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

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

                                   FORM 10-KSB


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

                     For The Fiscal Year Ended June 30, 2007

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

               For The Transition Period from _______ to__________

                         Commission File Number 0-29351

                               HYBRID FUELS, INC.
                               ------------------
           (Name of small business issuer as specified in its charter)

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

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

Issuer's Telephone Number (888)550-2333

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the last 90 days.       Yes [X] No [ ]

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

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

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

The number of shares issued and outstanding of the registrant's common stock as
of October 12, 2007 is 30,111,733.

Amount of revenue for most recent fiscal year   $0.00

Aggregate market value of the common equity held by non-affiliates: $5,816,621

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

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

Item 2.   DESCRIPTION OF PROPERTY....................................Page 14

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

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


                                    PART II

Item 5.   MARKET FOR REGISTRANT'S COMMON
          EQUITY AND RELATED STOCKHOLDER MATTERS.....................Page 15

Item 6.   PLAN OF OPERATION..........................................Page 17

Item 7.   FINANCIAL STATEMENTS.......................................Page 22

Item 8.   CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................Page 22

Item 8A.  CONTROLS AND PROCEDURES....................................Page 22

Item 8B.  OTHER INFORMATION..........................................Page 22

                                   PART III

Item 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
          AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (A)
          OF THE EXCHANGE ACT........................................Page 22

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

Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
          OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
          MATTERS....................................................Page 25

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............Page 25

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K...........................Page 25

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.....................Page 26

Signatures...........................................................Page 26


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                                     PART I


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

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

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

GENERAL INFORMATION ON THE COMPANY

Hybrid Fuels Inc. is a development-stage company and has had no income since the
inception date of June 10, 1998. The Company is unlikely to have any significant
cash flow until after the quarter ending December 31, 2007.

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

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

At this time the Company's intended principal business is to integrate cattle
feeding and finishing with the production of electrical power. The Company is
also actively pursuing other sources of revenue related to their integrated farm
system.

On December 14, 2006 the Company acquired a commercial-ready facility situated
in Oyama, BC, Canada from a Hybrid Fuels Inc. shareholder consortium that
financed its construction. This facility includes all equipment and
infrastructure necessary to utilize the Company's proprietary technology
including a cattle barn, a hydroponics barley-grass growing system and an
ethanol-producing plant. The facility was acquired for total consideration of
3.72 million restricted common shares of Hybrid Fuels Inc. valued at $1,413,600.

                                       3
<PAGE>

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

The facility will not be run at full capacity until approximately four months
have passed from the facility becoming operational. During this four-month
period we believe that we will have sufficient data to estimate revenue streams
and expenses to establish comprehensive business plans.

It is intended that future facilities will be constructed for the Company by
independent contractors on privately-owned farms after a written, contractual
agreement is made between the Company and the operator (s).

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

The Project will initially consist of the construction of two facilities - each
utilizing Hybrid Fuels' proprietary technology together with the industry
expertise and cattle provided by A4 Bar Cattle Company Ltd. Construction is
expected to start during the fiscal year ending June 30, 2008.

The two aforementioned facilities are expected to produce a combined daily
volume of approximately 800 US gallons (3,200 litres) of ethanol per day,
generate up to 2 megawatts of power, finish up to 2,400 head of cattle annually,
and provide up to 10 full time jobs. The internal hydroponics barley grass
growing system is designed to produce a 10-15 pound ration of grass per head of
cattle per day.

Once we have a fully operational facility, and have proven the technology and
processes, we intend that our subsidiary, Hybrid Fuels (Canada) Inc., will
operate it and generate revenue from the sale of electrical power and finished
cattle.

Efforts to improve every aspect of the whole operation continue with positive
results. Management believes the overall Hybrid Fuels program involving
progressive and environmental sensitivity towards cattle feeding, maintenance
and processing will present a chemical-free product cycle which offers a world-
class benchmark for the industry.

OUR FACILITIES

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

The cattle barn at the Oyama facility has been designed to accommodate 200 head
of cattle and the hydroponics barley-grass growing system. Once the facility is
operational, it is expected that the cattle will be fed starting with 50 head
and adding another 50 approximately every four weeks until the barn is at full
capacity. As we gain experience with the facility, we intend to operate the barn
continuously at full capacity during the subsequent 100-day feeding cycles.

                                       4
<PAGE>

Until the Company is operating a beef processing facility it is intended that
the cattle will be sold to processors at a price reflective of its high quality.

The cattle barn includes floor space for six individual pens - five occupied
pens and one pen remaining empty and free of manure and bedding waste. Cattle
are to be moved to a clean pen every five days on a rotational basis. The manure
and bedding straw is removed from the pens and destroyed in the gasifier/burner
that provides heat energy for the ethanol production and the hydroponics feed
system.

