trend toward consumption
of healthier foods.

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 the MEFFs are
expected to produce exceptional quality beef which we anticipate marketing as
guaranteed quality beef which is hormone and antibiotic free.

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. One example is former
President Clinton's announcement in August 1999 of incentives to triple the use
of ethanol in fuels in the US within 10 years. More recently, a 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) Agriculture Minister Vanclief 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.

The United States and Canada are signatories to the Kyoto Emission Standards
Agreement which 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. Even if
there is no market for the hybrid diesel fuel, the ethanol should still be
valuable for use in other products such as windshield washer fluid or gasohol.





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Another trend that may work to our advantage is the trend of governments and
health regulators to mandate environmental clean- ups and reduce pollution. In
California and other states, local authorities are implementing stricter
environmental clean-up requirements, in particular tighter restrictions on the
handling of dairy waste which has been found to contaminate ground water.
According to a Press-Enterprise report written by Leslie Berkman, in 1999, the
Santa Ana Regional Water Quality Control Board, which enforces state and federal
water quality standards in the Santa Ana River watershed, mandated dairy farmers
remove stockpiled manure by December 31, 2001. They also established a new 180
day limit for new manure to be cleared from the dairies. The Company's use of
gasifier technology and the fuel/feed facilities may assist farmers to comply
with this type of regulation.

Another factor is that beef prices are especially volatile as a result of the
"mad cow" scare sweeping Europe.  Management believes that as a result, prices
for hormone free beef, particularly from North America, which is still BSE free,
will rise in the short term even though demand is likely to decline. This should
work to the benefit of the Company.

In addition, with fuel prices as high as they are, the price of ethanol has
increased over the last year. This trend should work to the advantage of the
operators and the Company.

RESEARCH AND DEVELOPMENT

Since 1998, the Company has spent $8,000 on research and development. The
majority of funds were spent on perfecting the formula for the emulsifier. The
balance of the funds were spent on testing at the British Columbia Institute of
Technology to quantify the effects of the use of the hybrid fuel in an unaltered
diesel engine.

During the next twelve months, the Company anticipates conducting further
research and development with respect to the following:

1. Researching the long-term use of the hybrid fuel, particularly in extreme
temperatures; plus testing and refinement to obtain the optimum hybrid fuel
mixture.

With respect to further testing of the hybrid fuel, the Company has had
preliminary discussions with manufacturers of diesel engines and several
companies that operate large fleets of diesel powered equipment. This research
is expected to cost the Company very little as several local operators such as
Oyama Forest Products Ltd., and Mark Tarasewich Trucking Ltd., have expressed
interest in using the fuel in their operations and providing testing and
evaluation services at no charge to the Company. As of this date, no contracts
have been entered into.

The Company is also investigating the availability of grants from various
government agencies for support in further testing of the hybrid fuel.

2. Researching efficiencies in plant construction and operation;

3.  Research of training methods and development of training and operations
manuals.

The research contemplated in 2 & 3 is not expected to cost much as most of it
will be conducted in conjunction with the day to day operations of the plant. No
money has been allocated to this research as it will have to be done out of
operating revenues when the Company begins to generate those.




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PRODUCT PROTECTION

The Company has not patented any of it's proprietary technologies, on the advice
of legal counsel. Their reasoning is that obtaining patents tends to publish the
discoveries which 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 it's 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. All of the other ethanol plants that are being considered, of which we
are aware, 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
number 3, RISK FACTORS, on page 3 above, is reasonably acceptable.

Item 2.  DESCRIPTION  OF  PROPERTY

The President maintains an office in his home at 740 Westpoint Court, Kelowna,
British Columbia, Canada at no cost to the Company and Donald Craig maintains an
office at his home in Winfield, B.C., 15 miles north of Kelowna and about 5
miles from the proposed location of the first plant, also at no cost to the
Company.

On May 31st, 2001, the office located at #214-2791 Hwy. 97N, Kelowna, British
Columbia, Canada was closed. The intention is to have an office in the first
plant once it is operating.

The office at #302-855 8th Avenue S.W., Calgary, Alberta, Canada was also
closed, as operations will be consolidated in Kelowna for the foreseeable
future.

The Company has a verbal agreement with the owner of a 6 acre parcel of bare
farm land on which the first plant is to be situated in Oyama. The owner is not
related to the Company. Prior to commencement of construction of the plant, the
Company is expecting to complete a written lease with the land owner for the
land. We will own the plant and use it as a training and demonstration facility.
The terms of the lease of the land are not expected to be finalized until the
terms of the financing are agreed.


















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Page-20-

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.

Although the Company is not involved in any legal proceedings, the following
issues may eventually lead to legal action:
(a) On August 4, 1998 and March 23, 1999, the Company's former President
authorized the issuance of 1,000,000 and 900,000 shares respectively to
individuals without consideration and without Board of Directors
resolutions. On August 21, 1999, the then only Director resolved that
the 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 first
determined that these shares had not been transferred out of the names
of the original recipients and then resolved to cancel the share
certificates. The Company indemnified the transfer agent, for any costs
or liability it may incur in any way arising out of the cancellation of
such shares and 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. No formal legal demand for the
return of the shares has been made as the former administration has
failed to provide addresses despite a number of requests.

The contingencies regarding the cancelled shares relate to anyone who may have
subsequent holder rights, and possibly the individuals who were issued those
shares who may claim that they were issued for due consideration. The Company
has determined that there is no amount to be accrued for future liabilities
associated with these shares. The first reason is that all of the shares were
still in the names of the original holders when they were cancelled and some of
the holders and previous directors were informed verbally of the cancellation.
The second reason is that there were no directors resolution issuing the shares
and the individuals to whom those shares were originally issued gave no
consideration to the Company for those shares. In addition, to date, when a
broker has received these shares for possible resale, the broker has phoned the
Company or the transfer agent to confirm the status of the shares. Once informed
the shares were issued without consideration, the brokers have refused to deal
further with the shares.

(b) Unauthorized and/or unsupported payments in the amount of $243,463 were made
from Company funds by the past President of the Company during the period May,
1998 to June, 1999. The Company has had no response to requests that the past
president provide a full accounting of these amounts. All amounts that were
unauthorized by the board of directors or amounts that are not properly
documented with invoices and receipts have been accounted for as disputed
executive compensation. When the Company has the money available to do so,
Company will seek legal advice to determine whether or not it is possible to
recover these amounts from the previous administration.


(c) In May and June 2000, the Company issued 3,000,000 shares in return for
promissory notes for $300,000. The 3,000,000 shares were released from escrow to
the investors to facilitate financing. We believe the 3,000,000 shares have
since been sold by the investors to innocent third parties, and the Company has
not been paid for these shares, despite demands. Since these shares have been
resold to innocent third parties they must be considered outstanding. When the
Company has the funds available, it intends to seek legal advice to collect the
balance due on the notes. However the Company believes the balance is probably
uncollectible.

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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 20,623,600 were issued and 20,385,747 were
outstanding as at June 30, 2001 and the Company had 246 shareholders of record.

During the quarter ended June 30, 2000, 3,000,000 shares were issued to
investors in return for promissory notes. As those notes had not been paid, the
shares were treated as issued but not outstanding. During the quarter ended June
30, 2001, Management learned that that the investors had sold the shares to
innocent third parties and not paid the Company. Because those shares have now
been sold to innocent third parties, they must be considered issued and
outstanding, and are so reflected in the financial statements. For more
information regarding the stock, see the Consolidated Statement of Change of
Stockholders Equity and Note 7, in the Financial Statements.

The Company's common stock is traded in the National Quotation Bureau's "Pink
Sheets" 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.

                        HIGH           LOW
                        ----           ---
                               1999
                               ----
       3rd Quarter      2.00           0.50
       4th Quarter      0.75           0.125

                               2000
                               ----
       1st Quarter      3.00           0.50
       2nd Quarter      1.875          0.50
       3rd Quarter       0.75          0.275
       4th Quarter       0.40          0.15

                        HIGH           LOW
                        ----           ---
                               2001
                               ----
       1st Quarter       0.28          0.05
       2nd Quarter       0.14          0.045

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.














================================================================================
Page-22-

RECENT SALES OF UNREGISTERED SECURITIES.