In the ethanol plant, grains are fermented and then distilled to produce the wet
ethanol. The heat is supplied from the burning of the used bedding straw and
manure in the gasifier/burner. The ethanol production process also generates a
high protein product, called "distillers mash" and a liquid byproduct called
"stillage water." The mash and liquid is supplemented by barley grass and
creates an excellent feed for the cattle. The expected weight gain is an average
of four pounds a day per head during the planned 100-120 day feeding cycle. Once
the Oyama facility is operating at full capacity, we project that the ethanol
production will be approximately 200 US gallons (800 litres) per day.

Ethanol produced by the first facility is expected to be used in the
gasification process. It is expected that using ethanol in this process will
result in a significant increase in heat energy, ie. BTUs, for the purpose of
electrical power generation.

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

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

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

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

                                       5
<PAGE>

This commercially available gasifier unit is rated by its manufacturer at
900,000 BTU per hour and daily waste removal from one pen is estimated by the
company to yield +/- 6.5MM BTU. Estimated energy need for distillation and
cooking totals +/- 4MM BTU leaving a surplus of energy for other uses, including
electrical power generation. This gasifier has five burning stages and,
according to the manufacturer, is expected to burn manure, bedding and denatured
ethanol without significant emissions or residual waste.

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

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

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

CONCERNS ABOUT COMMON CATTLE FINISHING METHODS

a. THE USE OF ANTIBIOTICS AND GROWTH HORMONES

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

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

b. GROUNDWATER CONTAMINATION
Typical beef operations produce manure and bedding which are expensive to
dispose of and cause tremendous groundwater contamination.

From the cattlenetwork.com (Source: Dr. Mindy Spiehs, University of Minnesota
Beef Team):

"Large confinement feedlots have often been viewed as the primary threat to
local water supplies."

"The primary pollutants in beef manure are nitrogen, phosphorus, and pathogens.
Nitrate-nitrogen can leach into ground water from stockpiled manure or silage
and open lots."

                                       6
<PAGE>

c. DECLINING FARM INCOME AND THE NUMBER OF FAMILY FARMS;

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

HISTORY

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


HYBRID FUELS ETHANOL PRODUCTION

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

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

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

Management believes that the combination of the Company's proprietary
fermentation process and distillation column, will result in completion of the
entire process in about 12 to 15 hours. In most typical distillation operations,
the process takes approximately 60 hours.

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

                                       7
<PAGE>

At the completion of distillation, the de-alcoholized stillage water is
recovered and stored for delivery to appropriate feed containers for the animals
in the barn. According to the research described below under the heading
"Feeding Wet Distillers Grains and Stillage Water", the feeding of wet
distillers grains and stillage water to cattle promotes weight gains. In
addition, feeding the WDGs and stillage water to the animals in the adjacent
barn is very important because it uses another co-product on-site, eliminates
transport and drying costs and addresses the challenge of stillage disposal. The
Biomass Energy Monograph by Edward Hiler and Bill Strout of Texas A. & M.
University, states:

"If the nation were to replace 10 percent of its gasoline consumption with
ethanol, the liquid stillage from ethanol fuel production would constitute a
biochemical oxygen demand (BOD) load equivalent to all its domestic sewage.
Therefore, expensive water pollution controls must be major goals of the
emerging fuel-alcohol industry."

These "expensive water pollution controls" are not necessary in our process, as
the stillage becomes a valuable animal feed supplement, not a by-product
destined for disposal.

Aside from the capital costs of the facility, the two major costs of ethanol
production are the feedstock and the input energy required for fermentation and
distillation. By using the feedstock for the dual purpose of producing ethanol
and feeding cattle, our process effectively reduces the cost of producing the
ethanol. Also, by using the heat from burning the waste as an energy source for
the fermentation and distillation processes, the Company believes it will not
have to pay for energy from an outside source to produce the ethanol, which
means the process will not incur that input energy cost.

The distillers grains that are left over from the ethanol-producing process have
a low moisture content of around 5% and are fed as wet distillers grains (WDGs).
The stillage water is also to be fed to the animals. The Oyama demonstration
facility is designed to produce 200 US gallons (800 litres) of ethanol per day
and enough distillers grains to supplement the diet for 200 head of cattle.

THE HYBRID FUEL

The ethanol is "de-natured" by blending about 2% diesel fuel into the ethanol in
the vaporization column so there is no pure ethanol accessible in the plant.
Each day, 200 gallons (800 litres) of ethanol are expected to be produced at the
Oyama facility. This ethanol and chemical mixture would be stored in a tank on
site.

Ethanol produced by the first facility is expected to be used in the
gasification process. It is expected that using ethanol in this process will
result in a significant increase in heat energy, ie. BTUs, for the purpose of
electrical power generation.

FEEDING WET DISTILLERS GRAINS AND STILLAGE WATER

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

                                       8
<PAGE>

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

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

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

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

BEEF WITHOUT ADDED HORMONES

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

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

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

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

NEW TECHNOLOGIES

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

                                       9
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Analyses of the green feed performed by Norwest Labs of Lethbridge, Alberta in
May, 2001, indicates that with a barley grass feed ration of fifteen (15) pounds
per day for each animal, the company could eliminate the use of feeding hay. The
Company also has a feed enrichment process that has been described in reports
previously filed with the SEC. As the green grass from this system is expected
to be more beneficial to the cattle at less cost than the feed enrichment
process, that process will no longer be included in each facility. The equipment
to produce this green feed is expected to cost around $15,000 and to fit into
the barn so that feeding is relatively easy.

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

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

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

We intend to utilize the ozone equipment in the cattle barn as well. Following
removal of manure and bedding which are incinerated through gasification, the
floor of the pen will be washed with ozonated water which we believe can
virtually sterilize the area and thus inhibit spread of disease. We also intend
to install misting spray heads over the pens. Every few days the animals are
thereby treated to prevent harmful bacterial spread.

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

The Company expects to expand the size of the cattle barn in future facilities
to accommodate 400 head of cattle for economy of scale. The Company believes the
additional heat energy that will be generated as a result of this expansion
makes it feasible to develop renewable energy generation systems. It is expected
that each facility could produce up to 400 gallons (1,600 litres) of ethanol
daily, generate up to 1 megawatt of power, finish up to 1,200 head of cattle
annually and provide up to 5 full time jobs. The hydroponics section of a
400-head barn is designed to have the grass growing capacity equivalent to
approximately 800 acres of grassland.

Ethanol produced by the first facility is expected to be used in the
gasification process. It is expected that using ethanol in this process will
result in a significant increase in heat energy, ie. BTUs, for the purpose of
electrical power generation.

Efforts to improve every aspect of the whole operation continue with positive
results. We believe the overall Hybrid Fuels program involving progressive and
environmental sensitivity towards cattle feeding, maintenance and processing
will present a chemical-free product cycle which offers a world class benchmark
for the industry.

                                       10
<PAGE>

EMPLOYEES

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

SIGNIFICANT CONSULTANTS

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

SUPPLIERS

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

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

GOVERNMENTAL REGULATION

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

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

NEWS RELEASES, MARKETING AND ADVERTISING

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

The Company intends to market their technology through such means as their
website, press releases, trade journals, local newspapers and trade shows. The
Company is also in contact with agencies and industry organizations whose role
it is to locate and promote new opportunities for the economic benefit of
farmers.

                                       11
<PAGE>

The Company plans to promote the beef produced using its process as being free
of antibiotics and added hormones. The Company also intends to "brand" the
finished product with a name, trademarks and logos to make the product more
easily recognizable in order to generate consumer loyalty and capitalize on
brand quality.

TRENDS THAT MAY AFFECT THE COMPANY'S BUSINESS

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

Businesses that have a positive environmental impact have received an increasing
amount of support. The Company seeks to take advantage of this trend by
promoting the animal finishing operation as having an environmentally positive
impact in that it produces no groundwater pollution and virtually no odor.

We believe that consumers will pay more for beef that is guaranteed good
quality. The Company believes that cattle which are fed distillers grains,
without added hormones, antibiotics or protein from animal sources, will draw a
positive response from health-conscious consumers looking for healthier food
sources.

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

According to Energy Information Administration (eia.doe.gov) the United States
is in the middle of a transition toward an unbundled and competitive electric
power market, separating generation from transmission and distribution. One
major effect of this transition is the steep rise in generating capacity held by
non-utility generators, and the decline in generating capacity held by
traditional investor-owned utilities.

Canada also is restructuring its electricity sector to facilitate competition.
While more than half of Canada's current electricity supply is from
hydroelectric dams, natural gas- fired power plants are expected to make up an
increasing portion of Canada's electric power sector. The Canadian Energy
Research Group has estimated that Canada's use of natural gas for electric power
generation will triple over the next decade.

Canada and the United States have highly interconnected power grids, and
competition in the industry is expected to increase volumes of electricity trade
between the two.

RESEARCH AND DEVELOPMENT

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

1. Researching efficiencies in facility construction and operation;
2. Researching new technologies; consulting with various technical researchers
and agriculture officials.