1. In 1998, during the negotiation and consummation of the reverse merger,
Donald Craig acted as trustee for a number of sophisticated investors that had
contributed money or services to the development of the process and/or held
stock in Hybrid Fuels, U.S.A., Inc. and Hybrid Fuels (Canada) Inc. (formerly
known as 330420 B.C. Ltd.). At the conclusion of the reverse merger, he received
control over 12,000,000 shares in trust, which were legally titled upon issuance
as follows:

Ron Stauffenberg                              25,000 shares
Donald E. Parodi                              20,000 shares
Tom Wakely                                     5,000 shares
Marilyn Piazza                                10,000 shares
Nancy Brothers                                50,000 shares
Dave Thomas                                  100,000 shares
Don LaForge                                  120,000 shares
Rupert Oberlohr                               80,000 shares
Carolyn Ehert                                 20,000 shares
Thomas Dunn                                   10,000 shares
Richard Binger                                10,000 shares

Subtotal                                     450,000 shares
James Bordean                                500,000 shares
Donald Craig                                 500,000 shares
Iris McCammon                             10,550,000 shares
                                    Total 12,000,000 shares

Messrs. Parodi, Thomas, LaForge and Dunn were directors of Hybrid Fuels, Inc.
(the "Issuer" for purposes of this discussion), the ultimate parent company and
the registrant.  Ms. Brothers was the spouse of a director of the Issuer.  All
of the shareholders comprising the 450,000 shares above had advanced funds to
Donald Craig to support the project and consummate the transaction. These
investors had seen information regarding the Cardston plant that was under
construction by 753074 Alberta Ltd., as well as information regarding the plant
process. 300,000 of these 450,000 shares were issued to directors (in the case
of Ms. Brothers, to the spouse of a director), and so were issued to insiders
who were accredited investors.  The Issuer does not have specific
representations whether the remaining six investors were accredited investors,
but current management was informed by Mr. Bordean that the Issuer understood at
the time of the transaction that the remaining six investors were accredited.
There was no general solicitation in connection with raising funds from
investors.  The remaining six investors had prior contacts with the director
investor group.  Based on these facts, the Issuer believes that the Section 4(2)
private offering exemption applies. In addition, current management believes
that, through compulsory legal process (in defense of any potential rescission
claim), it would be able to establish the accredited status of the remaining six
investors, meaning that the exemption afforded by Rule 506 would also apply.
Given that a total of $450,000 was advanced in connection with the project and
the transaction, the Issuer also believes that the exemption afforded by Rule
504 would apply.












================================================================================
Page-23-

Ms. McCammon, President of the Issuer at the time, held legal title to shares
that were ultimately issued to the following persons:

Auchengrey Ltd                             2,000,000 shares
Killaloe Ltd                               2,000,000 shares
753074 Alberta Ltd.                        1,440,000 shares
Donald Craig                               2,310,000 shares
Clay Larson                                1,000,000 shares
Nomad Resources                            1,000,000 shares
Michel Conus                                 400,000 shares
Gordon Colledge                              200,000 shares
John Morrison                                100,000 shares
Doug Hayward                                 100,000 shares
                                    Total 10,550,000 shares

No person (or for entities, their ultimate beneficial owners) receiving shares
from Ms. McCammon was a U.S person.  Ms. McCammon held the shares in trust for
these ultimate beneficial owners.  Although she was supposed to hold the shares
only briefly, extended persuasion was required to convince her to comply with
her obligations and issue the shares to their rightful owners.  Ms. McCammon
ultimately resigned as President of the Issuer.  Messrs. Bordean and Craig, each
of whom was issued 500,000 shares at the time the 10,550,000 shares were issued
to Ms. McCammon, are not U.S. persons.  The transactions with these investors
were accomplished outside the United States with persons who were previously
involved with Hybrid Fuels, U.S.A., Inc. and Hybrid Fuels (Canada) Inc., so
there were no selling efforts of any kind involved with the transaction.  The
shares were issued to these investors with restrictive legends. As a result, the
Issuer believes that the exemption afforded by Regulation S applies to these
investors.  In the alternative, because of the prior association of these
investors with the business, the Issuer believes that the Section 4(2) private
offering exemption also applies.

No brokers were involved and no commissions or discounts were paid in connection
with any of the foregoing transactions.

2. Date, title and amount of securities subsequently sold by the Company:

           Date                     Title                 Amount
           ----                     -----                 ------
       August 10, 2000           Common Stock            10,700 shares
       August 31, 2000           Common Stock            20,100 shares
       November 28, 2000         Common Stock            42,000 shares
       June 26, 2001             Common Stock            25,733 shares

The shares issued August 10, 2000, August 31, 2000, November 28, 2000 and June
26, 2001 were all made in consideration of shareholders not making rescission
claims in respect of an Offering Memorandum used in December 1998 that contained
information that appeared inaccurate. As the Company had no funds to conduct a
rescission offer, the Company made an exchange offer to all of the subscribers,
by which we agreed to issue restricted stock in lieu of a rescission offer, and
these individuals accepted that offer. The individuals who accepted the offer
were also given an undertaking that they would receive a rescission offer when
the Company had the funds available and they would then have the right to the
return of their money plus interest or they could keep the stock. When a
rescission offer is made, the subscriber has a period of time to accept or
reject the offer.  If the offer is accepted, the Company is usually protected
from further liability. Since the Company has not made a rescission offer as
required by law, the Company would not be protected from liability for
rescission claims as it would be if such an offer had been made.

The money paid by these subscribers is shown as temporary equity and the stock
is shown as issued but not outstanding until the rescission rights are
extinguished.
================================================================================
Page-24

The Company relied upon Section 4(2) of the Securities Act of 1933 to
effect the issuance of these shares. These shares were issued in isolated
private transactions directly with the subscribers, and not involving any public
solicitation. Over the course of more than a year, 23 of the original 34
offerees have accepted the exchange offer. In making the exchange offer, no
offering materials were used, no brokers were involved and no commissions or
discounts were paid. The Company also believes that because the exchange
involves an exchange of its own securities with existing security holders
exclusively, the exemption afforded by Section 3(a)(9) also applies. The Company
does not take the position that this exchange extinguishes whatever rescission
rights the offerees have as a result of the initial offering.

3. Date, title and amount of securities subsequently sold by the
Company:
           Date                     Title                 Amount
           ----                     -----                 ------
       June 11, 2001             Common Stock         1,300,000 shares

On June 11, 2001, resolutions were passed to issue 200,000 shares to John
Morrison, Director and CFO in return for services rendered to the Company.
However, the Transfer Agent did not issue the actual share certificate until
September 2001. On June 11, 2001, 100,000 shares were issued to the manager of
the packing plant for services rendered to March 15, 2001. A further 1,000,000
shares were issued to an unrelated company which had made payments of $119,468
of Company related expenses. See Note 5 to the Financial Statements.  These
three investors are not U.S. persons.  The transactions with these investors
were accomplished outside the United States with persons who were involved with
the business of the Issuer, so there were no selling efforts of any kind
involved with the transaction.  The shares were issued to these investors with
restrictive legends. As a result, the Issuer believes that the exemption
afforded by Regulation S applies to these investors.  In the alternative,
because the shares were issued in isolated private transactions not involving
any public offering to three sophisticated investors, all of whom had prior
business relationships with the Company, the Issuer believes that the Section
4(2) private offering exemption also applies. No offering materials were used,
no brokers were involved and no discounts or commissions were paid in connection
with these transactions.


Item  6.    MANAGEMENT  DISCUSSION  AND  ANALYSIS  OR  PLAN  OF OPERATION

Background

We are a development stage company that has not yet proved the feasibility of
its planned principal operations.  In their opinion on our June 30, 2001
financial statements, 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.  To date we do
not have any operations that generate revenue and have been unable to raise
money to begin operations. Until such time as we prove the feasibility of our
planned principal operations, we are likely to continue to experience a cash
shortage. Because we are a developmental stage company, we are unlikely to be
able to borrow money from banks and other traditional financial institutions. We
do not anticipate making any commitments to borrow money within the next 12
months, unless we can secure construction loans to build our first plant.  The
lack of long term, adequate financing continues to be of great concern to
management.

We will require additional capital soon in order to continue as a going concern
in the long term.  Until we have arranged financing, no operating activities are
planned. In the absence of operating activities, our cash general and
administrative expenses for the next 12 months are expected to be less than $500
per month, exclusive of executive compensation, which is deferred, and
================================================================================
Page-25-

professional fees for legal and accounting services.

Our ability to continue to operate in the future depends on us being
able to raise money to build our first plant. We have discussed with a
general contractor, Team Steel Building Systems, of Edmonton Alberta,
working towards a plan to build the first plant. We do not have any
written or specific arrangements with Team Steel at this time. We are
concentrating our efforts on raising money to build the first plant and
commence operations. We estimate we need to raise approximately $1
million to cover payables, build the first plant, begin the development
of operating activities and deal with potential claimants. This estimate
includes $350,000 for plant construction, $110,000 for cattle,
$30,000 for payables (excluding shareholder loans and accrued
executive salaries), $70,000 for salaries, consumables and other
operating expenses until the plant begins to generate cash flow, and
$250,000 for contingencies and to start developing operating
activities. The remaining $190,000 constitutes a reserve for any
shortfalls in our estimation process or any unforeseen contingencies.
Although we are negotiating with potential investors to fund the
construction of the first plant, we do not have any commitments at this
time.

Management recognizes that to generate long-term cash flow, we need to develop
operating activities. We need to build and begin operating the first bio-fuel
and beef facility to create cash flow and to demonstrate to potential operators,
lenders and investors that the technology works as described. Prospective
operators and those who will approve the financing for the construction of
subsequent plants want to see a profitable facility in operation before they
commit themselves.

Strategy to Raise Capital

Although we do not have any cash reserves, related parties have indicated a
willingness for the time being to continue to pay operating expenses and advance
funds to pay legal and accounting fees. The Company therefore believes that it
can continue as a going concern in the near term. 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. If these related parties cease to
advance money to pay these operating costs, the Company may have to cease
operations and liquidate.

So far, all potential investors we have contacted have been reluctant to invest
funds as long as we are on the "pink sheets." Our plan is to comply with all
applicable SEC reporting requirements so that we can have a market maker apply
to the NASD to have our common stock authorized for inclusion on the OTC
Bulletin Board.  We are aware of a class of investors who will invest money in
companies whose stocks are traded on the OTC Bulletin Board, although we do not
have any specific investors identified at this time who have committed to invest
funds in the Company.  We hope to have met these requirements and to have our
stock quoted on the OTC Bulletin Board within four months.  Although our plan is
to have our stock traded on the OTC Bulletin Board, there can be no assurance
concerning the time frame when that may occur, if at all.

Because of our low stock price, and the fact that we are on the "pink sheets",
we do not intend to sell additional shares of our common stock in the immediate
future unless we have no other source of money to pay expenses.  Once our stock
is trading on the OTC Bulletin Board, we plan to contact prospective investors
to raise the approximately $1 million in capital discussed above.  This planned
offering and sale of our common stock will not be registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from the registration
requirement.  This disclosure is not an offer of securities or a solicitation of
an offer to buy securities.  Placements will be made only to investors with
================================================================================
Page-26
preexisting contacts with Hybrid Fuels and its authorized representatives.  If
we encounter unforeseen delays or difficulties in getting our stock to trade on
the OTC Bulletin Board and we must continue to trade on the pink sheets, we may
reevaluate the price at which we will sell our equity securities to
raise capital.

Our plan to have our stock traded on the OTC Bulletin Board could also be
frustrated by the introduction of the BBX Exchange, a proposed automated
electronic exchange that would replace the negotiated order system of the OTC
Bulletin Board. In the near term, the NASD may slow its processing of new
applications to the OTC Bulletin Board, because the OTC Bulletin Board will
terminate soon and BBX applications may be filed as early as July 1, 2002.  The
BBX Exchange is slated to go "live" in March 2003.  The most recent NASD
proposal to the SEC regarding the BBX Exchange does not contain a definite date
when the OTC Bulletin Board will terminate, but the stated objective of the
introduction of the BBX Exchange is to remove any market for stocks between the
pink sheets and the BBX Exchange.  If the uncertainty created by the BBX
Exchange prevents us from having our stock traded on the OTC Bulletin Board, we
would have to reevaluate our capital raising strategy.  We would have to assess
whether we would remain a pink sheets company and sell our equity securities at
the lower prices that a pink sheets listing entails or whether we could achieve
the more rigorous listing standards of the BBX Exchange and apply to have our
common stock traded there.  If we were to attempt the BBX Exchange alternative,
we would either have to raise some capital at the pink sheets level to fund the
application process or have to convince related parties to advance these funds.

Plan of Operation Assuming Adequate Capital Raised

The discussion in this section assumes that we will succeed in raising the
approximately $1 million that will be used to place our first plant in service.
The major goal of placing the first plant in service is to demonstrate the
economic feasibility of the system. Once this first plant is operating, we
expect 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 plant should
generate sufficient revenue to pay all of our operating costs, plus a small
surplus which may be used toward development of operating activities. The
financial institutions that have expressed interest in financing subsequent
plants want to see this first plant generate sufficient cash flow to pay all
operating costs and debt service. We anticipate that the plant will show
sufficient cash flow to make it possible for us to get approval for financing
subsequent plants.

Management has planned to build the first plant at Oyama, on approximately six
acres of farmland just north of Kelowna, British Columbia. We will need to
finalize a lease to enable us to build on this site.  This location provides the
company supervisory ability and site control. Once we have financing available
to construct the plant, we believe we can quickly finalize the lease for the
site.

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 under
"Proposed Facilities" on page 6 above. The cost of building this plant 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.

Once financing is arranged and we have finalized our lease, we anticipate it
================================================================================
Page-27-
will take approximately two months to construct the plant. Foundations and
flooring are expected to take approximately two weeks and the erection of the
buildings are expected take another two weeks. Once the buildings are finished,
the installation of the gasifier, pens, feed bunks and ethanol making equipment
are expected to take another month. Our plan then provides up to another two
months for any delays, initial start-up and testing, for a total of up to four
months from beginning construction until the plant is fully operational. At one
point we had attempted to have a contractor construct the plant, which we would
then lease from the contractor.  That proposed arrangement is no longer
available to us; we must finance the plant construction ourselves.

We have designed the plant to accommodate 200 head of cattle. As we near the end
of testing the plant, 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 plant, 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 plant 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.
As a result of using this staggered acquisition scheme, we will not run the
plant at full capacity until approximately four months have passed from the
plant 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 plants, 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 begin being 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 plant 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 plant's
operating costs, including debt service.  At this time we do not have financial
data to support the breakeven pricing spread for the plant.  Developing this
relationship between the plant's cost structure and tolerable price
differentials will provide critical information for prospective financiers of
future plants.

================================================================================
Page-28
We expect that as sale prices move close to or exceed purchase prices, the
plant'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 plant. 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 plant, so we will have to pay market prices
for our consumables.

We do not plan to sell the ethanol produced by the first plant during at least
the first two to three months of its operation. We have discussed with local
owners of a sawmill and trucking company giving them the ethanol for this two-to
three-month period, with a view toward charging them in the future once they
have determined that they can use the ethanol economically without harm to their
equipment.  Once the plant is at full capacity, we project that the plant will
produce approximately 240 US gallons of ethanol per day, which 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.  Assuming a price of $0.70 per gallon for ethanol, monthly sales of
ethanol would be approximately $5,000.

Once we have operated the plant 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 plant.  If the
data establishes the economic feasibility of the plant, 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 plants.
If our assumptions prove wrong or we encounter unforeseen obstacles, our
ability to demonstrate the plant's economic feasibility may be
delayed, or, in the worst case, we may not be able to establish the
economic feasibility of the plant and may have to abandon the business
and liquidate the company.

Plan of Operation Assuming Establishment of Facility Feasibility

The discussion in this section assumes that we will succeed both in raising the
approximately $1 million that will be used to place our first plant in service
and in demonstrating the economic feasibility of the plant.  Once these
milestones are achieved, we intend to have others build, own and operate
additional plants, while we earn revenues from a variety of sources related to
the plants.  We plan to earn revenue from:

1.   operating the demonstration facility we build and own;
2.   profit on the sale of subsequent plants;
3.   the lease of the column and spinner to each operator;
4.   the royalties and service fees that each operator will pay;
5.   the purchase of the ethanol mixture from the operator at 80% of wholesale
     value and the sale to distributors or end-users;
6.   an incentive from premiums from marketing the finished animals.