If resources permit, the amount we anticipate spending on research and
development for the fiscal year ending June 30, 2008 is approximately $500,000.

PRODUCT PROTECTION

The Company has not patented any of its proprietary technologies, on the advice
of legal counsel. Their reasoning is that obtaining patents tends to publish the
discoveries that others can then copy and a small company will have difficulty
protecting itself from infringement. As a consequence, the Company has

                                       12
<PAGE>

determined that in the near term it will protect its trade secrets and
proprietary technologies by careful screening of potential operators and then
having them sign non-disclosure agreements. All operators will be well briefed
on protecting the proprietary information in their own best interests and all
reasonable steps will be taken to ensure that they take all reasonable
precautions. Also, the column and the spinner will be manufactured elsewhere,
delivered and installed, without the operators knowing how they are constructed.


RISK FACTORS

The following factors have affected or could affect the Company's actual results
and could cause such results to differ materially from those expressed in any
forward-looking statements made by the Company. Investors should consider
carefully the following risks and speculative factors inherent in and affecting
the business of the Company and an investment in the Company's common stock.

1. Our cash reserves may not be adequate to cover our costs of operations. To
date, we have covered our operating losses by loans from shareholders or private
placements of securities. We expect to fund our general operations and
marketing activities in the near term with our current cash, that was obtained
from loans from shareholders and/or the sale of securities. However, our cost
estimates may not include enough provisions for any contingency, unexpected
expenses or increases in costs that may arise.

2. We will need to raise additional capital to develop operations and to pay
ongoing expenses. If additional funds are raised through the issuance of equity,
our shareholders' ownership will be diluted. There can be no assurance that
additional financing will be available on terms favorable to us or at all. If
funds are not available on terms acceptable to us, we may not be able to
continue our business.

3. We have not sought protection of our intellectual property through any
patents, but have elected to protect it through non-disclosure agreements. Our
intended business may be adversely affected if we are unable to adequately
protect our intellectual property. Because our intellectual property is not
protected by patents, others may seek to discover and use our intellectual
property. We cannot provide assurance that our intellectual property rights will
not be invalidated, circumvented or challenged. If we are found to infringe on
the intellectual property rights of others, we may not be able to continue to
market our process, or we may have to enter into costly license or settlement
agreements. Third parties may allege infringement by us with respect to past,
current or future intellectual property rights. Any claim of infringement,
regardless of merit, could be costly, time consuming and require us to develop
non-infringing technology or enter into royalty, licensing or settlement
agreements. These agreements could be on terms unfavorable or unacceptable to us
and could significantly harm the development of our business. In the future, we
may also have to enforce our intellectual property rights through litigation.
Any such enforcement could also result in additional costs and could materially
affect our financial condition and our business.

4. We have a history of operating losses and an accumulated deficit, as of June
30, 2007, of $2,806,741.

5. Our ability to begin operations and to generate revenues and profits is
subject to the risks and uncertainties encountered by development stage
companies. Our future revenues and profitability are unpredictable. We currently
have no operating activities that will produce revenue. Furthermore, we cannot
provide assurance that we will be successful in raising the money necessary to
begin or expand operations.

                                       13
<PAGE>

6. We have no operating history which makes an evaluation of our future
prospects very difficult. There can be no assurances that we will be able to
develop operations that are profitable or will operate as intended. If the
market for our facilities fails to develop, or develops more slowly than
anticipated, we may not be able to meet our expenses and may not achieve
profitable results.

7. 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.

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

9. 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. There can be no assurance that we will attract
or maintain key employees or other needed personnel.

10. The production of beef and electrical power 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.

11. The continual shift in supply and demand factors create volatility in cattle
pricing that could result in a loss on cattle finishing.

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

13. Since May 2003, the Canadian beef market has suffered as a consequence of
the United States limiting imports from Canada because of an isolated case of
Bovine Spongiform Encephalopathy (BSE). A recurrence of BSE in Canada could
potentially have an adverse effect on the Company even though the age of
finished cattle raised within our controlled facilities are planned to be under
the current 30-month age restriction on beef imported into the U.S.

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

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

On December 14, 2006 the Company acquired a commercial-ready facility from a
Hybrid Fuels Inc. shareholder consortium that financed its construction. The
facility is located on a 12-acre parcel of land in Oyama, BC, Canada that is
being leased by the Company's wholly-owned subsidiary Hybrid Fuels(Canada)Inc.
The owner of the land is not related to the Company.

                                       14
<PAGE>

Item 3.  LEGAL PROCEEDINGS
--------------------------

No legal proceedings are threatened or pending against the Company or any of its
officers or directors. Further, none of the Company's officers or directors or
affiliates of the Company are parties against the Company or have any material
interest in actions that are adverse to the Company's interests.