Once we have established the economic feasibility of our demonstration plant, 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 plants.  We expect to earn a profit and recognize revenue
on the sale of each plant. We plan to charge fees in connection with the sale of
each plant, based on the value to the operator of having us organize and
supervise the construction of the plant and train the operator. We expect the
fees from the sale of the plants to be sufficient to cover all of the operating
costs we will incur in qualifying candidates, training operators, supervising
================================================================================
Page-29-
construction and start-up, etc., until royalties are received.

To date, we have received applications from more than 50 farmers who have
expressed interest in constructing a plant. We are currently developing a
screening process to select suitable candidates, and we expect to assist them in
obtaining financing for plant construction. Once we have demonstrated our
demonstration plant's economic feasibility for purposes of obtaining financing
of subsequent plants, we expect to have selected four operators.  After
operators have been selected and have qualified for financing, we plan to train
them and assist in constructing the facility. We anticipate that it will take
approximately six months from the time our plant demonstrates economic viability
to build the second plant and get it operating.

We intend to lease to the operators, on a permanent basis, the separation
column, which is used to distill the ethanol, and the spinner, which is used to
separate the mash from the water after the fermentation process. These two items
are integral parts of the plants, 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 plant,
based on the projected benefits of the use of trade secrets to the operator,
will begin when each plant 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 plants.

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.

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. We expect revenue for
Hybrid 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.

Based on the results of the test trials at the Dalum plant, we believe we will
be able to generate premium prices for the beef because it is hormone free and
because of its high quality and taste. At the Dalum plant, the purchaser of the
123 heifers agreed to pick up subsequent lots at the plant and pay a premium of
$0.10 per pound for all of the beef that could be produced using our process. We
do not have commitments from any buyers to purchase the beef at premium prices
at this time.

We believe that ultimately the best way to obtain the best premium, is to
control the processing, marketing and distribution of the finished beef. To that
end we continue to search for money to purchase the packing plant known as Blue
Mountain Packers, near Salmon Arm, B.C. This purchase is not likely to happen
before our next fiscal year end, but it remains part of our long term plan. No
commitment will be made to purchase the packing plant until sufficient money is
committed to pay the purchase price and cover operating expenses until positive
cash flow is achieved.

Within 18 to 24 months of the first plant demonstrating viability, we expect
third parties to have 15 to 20 plants operating. We expect that many of these
operators will require assistance to obtain financing in order to construct a
plant. We have had preliminary discussions with CIBC, Scotiabank, Leaseline,
================================================================================
Page-30-
Dominion Leasing and a Swiss broker with connections to several European "ECO"
funds, all of whom have expressed interest in providing financing for plants. We
have been told that our project should qualify if we can demonstrate the
economic viability of the operation. Once the first plant is operating the plan
is for the Swiss broker to arrange to have the appropriate representatives of
these ECO funds inspect the plant and if it qualifies, to use them as a source
of financing for plant construction, thereby permitting us to expand our
operations.

Historical Results

The loss for the year ended June 30, 2002, was $167,850, compared to
$312,660 for the comparable period the previous year. The largest items
making up this years losses were the deferred salary for the President
of $72,000 and imputed interest of $58,932, down from
$59,202 in 2001. Imputed interest is interest that is imputed on
non-interest bearing amounts that are advanced to, or paid on behalf of
the Company, plus deferred executive compensation. Executive
compensation shown is the salary for the President, which is deferred
until funds are available to pay his salary.

The losses for 2001 were also significantly higher than the loss for the
current year because the advances of $84,951 to Blue Mountain were
written off in 2001, and professional fees for 2002 were $23,890,
compared to $72,419 for 2001. In addition, rent, telephone and
travel expenses were all lower in 2002.

In an attempt to raise money to build the demonstration plant, in April 2001, we
agreed in principle to sell a license to use the technology in the Province of
Quebec, in Canada. This was done by a combination of letters and telephone
discussions. As it became obvious that the prospective licensee was not making
the progress expected, we terminated negotiations on March 28, 2002. We have no
present intent to sell a license based on a geographic territory.































================================================================================
Page-31-












Item 7. FINANCIAL STATEMENTS

Hybrid Fuels Inc.

Index to Consolidated Financial Statements


Report of Independent Auditors..............................F-1

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

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

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

Consolidated Statements of Stockholders' Equity.............F-5

Notes to Consolidated Financial Statements..................F-6-F-11


































================================================================================
                                        F-1

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying consolidated balance sheet of Hybrid Fuels,
Inc. (A Development Stage Company) as of June 30, 2001 and 2000 and the related
statements of operations, stockholders' equity and cash flows accumulated for
the period from February 16, 1960 (Date of Inception) to June 30, 2001 and the
years ended June 30, 2001 and 2000. 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 generally accepted auditing standards
used in the United States. Those 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.

We previously reported on the consolidated financial statements of Hybrid Fuels,
Inc. for the year ended June 30, 2000 in our audit report dated April 17, 2001.
We expressed a qualified opinion with respect to the inability to audit certain
unauthorized payments to former directors. We subsequently examined additional
documentation to satisfy ourselves that these payments to former directors were
in fact unauthorized and unsupported. The Company discusses these unauthorized
payments in Note 7(b) to the consolidated financial statements. Certain other
adjustments came to light during our subsequent review of the additional
information. As discussed in Note 10 to these financial statements certain
income statement items have been restated. We therefore reissue this audit
report dated September 21, 2001.

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, 2001 and 2000, and the results of
its operations and its cash flows accumulated for the period from February 16,
1960 (Date of Inception) to June 30, 2001 and the years ended June 30, 2001 and
2000 in conformity with generally accepted accounting principles used 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 conducted operations at a loss 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.

MANNING ELLIOT
CHARTERED ACCOUNTANTS
Vancouver, Canada
September 21, 2001







================================================================================
                                        F-2

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets

                                                       June 30 (Restated-
                                                        2001   -See Note 10)
                                                               June 30, 2000
                                                          $         $
--------------------------------------------------------------------------------
ASSETS

Current Assets

Cash                                                       2            485
--------------------------------------------------------------------------------
Total Assets                                               2            485
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable                                      14,807          3,111
Accrued liabilities (Note 6(d))                       15,000             -
Note payable (Note 4)                                 33,638         42,013
Shareholder loan payable (Note 6(a))                 196,255        163,748
Amounts owing to a Director (Note 6(b))              152,111         74,432
--------------------------------------------------------------------------------
                                                     411,811        283,304
--------------------------------------------------------------------------------
Temporary Equity (Note 7(d))                         223,000        223,000
--------------------------------------------------------------------------------
Stockholders' Equity (Deficit)

Common Stock (Note 7): $0.001 par value; 50,000,000
shares authorized 20,623,600 and 19,523,600 shares
are issued and outstanding respectively               20,624         19,524

Additional Paid-in Capital                           285,842        162,474

Donated Capital - Imputed Interest (Notes 5 and 6)   115,937         56,735

Deficit Accumulated During the Development Stage  (1,057,212)      (744,552)
--------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit)                (634,809)      (505,819)
--------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                 2            485
--------------------------------------------------------------------------------

Nature of Operations and Continuance of Business (Note 1)
Other Contingencies (Note 8)

(See Accompanying Notes to the Consolidated Financial Statements)











================================================================================
                                        F-3
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Operations


                                         Accumulated from        Years ended
                                         from February 26, 1960 (Restated-
                                         (Date                   of See Note 10)
                                         Inception)
                                         to  June 30,          June 30, June 30,
                                           2001                 2001       2000
                                             $                   $          $
--------------------------------------------------------------------------------
Revenue                                            -             -          -
--------------------------------------------------------------------------------
Expenses

Advances to Blue Mountain Packers                 84,951    84,951       -
written-off (Note 3)