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

The Hybrid Fuels Inc. stockholders elected three Directors at the annual meeting
held on July 12, 2006 in Winfield, BC, Canada. The name of each nominee and the
number of shares voted were as follows:


Nominee            For                       Against           Withheld
-----------------------------------------------------------------------
Doulas Dickie      14,451,383                0                  0
Rolly Hein         14,449,883                0                  1,500
Edward Melenka     14,449,883                0                  1,500

In total, approximately 55% of Hybrid Fuels Inc.'s outstanding shares were voted
at the annual meeting.

                                     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 30,052,933 were issued and outstanding as at June
30, 2007 and the Company had 262 shareholders of record.

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

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


                                                2004
                                        High             Low
                                        ----             ---
                   1st Quarter          0.25             0.13
                   2nd Quarter          0.25             0.09
                   3rd Quarter          0.24             0.07
                   4th Quarter          0.25             0.12
                                                2005
                                        High             Low
                                        ----             ---
                   1st Quarter          0.21             0.12
                   2nd Quarter          0.40             0.15
                   3rd Quarter          0.35             0.15
                   4th Quarter          0.34             0.17
                                                2006
                                        High             Low
                                        ----             ---
                   1st Quarter          0.40             0.20
                   2nd Quarter          0.86             0.30
                   3rd Quarter          0.50             0.30
                   4th Quarter          0.50             0.30
                                                2007
                                        High             Low
                                        ----             ---
                   1st Quarter          0.44             0.23
                   2nd Quarter          0.42             0.24

                                       15
<PAGE>

The Company has never paid cash dividends.  The Directors of the Company
currently anticipate that in the near term it will retain all available funds
for use in the operation of the business.


RECENT SALES OF UNREGISTERED SECURITIES.

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

As outlined below, on August 16, 2005, shares of common stock were issued to one
person to settle an outstanding debt. This issuance of common stock was made in
reliance upon the exemption from registration set forth in Section 4 (2) of the
Securities Act of 1933.

The remaining shares that were issued during the past three fiscal years
involved purchasers/share recipients that are residents of Canada, ie. non-U.S.
persons. Therefore, these shares issued are exempt from registration under
Regulation S of the Securities Act.

Shares issued in fiscal 2005 (July 1, 2004 to June 30, 2005 inclusive):
-----------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

Shares issued in fiscal 2006 (July 1, 2005 to June 30, 2006 inclusive):
-----------------------------------------------------------------------

On August 16, 2005, 375,000 shares of common stock were to one person to settle
an outstanding debt of $93,000. This issuance of common stock was made in
reliance upon the exemption from registration set forth in Section 4 (2) of the
Securities Act of 1933.

                                       16
<PAGE>

On October 5, 2005, 30,000 shares of restricted common stock were issued to one
investor for cash received September 16, 2005 at a price of $0.08 per share for
total proceeds of $2,532 (CAD$3,000).

On October 5, 2005, 56,700 shares of restricted common stock were issued to one
investor for cash received September 23, 2005 at a price of $0.10 per share for
total proceeds of $5,631 (CAD$6,590).

On December 9, 2005, 21,000 shares of restricted common stock were issued to one
investor for cash received November 9, 2005 at a price of $0.10 per share for
total proceeds of $2,100 (CAD$2,490).

On December 9, 2005, 21,000 shares of restricted common stock were issued to one
investor for cash received November 10, 2005 at a price of $0.10 per share for
total proceeds of $2,108 (CAD$2,500).

On December 9, 2005, 8,400 shares of restricted common stock were issued to one
investor for cash received November 10, 2005 at a price of $0.10 per share for
total proceeds of $843 (CAD$1,000).

On December 13, 2005, 30,000 shares of restricted common stock were issued to
one investor for cash received November 4, 2005 at a price of $0.08 per share
for total proceeds of $2,539 (CAD$3,000).

On December 13, 2005, 20,000 shares of restricted common stock were issued to
one investor for cash received December 7, 2005 at a price of $0.13 per share
for total proceeds of $2,585 (CAD$3,000).

On January 6, 2006, 15,500 shares of restricted common stock were issued to one
investor for cash received January 5, 2006 at a price of $0.14 per share for
total proceeds of $2,153 (CAD$2,500).

On January 6, 2006, 6,600 shares of restricted common stock were issued to one
investor for cash received December 9, 2005 at a price of $0.13 per share for
total proceeds of $863 (CAD$1,000).

On February 8, 2006, 12,000 shares of restricted common stock were issued to one
investor for cash received January 31, 2006 at a price of $0.14 per share for
total proceeds of $1,734 (CAD$1,990).