Deposit on plant written-off                     170,561      -         170,561
(Note 3)
Disputed compensation (Note 8(b))                243,463      -          -
Executive compensation (Note6(b))                144,000    72,000       72,000
Filing and regulatory fees                        15,530     5,092        5,438
General and administration                        58,949     2,973        3,045
Imputed interest (Notes 5 and 6)                 115,937    59,202       30,735
Interest                                           2,129     2,129       -
Investor relations                                16,698     4,092       12,606
Professional fees                                141,368    72,419       22,008
Rent and telephone                                41,922     6,699        6,535
Research and development                           8,000      -            -
Travel and promotion                              13,704     3,103        1,216
--------------------------------------------------------------------------------
                                               1,057,212   312,660      324,144
--------------------------------------------------------------------------------
Net Loss                                      (1,057,212) (312,660)    (324,144)
--------------------------------------------------------------------------------
Net Loss Per Share                                            (.02)        (.02)
--------------------------------------------------------------------------------
Weighted Average Shares Outstanding                     19,524,000   14,609,000
--------------------------------------------------------------------------------


(See Accompanying Notes to the Consolidated Financial Statements)



















================================================================================
                                        F-4
Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
                                                  Accumulated
                                                  from           Years ended
                                                  from February
                                                  26, 1960       (Restated-
                                                  (Date of       See Note 10)
                                                  Inception)   June 30, June 30,
                                                  June 30, 2001  2001     2000
                                                      $           $        $
--------------------------------------------------------------------------------
Cash Flows To Operating Activities

Net loss                                          (1,057,212) (312,660)(324,144)

Non-cash items
Shares issued for services                            12,000      -        -
Other adjustment                                        (502)     -        -
Imputed interest                                     115,937    59,202   30,735
Deposit on plant written-off                         170,561      -     170,561
Advances written-off                                  84,951    84,951     -

Adjustment to reconcile net loss to cash
Accounts payable and accrued liabilities              29,807    26,695    3,111
--------------------------------------------------------------------------------
Net Cash Used In Operating Activities               (644,458) (141,812)(119,737)
--------------------------------------------------------------------------------
Cash Flows To Investing Activities

Deposit on plant                                     (170,561)    -    (170,561)
Advances to Blue Mountain Packers lTD.                (79,951) (79,951)    -
--------------------------------------------------------------------------------
Net Cash Used By Investing Activities                (250,512) (79,951)(170,561)
--------------------------------------------------------------------------------
Cash Flows From Financing Activities

Note payable                                           33,638   33,638     -
Advances payable                                      119,468   77,455   42,013
Amounts owing to a Director                           152,111   77,679   74,432
Shareholder loans payable                             196,255   32,508   24,338
Temporary equity and redeemable shares                223,000     -        -
Issuance of common stock                              170,500     -     150,000
--------------------------------------------------------------------------------
Net Cash Provided By Financing Activities             894,972  221,280  290,783
--------------------------------------------------------------------------------
Net Increase (Decrease) in Cash                             2     (483)     485
Cash - Beginning of Period                               -         485     -
--------------------------------------------------------------------------------
Cash - End of Period                                        2        2      485
--------------------------------------------------------------------------------
Non-Cash Financing Activities

A total of 12,000,000 common shares were issued for
services in 1993                                       12,000     -        -
A total of 1,100,000 restricted common shares were
issued to settle debt                                 124,468  124,468     -
--------------------------------------------------------------------------------
Supplemental Disclosures

Interest paid in cash                                    -        -        -
Taxes paid in cash                                       -        -        -

(See Accompanying Notes to the Consolidated Financial Statements)
================================================================================
                                        F-5

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity
                                                                 Deficit
                                                                 Accumulated
                            # of             Additional          During the
                          Shares     Par     Paid-in     Donated Development
                         Issued and Value    Capital     Capital Stage     Total
                         Outstanding  $         $             $    $         $
--------------------------------------------------------------------------------
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 (Note 7(a))
                        (12,000,000)(12,000)     12,000       -        -     -
Shares issued to effect a
reverse merger (Note 7(a))
                         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
(Note 7(b))               1,900,000   1,900      (1,900)      -        -     -

Issuance of shares for cash
                             23,600      24      13,576       -        - 13,600
Imputed Interest(Note 5)         -        -           -  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 previously
issued shares (Note 7(b))(1,900,000) (1,900)    1,900      -        -      -

Issuance of shares for no consideration
(Note 7(c))               3,000,000   3,000    (3,000)     -        -      -

Issuance of shares pursuant to a subscription
agreement (Note 7(c))     1,500,000   1,500   148,500      -        -    150,000

Imputed Interest (Notes 5 and 6)
                              -         -        -       59,202     -     59,202
Net loss for the year
(Restated -See Note 10)                                          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 in June 2001
to settle debt (Notes 7(e) and (f))
                          1,100,000   1,100   123,368      -      -      124,468
Imputed Interest (Notes 5 and 6)
                                -        -        -     59,202    -       59,202
Net loss for the year                                         (312,660)(312,660)
--------------------------------------------------------------------------------
Balance at June 20,2001  20,623,600  20,624  285,842 115,937(1,057,212)(634,809)
--------------------------------------------------------------------------------
As at June 30, 2001 an additional 237,853 shares were issued but not outstanding
as these shares were issued with rescission rights attached (Note 7(d)).
(See Accompanying Notes to the Consolidated Financial Statements)
================================================================================
                                        F-6
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
  representing 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. The Company operates through
  these two wholly-owned subsidiaries.

  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". From May 1998 to June 1999 the Company operated out of an office in
  California which was set up for investor relations and to raise additional
  capital. This office was shut down in June and the new President and directors
  are operating out of Kelowna, BC, Canada after the Calgary, Alberta, Canada
  office was shut down on May 3, 2001.

  Pursuant to the acquisition, the Company acquired a number of proprietary
  technologies with the primary objective of the business being to build small
  farm scale ethanol facilities which involves a number of proprietary
  technologies exclusively owned by the Company. Other proprietary technology
  involves the use of a bio-gas burner which 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
  which 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 in the early development stage. In a development stage
  company,  management devotes most  of  its  activities  in investigating
  business opportunities and further advancing its technologies.  Because of
  a deficiency in working capital and other current commitments and
  significant operating losses, there is substantial doubt about the ability
  of the Company to continue in existence unless additional working
  capital is obtained.

  The Company will need to rely on the forbearance of some creditors
  and related parties have agreed to continue to fund working capital as
  needed.  The Company has entered into discussions with third parties to
  directly finance a facility in which the Company will then commence with its
  business plan.
================================================================================
                                        F-7
2.   Summary of Significant Accounting Policies

  (a)  Consolidated Financial Statements

  These consolidated financial statements represent the consolidation of the
  Company and its two subsidiaries Hybrid Fuels, U.S.A., Inc, and Hybrid Fuels
  (Canada) Inc.

  (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 statement in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that effect certain reported amounts and disclosures. Accordingly, actual
  results could differ from those estimates.

  (d)  Accounting for Stock-Based Compensation

  SFAS No. 123, "Accounting for Stock-Based Compensation," requires that stock
  awards granted be recognized as compensation expense based on fair values at
  the date of grant. Alternatively, a company may account for stock awards
  granted under Accounting Principles Board Opinion (APB) No. 25, +"Accounting
  for Stock Issued to Employees," and disclose pro forma income amounts which
  would have resulted from recognizing such awards at their fair value. The
  Company has elected to account for stock-based compensation for employees
  under APB No. 25 and make the required pro forma disclosures for compensation
  expense. Stock based compensation for non- employees are accounted for using
  SFAS No. 123.


3.   Deposit on Plant
  The Company deposited Cnd$250,000 ($170,561), with Mega Holdings, Inc.,
  pursuant to an option agreement to purchase a beef processing plant owned by
  Mega Holdings, Ltd. The Company agreed to purchase the beef processing plant
  facility including land, buildings and equipment for Cnd$3,000,000 which was
  below appraised value. The purchase agreement required an additional payment
  of Cnd$150,000 on June 24, 2000, the parties agreed to extend the deadline for
  the payment until March 15, 2001. This payment was not made and the deposit
  was forfeited and the option agreement terminated. Upon anticipated completion
  of the purchase, this beef processing plant was to be operated by Blue
  Mountain Packers, Ltd. (a related company). The Company intended to acquire
  the issued and outstanding common shares of Blue Mountain Packers, Ltd. for a
  nominal amount and operate it as a wholly-owned subsidiary. Blue Mountain
  Packers, Ltd. had recently received certification by the Canadian Food
  Inspection Agency of the Government of Canada, Department of Agriculture for
  the processing of Canadian beef. Blue Mountain Packers is a related party due
  to having one common director. The Company advanced $84,951 to Blue Mountain
  Packers for plant refurbishing. These advances bear interest at 8%. Due to the
  termination of the option agreement these advances are considered
  uncollectible and have been charged to operations.