On February 23, 2006, 30,000 shares of restricted common stock were issued to
one investor for cash received February 13, 2006 at a price of $0.15 per share
for total proceeds of $4,506 (CAD$5,192).

On April 18, 2006, 299,000 shares of restricted common stock were issued to
eight investors for cash at a price of $0.17 per share for total proceeds of
$50,487(CAD $58.486).

Shares issued in fiscal 2007 (July 1, 2006 to June 30, 2007 inclusive):
-----------------------------------------------------------------------

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

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

As at June 30, 2007, our independent auditors raised a substantial doubt about
our ability to continue as a going concern because we have not generated any
revenues, have conducted operations at a loss since inception and have a working
capital deficit of $777,382.

                                       17
<PAGE>

Although our cash reserves at June 30, 2007 were limited to $3,965, related
parties have indicated a willingness at the present time to continue to pay
operating expenses and advance funds to pay legal, accounting and investor
relations expenses. These related parties are not obligated to pay Company
operating costs, and therefore, no assurances can be given that they will
continue to do so.

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

Estimated operating costs to the end of the second quarter (December 31, 2007)
total $250,000. This estimate includes $120,000 for cattle and feed, $60,000 for
payables (excluding related party loans and accrued executive salaries), $40,000
for technical support and labor and $30,000 for contingencies and other
operating expenses. These estimates are subject to change based on conditions
outside of management's control and actual experience with operating the first
facility.

Operations are expected to commence once the initial testing of the facility's
gasifier/burner, air exchange and feed system are completed and ready for the
first delivery of cattle. Management currently anticipates that this will be
completed in the quarter ending December 31, 2007. However, any delay in the
completion of these tasks will also delay commencement of our operations. It is
difficult to establish the start date of operations since we are relying on
third parties to complete the facility which includes work by testing
consultants and timely provision of equipment and installation. Therefore,
completion of these tasks is not entirely under our control.

PURPOSE OF TEST FACILITY

The facility will not be run at full capacity until approximately four months
have passed from the facility becoming operational. We believe that during this
four-month period we will have sufficient data from which to prepare information
for purposes of estimating revenue streams and expenses to establish a more
comprehensive business plan.

It is intended that future facilities will be constructed for the Company by
independent contractors on privately-owned farms after a written, contractual
agreement is made between the Company and the operator (s).

The key purpose of placing the first facility in service is to demonstrate the
economic feasibility of the system. Once this first facility is operating, we
plan to use it as a demonstration and training facility and to earn revenue from
its operation. Our projections indicate that the facility should generate
sufficient revenue to pay all of our operating costs, plus a surplus that may be
used toward development of operating activities. We expect that the facility
will show sufficient cash flow to make it possible for us to get approval for
financing subsequent facilities.

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

The cattle barn being constructed in Oyama, BC, Canada has been designed to
accommodate 200 head of cattle and the hydroponics barley-grass growing system.
Once the facility is operational, it is expected that the cattle will be fed
starting with 50 head and adding another 50 approximately every four weeks until
the barn is at full capacity. As we gain experience with the facility, we intend
to operate the barn continuously at full capacity during the subsequent 100-day
feeding cycles.

                                       18
<PAGE>

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.

Until the Company is operating a beef processing facility it is intended that
the cattle will be sold to processors at a price reflective of the high quality.
As one group of cattle is sold, another takes its place, as both the finishing
operation and our staggered plan of acquisition are scheduled to take
approximately three to four months, depending on how long the finishing takes.
As a result of using this plan of acquisition, we will not run the facility at
full capacity until approximately four months have passed from the facility
becoming operational.

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

Ethanol produced by the first facility is expected to be used in the
gasification process. It is expected that using ethanol in this process will
result in a significant increase in heat energy, ie. BTUs, for the purpose of
electrical power generation. Once the Oyama facility is operating at full
capacity, we project that the ethanol production will be approximately 200 US
gallons (800 litres) per day.

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

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

OPERATING RESULTS FOR THE YEAR ENDED JUNE 30, 2007

During the fiscal year ended June 30, 2007 the Company had no revenue and
incurred losses of $357,248 compared to $256,816 for the comparable period the
previous year. The increase of $100,432 in fiscal 2006 is mainly attributable to
an increase in depreciation and amortization of $108,342 relating to an asset
acquisition in December 2006.

The Company incurred non-cash financing activities by issuing 700,000 shares in
January, 2005 to three Directors in consideration for consulting services to be
rendered up to December, 2006. The Company also issued 400,000 shares in March,
2005 to six consultants for services. The amount of $25,500 was pro-rated for
the period ending June 30, 2007.