================================================================================
                                        F-8
4.   Note Payable

  On September 15, 2000, the Company issued a note for Cnd$50,000 ($33,638) due
  and payable on or before September 15, 2001 plus 8% interest. Repayment of the
  note has been extended until completion of a financing. Interest of $2,129 has
  been accrued at June 30, 2001 and is included in accounts payable.


5.   Advances Payable

  A non-related company coordinated investor relations services for the Company
  and paid expenses of $69,248 on behalf of the Company and loaned the Company
  Cnd$78,000 ($50,220) for a total amount owing of $119,468. This debt was
  settled in June 2001 by the issuance of 1,000,000 restricted common shares of
  the Company. These advances were non-interest bearing and unsecured until the
  settlement date. Imputed interest of $13,326 (2000 - $2,965), calculated at a
  rate of 15% per annum, was charged to operations and treated as donated
  capital.


6.   Related Party Transactions/Balances.

  (a)    Cash loans of $499,059 were advanced to the Company by the major
  shareholder. A total of $365,590 was repaid with cash. The controlling
  shareholder also paid office, rent and professional fees totalling $62,786 on
  behalf of the Company. The balance of $196,255 is currently owing without
  interest or specific repayment terms. Imputed interest of $29,041 (2000 -
  $20,800), calculated at a rate of 15% per annum, was charged to operations and
  treated as donated capital.

  (b)    The President who is also a Director of the Company, has paid office
  and related expenses from personal funds in the amount of $14,411 of which
  $6,300 has been reimbursed with cash. Effective July 1, 1999 the President is
  entitled to a deferred salary of US$6,000 per month and was owed a total of
  $144,000 at June 30, 2001. These amounts are unsecured, non-interest bearing
  and due on demand. Imputed interest of $16,835 (2000 - $6,970), calculated at
  a rate of 15% per annum, was charged to operations and treated as donated
  capital.

  (c)    See Note 3 for advances to Blue Mountain Packers Ltd.

  (d)    On June 11, 2001 pursuant to a directors' consent, a total of 200,000
  shares will be issued to a director/officer of the Company to settle $10,000
  owing as at June 30, 2001. This amount has been accrued and is included in
  accrued liabilities.


7.   Stockholders' Equity

  (a)    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. gained control of Polo
  Equities Inc. As part of the acquisition three shareholders representing
  12,000,000 previously issued shares returned their shares for cancellation.
  For accounting purposes the acquisition was treated as a business purchase by
  Hybrid Fuels USA Inc. of Polo Equities, 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.




================================================================================
                                        F-9
7.   Stockholders' Equity (con't)

  (b)    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 it may incur in any way
   arising out of the cancellation of such shares and 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
   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.

  (c)    On May 17, 2000 the Company issued 1,500,000 shares for $150,000 cash
   pursuant to a subscription agreement dated February 17, 2000.

         On February 17 and 18, 2000, the Company accepted subscription
  agreements and notes whereby the Company would receive $300,000 for 3,000,000
  shares. The 3,000,000 shares were issued and were then held in escrow . These
  shares were subsequently released from escrow to the investors to facilitate
  financing. The notes were to bear interest at 8% and were to be paid within 60
  days or at the discretion of the President. In June 2000 the President
  extended the time for repayment to one week of the Company being re-listed on
  the Over-The-Counter Bulletin Board or other suitable exchange. When it became
  apparent there were going to be long delays the notes were demanded to be
  repaid by February 21, 2001. The notes were not paid as demanded, and the
  3,000,000 shares have since been sold by the investors to innocent third
  parties. The investors did not and have not paid the Company for these shares,
  despite demands. Since these shares have been resold to innocent third parties
  they must be considered outstanding. The Company intends to sue the investors
  for the balance due on the notes, however the Company believes the balance is
  uncollectible.

  (d)    Between October 1998 and June 1999, the previous administration sold a
   total of 351,053 common shares of the Company to 34 subscribers on the basis
   of an Offering Memorandum that contained a significant number of
   inaccuracies. A total of $223,000 was raised pursuant to this Offering. The
   current administration has 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 237,853 shares,
   representing $158,000. These shares are issued but not considered
   outstanding. The remaining 11 subscribers, who paid $65,000 for 113,200
   shares, have not responded to the offer. These subscriptions are recorded as
   temporary equity until rescission rights have been revoked.

================================================================================
                                        F-10

7.   Stockholders' Equity (con't)

   (e)    See Note 5 for 1,000,000 restricted common shares issued to a
   non-related company to settle debt of $119,468.

   (f)    A total of 100,000 restricted common shares, valued at $5,000, were
   issued to the plant manager of Blue Mountain Packers Ltd. for plant
   refurbishing work to March 15, 2001.

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

   (a)    See Note 7(b) for contingencies relating to improperly issued shares
   that were later cancelled.

   (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 past president. All amounts that were unauthorized by the board of
   directors or amounts that are 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)    See Note 7(d) for temporary equity and related rescission rights for
   subscribers of 351,120 shares of the Company.

9.   Subsequent Events

          On September 19, 2001, 200,000 shares were issued to settle debt
   referred to in Note 6(d).





























================================================================================
                                        F-11

10.  Restatements

          The Company has restated its financial statements for the year ended
   June 30, 2000. The nature of the restatements and the effect on net income
   and earnings per share are as follows:

                                                                       $

   Net loss for the year as previously reported                      (80,835)

   Corrections effecting net income:

(a)Inclusion of imputed interest at a rate of 15+ACU- per annum on
   non-interest bearing loans                                        (30,735)

(b)Deposit on plant written-off                                     (170,561)

(c)Recognition of a liability owing to a non-related company for expenses paid
   on behalf of the Company                                          (42,013)
--------------------------------------------------------------------------------
Net loss for the year as restated                                   (324,144)
--------------------------------------------------------------------------------
                                                                       $

   Loss per share as previously reported                              (.01)

   Loss per share on restatements                                     (.01)

   Loss per share as restated                                         (.02)

  In addition to the restatements noted above certain other financial statement
  note disclosures were provided to improve the overall presentation of the
  Company's financial statements.






























================================================================================
Page-43-

ITEM  8.  CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS

On July 25, 2000 the Company terminated James E. Slayton, CPA as its independent
accountant, and appointed William L. Butcher CPA PS as its independent
accountant. The form 8-K regarding the reasons for that change was filed with
the SEC on August 28, 2001. (See Item

On February 5, 2001, the Company terminated William L. Butcher CPA PS as its
independent accountant, and appointed Manning Elliott as its independent
accountant.

During the Company's two fiscal years ended June 30, 2000 and 2001, and any
subsequent interim period, there were no "reportable events" requiring
disclosure pursuant to Item 304 of Regulation S-B.

                             PART III

ITEM   9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS  AND  CONTROL
PERSONS.

The following table sets forth as of June 30, 2001, the name, age, and position
of each executive officer and director and the term of office of each director
of the Corporation.

NAME            AGE     POSITION                    DIRECTOR OR OFFICER SINCE

Clay Larson     60      President and Director,           June 28, 1999

John Morrison   67      Director, Secretary and           August 6, 2000,
                        Chief Financial Officer,

Gordon Colledge 57      Director and Vice-President.      September 26, 2000

Information about the Offices and Directors

Clay Larson
Prior to becoming a Director and President, Mr. Larson was a practicing lawyer
for 25 years. Prior to leaving the profession in February 1997, he was the
senior and managing partner in the law firm. He has extensive business
experience involving dealing with government agencies, financial institutions,
client services, personnel, computer equipment and operating systems. After
leaving the practice of law, he worked as a business consultant, leaving that to
become President and Director of the Company. Mr. Larson has no other
directorships in any reporting companies.