Douglas Dickie, Company President and CEO, donated services valued at $30,000
during the period from July 1, 2006 to June 30, 2007 inclusive.

Imputed interest for the year in the amount of $78,911 was comparable to the
previous fiscal year and included $49,005 attributed to former President Clay
Larson. Imputed interest of $29,906 is attributed to a shareholder as a result
of an amount owing for payment of rent, office expenses and professional fees on
behalf of the Company. Imputed interest is interest that is imputed on
non-interest bearing amounts such as deferred executive compensation or amounts
that are advanced to, or paid on behalf of the Company.

                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

During the fiscal year ended June 30, 2007 the Company received $21,070 from
financing activities including:

     a)   $20,000 from common stock subscribed.
     b)   $4,612 from related parties. These advances are non-interest bearing,
          unsecured and due on demand.
     c)   ($3,542) was attributed to repayment of a capital lease obligation.

A total of $22,907 was used in operating activities.

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

For the Company to emerge from the development stage with respect to any planned
principal business activity is dependent upon our successful efforts to raise
additional equity, financing and/or attain profitable operations. There is no
guarantee that we will be able to complete any of the above objectives. At June
30, 2007 we had a working capital deficit of $777,382 and an accumulated deficit
from inception of $2,806,741.

Operations are expected to commence once the initial testing of the facility's
gasifier/burner, air exchange and feed system are completed and ready for the
first delivery of cattle. Management currently anticipates that this will be
completed in the quarter ending December 31, 2007. However, any delay in the
completion of these tasks will also delay commencement of our operations. It is
difficult to establish the start date of operations since we are relying on
third parties to complete the facility which includes work by testing
consultants and timely provision of equipment and installation. Therefore,
completion of these tasks is not entirely under our control.

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

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

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

The Company expects that, in the near term, capital requirements for developing
and expanding technologies will be met through stock offerings by way of private
placements. The amount we anticipate spending on research and development for
the fiscal year ending June 30, 2008 is approximately $500,000.

                                       20
<PAGE>

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


Hybrid Fuels, Inc.
(A Development Stage Company)

June 30, 2007

<TABLE>
<CAPTION>
                                                                                             Index


<S>                                                                                            <C>
Report of Independent Registered Public Accounting Firm........................................F-1

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

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

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

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

Notes to the Consolidated Financial Statements.................................................F-7
</TABLE>



                                       21

<PAGE>

                             [MANNING ELLIOT LOGO]


M A N N I N G  E L L I O T T     11th floor, 1050 West Pender Street, Vancouver,
                                 BC, Canada V6E 3S7
CHARTERED ACCOUTNANTS            Phone: 604. 714. 3600  Fax: 604. 714. 3669
                                 Web: manningelliott.com



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


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

We have audited the accompanying consolidated balance sheets of Hybrid Fuels,
Inc. (A Development Stage Company) as of June 30, 2007 and 2006 and the related
statements of operations, cash flows and stockholders' equity (deficit) for the
years then ended and accumulated for the period from January 28, 1998 (Date of
Inception) to June 30, 2007. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hybrid Fuels, Inc.
(A Development Stage Company), as of June 30, 2007 and 2006, and the results of
its operations and its cash flows for the years then ended and accumulated for
the period from January 28, 1998 (Date of Inception) to June 30, 2007 in
conformity with accounting principles generally accepted in the United States.

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



/s/ Manning Elliott LLP

CHARTERED ACCOUNTANTS

Vancouver, Canada

October 10, 2007


                                      F-1
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
                                                                                         June 30,       June 30,
                                                                                           2007           2006
                                                                                            $              $
<S>                                                                                    <C>             <C>
ASSETS

Current Assets

  Cash                                                                                      3,965           3,533
  Prepaid expenses                                                                              -          25,500
--------------------------------------------------------------------------------------------------------------------

Total Current Assets                                                                        3,965          29,033

Property and Equipment (Note 4)                                                           820,602               -

Intangible Assets (Note 5)                                                                505,784               -
--------------------------------------------------------------------------------------------------------------------

Total Assets                                                                            1,330,351          29,033
====================================================================================================================


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities

  Accounts payable                                                                        137,229          62,804
  Accrued liabilities                                                                      30,316          28,874
  Note payable and other advances (Note 6)                                                 50,048          47,334
  Due to related parties (Note 7)                                                         229,704         209,371
  Due to a former director (Note 8)                                                       326,701         326,701
  Current portion of capital lease obligation (Note 11)                                     7,349               -
--------------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                                 781,347         675,084

Capital Lease Obligation (Note 11)                                                         10,374               -