John Morrison
Mr. Morrison has an extensive accounting background with over thirty years
experience with KPMG ("KPMG").  He passed his CPA exams in 1966, and was
appointed to Beta Alpha Psi as a result of receiving a GPA in excess of 3.5 and
graduated Summa Cum Laude. He received his CA designation in 1968 and then
worked his way from partner in KPMG's Winnipeg Office in 1972 to a senior
partner in KPMG's Vancouver office in 1979.  From 1980 to 1989, Mr. Morrison was
the managing partner of KPMG's Kelowna office. He was also Vice-President of
Thorne Ernst & Whinney Inc. from 1980 to 1989.  During his tenure with KPMG, Mr.
Morrison was involved in a large number of mergers, acquisitions and
reorganizations.  After his retirement from KPMG in 1989, he has provided
ongoing consulting services to a wide range of clients in diverse industries.






================================================================================
Page-44-

Gordon Colledge
Gordon Colledge was appointed a Director and Vice-President on September 26,
2000. Mr. Colledge attended the University of Lethbridge and is currently taking
courses at the University of Great Falls in Montana. During the last five years,
he has been a contract instructor in Family Studies at the Lethbridge Community
College and an international conference keynote speaker and workshop
facilitator.  In addition to teaching, Mr. Colledge, along with his wife,
operate 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.

Gordon has earned an international Teaching Excellence Award from the University
of Texas at Austin. He has worked with dozens of towns and communities in
Western Canada on community development projects through WESTARC, an applied
research group at the University of Brandon, Manitoba. An expert in
communication, Mr. Colledge was also assigned to work with farm and ranch
families and has earned recognition on the Premier's Council in Alberta for his
support of those families. Mr. Colledge knows the value of cost effective
ranching and farming.

It was in his counseling capacity that Mr. Colledge became knowledgeable with
the Issuer's proprietary technology and the positive effect that these
technologies have for small to large farms and ranches.  Gordon has been an
enthusiastic supporter of the Hybrid technology for more than a decade.

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
elected and qualified.

ITEM  10.  EXECUTIVE  COMPENSATION.

Mr. Larson, the Company's President and a Director, began accruing salary in the
amount of $6,000 per month as of July 1, 1999, which is being deferred until
such time as the Company has adequate funds to pay compensation. The Company
also agreed to pay John Morrison $150.00 per hour for work he does for the
Company. As at June 30, 2001, the Company issued 200,000 restricted shares to
Mr. Morrison for services rendered to year end. At the present time, the Company
does not have any other compensation agreements or plans with any other officers
and directors of the Company.  The Company does intend to enter into such
agreements in the future when resources allow.

The Company intends to appoint not more than five 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 a compensation plan which
will likely include stock options and performance incentives which may be tied
to gross sales, increase in sales, gross revenues, increase in gross revenues
and profitability.















================================================================================
Page-45-

                             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 2001 72,000  -0-      -0-       -0-         -0-       -0-    -0-
            2000 72,000  -0-      -0-       -0-         -0-       -0-    -0-
President,  1999 36,000  -0-      -0-       -0-         -0-       -0-    -0-
--------------------------------------------------------------------------------
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 which 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.












































================================================================================
Page-46-

ITEM  11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;

CHANGES IN CONTROL

The following table sets forth as of June 30, 2001, 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 20,623,600 issued and
outstanding shares (see  Consolidated  Statement  of Shareholders  Equity in
Financial Statements) of the Registrant's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.

Title of    Name and Address of     Amount and Nature of           Percentage of
Class       Beneficial Owner        Beneficial Ownership           Class
--------------------------------------------------------------------------------
Common      Donald Craig                     1,850,000                8.97%
            12650 Ponderosa Road
            Winfield, B.C. V4V 2G8

Common      Clay  Larson  (1)                1,000,000                4.85%
            740 Westpoint Crt.
            Kelowna, B.C. V1W 2Z4

Common      John Morrison (1)                  300,000                1.44%
            439 Viewcrest Dr.,
            Kelowna, B.C. V1W 4K1

Common      Gordon Colledge (1)                212,000                1.03%
            2213 27th Avenue
            Lethbridge, AB T1K 6K4

Common      Auchengrey Ltd.                  2,000,000                12.1%
            Diane Smith,
            PO Box 3321, Tortula, BVI.

Common      Killaloe Ltd.                    2,000,000                12.1%
            Don Murray,
            Drake Chambers, Tortula, BVI
--------------------------------------------------------------------------------
Common Total Officers and Directors as a Group (3 Persons) 1,512,000 7.32%
--------------------------------------------------------------------------------
(1) Officer and/or director.

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


















================================================================================
Page-47-

ITEM  12.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

The Company utilizes office space provided by the President of the Company at no
charge.

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 $196,255 as of June 30, 2001. The loan is
non-interest bearing, payable on demand with no fixed terms of repayment.
Imputed interest is calculated at 15% on the loan, because of the riskiness of
the loan and that interest is charged to operations and treated as donated
capital.

The Company deposited $170,561 with Mega Holdings Inc., towards the purchase of
a packing plant they owned, known as Blue Mountain Packers. Mega Holdings Inc.,
and its officers, directors and affiliates are not related to Hybrid or any of
its officers, Directors or affiliates.

In addition, the Company caused a related company to be incorporated under the
name of Blue Mountain Packers Ltd., which was to operate the packing plant
described above. The Company advanced $84,951 to the related company which was
used to prepare the packing plant for operation. As a result of the Company not
paying the balance of the deposit when it fell due, the deposit was forfeited
and the money advanced to the related company was written of and charged to
operations. None of the officers, directors or affiliates of Hybrid had any
interest in these transactions except as shareholders of Hybrid.

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 which they contemplate  entering into with the Company.

ITEM  13.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Financial Statements and Schedules
The financial statements as set forth in Item 7 of this report on Form 10-KSB
are incorporated herein by reference.

Financial statement schedules have been omitted since they are either not
required, not applicable, or the information is otherwise included.

(a)  Reports on Form 8-K.
The Company late filed two reports on Form 8-K during the year. The first, to
report the change of auditor from James E. Slayton to William L. Butcher on July
25, 2000, was filed on August 28, 2001, amended and re-filed on October 22,
2001. The second, to report the change of auditor from William L. Butcher to
Manning Elliott on February 1, 2001, was filed on June 19, 2001.

(c) Exhibit No.
     3.1 Articles of Incorporation (1)
     3.2 Bylaws (1)
     4.1 Specimen stock certificate. (2)
     16a Change of Certifying Accountant, James E. Slayton to William L. Butcher
     on July 25, 2000.
     16b Change of Certifying Accountant, Butcher to Manning Elliott February 1,
     2001. 21
     List of Subsidiaries

   (1)  Exhibits Incorporated by reference from the Company's Form 10SB 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 14, 2001.
================================================================================
Page-48-



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this statement to be signed on its behalf, by the
undersigned; thereunto duly authorized.

Hybrid Fuels, Inc.

Date: September 26, 2002.

By: /s/ Clay Larson                   By: /s/ John Morrison
---------------------                      -----------------------
Director, President & CEO                  Director & CFO
















































================================================================================
Page-49-
Exhibit 16a

                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC 20549
                                     FORM 8-K/A
                                   CURRENT REPORT
                          Pursuant to Section 13 OR 15(d)
                       of the Securities Exchange Act of 1934

Date of Report ( Date of earliest event reported)    July 25, 2000

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

                NEVADA                   0-29351         88-0384399
           State or other jurisdiction   (Commission     (IRS Employer of
            incorporation                 File Number)    Iden fication No.)

                 PO Box 41118, RPOS Winfield, B.C., Canada  V4V 1Z7
                (Address of principal executive offices)  (Zip Code)

Registrant's telephone number, including area code 250-764-0352

                 #214-2791 Hwy 97 N, Kelowna, B.C., Canada, VIX 4J8
           (Former name or former address, if changed since last report)

Item 4. Change of Registrant's Certifying Accountant

On the April 7, 2000, the SEC issued a comment letter regarding the Registrant's
Form 10 SB, filed February 7, 2000.  A significant number of the comments
related to the financial statements prepared by the Company's auditor, James E.
Slayton.  The Company forwarded a copy of the comment letter to Mr. Slayton in
April 2000 and requested that he respond to those comments.

During April, May, June, and July, the Company President had several
conversations with Mr. Slayton, requesting that he respond to the comments of
the SEC.  When he failed to do so, the Company's sole Director passed a
resolution dated July 25, 2000 terminating Mr. Slayton's appointment as the
Company's independent accountant.

(a) Previous independent accountants.

(i)  On July 25, 2000, Hybrid Fuels, Inc., (Hybrid) dismissed James E. Slayton
who had previously served as independent accountant for Hybrid.

(ii)  The reports of James E. Slayton on the consolidated financial statements
of Hybrid as of and for the fiscal years ended June 30, 1998, June 30th 1999,
and any subsequent interim  period preceding the termination, contained no
adverse opinion or disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope, or accounting principles.

(iii) The change in independent accountants was approved by Hybrid's President
and sole Director.

(iv) In connection with its audit for the fiscal years ended June 30, 1998, June
30, 1999 and any subsequent interim period preceding the termination, there were
no disagreements with James E. Slayton on any matter of







================================================================================

Item 4. Change of Registrant's Certifying Accountant (a)(con't)

accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
James E. Slayton, would have caused James E. Slayton to make reference to such
disagreements in its report on the consolidated financial statements for such
periods.

(v)  During the fiscal years ended June 30, 1998, and 1999, and any subsequent
interim period preceding the termination, there were no "reportable events" as
that term is defined in Item 304(a)(1)(v) of Regulation S-K of the Securities
and Exchange Commission (the SEC).

(vi)  Hybrid has requested that James E. Slayton furnish it with a letter
addressed to the SEC stating whether or not James E. Slayton agrees with the
above statements.  A copy of his letter, dated October 10, 2001, is filed as
Exhibit 16 to this Form 8-K/A.

(b) New independent accountants.

On July 25th, 2000, Hybrid engaged William L. Butcher, CPA P.S., (Butcher) as
its new independent accountants.  The engagement of Butcher, was approved by the
sole director of the Company. During the fiscal years ended June 30, 1999 and
2000 and any subsequent interim period, Hybrid has not consulted with Butcher,
regarding either:

(i)  the application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
Hybrid's financial statements, and neither a written report was provided to
Hybrid nor oral advice was provided that Butcher concluded was an important
factor considered by Hybrid in reaching a decision has to any such accounting,
auditing or financial reporting issue; or

(ii) any matter that was either the subject of a "disagreement" as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to
Item 304 of regulation S-K, or a "reportable event" as that term is defined in
Item 304 (a)(1)(v) of Regulation SK.



Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(a) Financial Statements                Not applicable.
(b) Pro Forma Financial Information     Not applicable.
(c) Exhibit 16 Letter from James E. Slayton October 10, 2001 regarding change in
certifying accountants.


















================================================================================

Signatures

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

Hybrid Fuels, Inc.

/s/ Clay Larson
---------------------------------------------
Clay Larson
President and Chief Executive Officer.
Dated October 10, 2001



















































================================================================================
EX-16
James E. Slayton, CPA
2858 WEST MARKET STREET
SUITE C
FAIRLAWN, OHIO 44333
1-330-869-6704

Securities and Exchange Commission                     October 10, 2001
Washington, D.C. 20549

Dear madam/sir,

I have been notified that I have been replaced as the accountant for Hybrid
Fuels, Inc., (the Company).  I previously reported on the Company's financial
statements for the periods ending June 30, 1998, June 30th 1999 and the interim
period ended November 30, 1999.

The audit report dated December 18, 1999, was unqualified except for an
explanatory paragraph stating that there was substantial doubt about the
Company's ability to continue as a going concern.  There were no disagreements
with the company's management on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure during
the audit period to the present time.

I have read the Company's statements contained in Form 8-K and agree with them
except that I have except that I am not in a position to agree with the
Company's statement that the change was approved by the Audit Committee of the
Board of Directors or that William L. Butcher, CPA, was not engaged regarding
any matter requiring disclosure under Regulation S-K, Item 304 (a)(2).

Sincerely,
/s/
James E. Slayton
































================================================================================
Exhibit 16b

                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                                Washington, DC 20549

                                      FORM 8-K
                                   CURRENT REPORT

         Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of
                                        1934

         Date of Report ( Date of earliest event reported) February 1, 2001

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

                                       NEVADA
                   (State or other jurisdiction of incorporation

                     0-29351                  88-0384399-152512
             (Commission File Number)     (IRS Employer Identification No.)

             +ACM-214-2791 Hwy 97 N, Kelowna, B.C., Canada            VIX 4J8
             (Address of principal executive offices)            (Zip Code)

Registrant's telephone number, including area code 250-764-0352

(Former name or former address, if changed since last report)





































================================================================================
Item 4. Change of Registrant's Certifying Accountant

After filing the Form SB-2 in December 2000, the Company learned that William L.
Butcher, CPA P.S. (Butcher) the Company's independent certifying accountant, was
not a licensed CPA as he had represented. As a result he was not qualified to
sign the audit and the Company's Directors therefore passed a resolution dated
February 1, 2001 terminating the appointment of Butcher as the Company's
independent accountant.

(a) Previous independent accountants.

(i)  On February 1st, 2001, Hybrid Fuels, Inc., (Hybrid) dismissed Butcher who
had previously served as independent accountant for Hybrid.

(ii)  The reports of Butcher on the consolidated financial statements of Hybrid
as of and for the fiscal years ended June 30, 1999, June 30, 2000, and any
subsequent interim period, contained no adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope, or accounting
principles.

(iii) The change in independent accountants was recommended by the Chief
Financial Officer and approved by Hybrid's Board of Directors.

(iv)  In connection with its audit for the fiscal years ended June 30, 1999,
June 30, 2000 and the fiscal period ended December 31, 2001 there were no
disagreements with Butcher on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Butcher, would have caused
Butcher to make reference to such disagreements in his report on the
consolidated financial statements for such periods.

(v)  During the fiscal years ended June 30, 1999, and 2000, and the interim
fiscal period from July 1st, 2000 through December 31st, 2001 there were no
"reportable events" as that term is defined in Item 304 (a)(1)(v) of Regulation
S-K of the Securities and Exchange Commission (the SEC).

(vi)  Hybrid has requested that Butcher furnish it with a letter addressed to
the SEC stating whether or not Butcher agrees with the above statements.  A copy
of this letter, dated May 15, 2001, is filed as Exhibit 16 to this Form 8-K.

(b) New independent accountants.

On February 1st, 2001, Hybrid engaged Manning Elliott as its new independent
accountants.  The engagement of Manning Elliott, was approved by the Board of
Directors of the Company. During the fiscal years ended June 30, 1998, 1999 and
2000 and the interim period ended December 31, 2000, Hybrid has not consulted
with Manning Elliott, regarding either:

(i)  the application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
Hybrid's financial statements, and neither a written report was provided to
Hybrid nor oral advice was provided that Manning Elliott concluded was an
important factor considered by Hybrid in reaching a decision has to any such
accounting, auditing or financial reporting issue; or

(ii) any matter that was either the subject of a "disagreement" as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to
Item 304 of regulation S-K, or a "reportable event" as that term is defined in
Item 304 (a)(1)(v) of Regulation SK.






================================================================================

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(a) Financial Statements                  Not applicable.
(b) Pro Forma Financial Information       Not applicable.
(c) Exhibit 16 Letter from William L. Butcher May 15, 2001 regarding change in
certifying accountants. Signatures

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

Hybrid Fuels, Inc.           By: /s/  Clay Larson
---------------------------------------------
Dated May 15, 2001       Clay Larson
                         President and Chief Executive Officer.

















































================================================================================
Exhibit 16

May 15, 2001

Securities and Exchange Commission
VIA FACSIMILE
Mail Stop 11-3
(202) 942-9656
450 5th Street, N.W.
Washington, D.C., 20549
HAND DELIVERY


Dear Sirs/Mesdames:

We have read and agree with the comments in Item 4 of the Form 8-K of Hybrid
Fuels, Inc. dated May 15, 2001.

Yours truly,
/s/  William L. Butcher, CPA P.S.













































================================================================================
Exhibit 21

List of Subsidiaries

Hybrid Fuels USA Inc.,
Hybrid Fuels (Canada) Inc.



























































================================================================================