Redeemable and Restricted Common Shares (Note 10(a)(ii))                                  222,767         222,767
--------------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                       1,014,488         897,851
--------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 1 and 10)

Stockholders' Equity (Deficit)

Common Stock: $0.001 par value; 50,000,000 shares authorized;
30,052,933 shares issued and outstanding (2006 - 26,332,933 shares)                        30,053          26,333

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

Common Stock Subscribed (Note 9(a))                                                        20,000               -

Donated Capital                                                                           656,286         547,375

Accumulated Other Comprehensive Loss                                                         (582)              -

Deficit Accumulated During the Development Stage                                       (2,806,741)     (2,449,493)
--------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity (Deficit)                                                      315,863        (868,818)
--------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Equity (Deficit)                                    1,330,351          29,033
====================================================================================================================

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

</TABLE>


                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                            Accumulated from
                                                             January 28, 1998               For the
                                                           (Date of Inception)            Year Ended
                                                               to June 30,                 June 30,
                                                                  2007                2007            2006
                                                                   $                   $               $
<S>                                                           <C>                 <C>            <C>
Revenue                                                                -                   -              -
--------------------------------------------------------------------------------------------------------------

Expenses

  Deposits and advances written-off                              305,512                   -              -
  Depreciation                                                   108,342             108,342              -
  Foreign exchange loss                                           30,309               9,495         11,568
  General and administrative (Note 7(b))                       1,797,367             160,500        176,837
  Imputed interest (Notes 7(a) and 8)                            558,786              78,911         78,911
  Research and development                                        16,925                   -              -
--------------------------------------------------------------------------------------------------------------

Total Operating Expenses                                       2,817,241             357,248        267,316
--------------------------------------------------------------------------------------------------------------

Operating Loss                                                (2,817,241)           (357,248)      (267,316)

Other Income

  Gain on settlement of debt                                      10,500                   -         10,500
--------------------------------------------------------------------------------------------------------------
Net Loss                                                      (2,806,741)           (357,248)      (256,816)

Other Comprehensive Loss

  Foreign currency translation adjustment                           (582)               (582)             -
--------------------------------------------------------------------------------------------------------------

Comprehensive Loss                                            (2,807,323)           (357,830)      (256,816)
==============================================================================================================

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

Weighted Average Shares Outstanding                                               28,310,000     25,939,000
==============================================================================================================




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

</TABLE>


                                      F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                  Accumulated from
                                                                  January 28, 1998
                                                                 (Date of Inception)       For the Year Ended
                                                                      To June 30,               June 30,
                                                                         2007              2007          2006
                                                                          $                 $             $
<S>                                                                   <C>                <C>            <C>
Operating Activities

  Net loss                                                            (2,806,741)         (357,248)     (256,816)

  Adjustments to reconcile net loss to net cash used in operating
  activities:
    Accrued executive compensation                                       324,000                 -             -
    Amortization of deferred compensation and other stock-based
    compensation                                                         377,337            25,500        53,000
    Deposits and advances written-off                                    305,512                 -             -
    Depreciation and amortization                                        108,342           108,342             -
    Donated services                                                      97,500            30,000        30,000
    Foreign exchange translation loss                                      7,189                 -             -
    Gain on settlement of debt                                           (10,500)                -       (10,500)
    Imputed interest                                                     558,786            78,911        78,911
    Other                                                                   (502)                -             -

  Changes in operating assets and liabilities:
    Accounts payable and accrued liabilities                             222,446            75,867        20,458
    Due to related parties                                                15,721            15,721             -
------------------------------------------------------------------------------------------------------------------

Net Cash Used In Operating Activities                                   (800,910)          (22,907)      (84,947)
------------------------------------------------------------------------------------------------------------------

Investing Activities

  Deposits and advances                                                 (255,512)                -             -
------------------------------------------------------------------------------------------------------------------

Net Cash Used in Investing Activities                                   (255,512)                -             -
------------------------------------------------------------------------------------------------------------------

Financing Activities

  Advances from related parties                                          215,873             4,612         5,272
  Advances from a former director                                          2,701                 -             -
  Repayment of capital lease obligation                                   (3,542)           (3,542)            -
  Proceeds from issuance of note payable                                  33,732                 -             -
  Proceeds from advances                                                 136,700                 -             -
  Proceeds from issuance of restricted common stock                      223,000                 -             -
  Proceeds from issuance of common stock                                 425,473                 -        78,081
  Proceeds from common stock subscribed                                   20,000            20,000             -
------------------------------------------------------------------------------------------------------------------

Net Cash Provided By Financing Activities                              1,053,937            21,070        83,353
------------------------------------------------------------------------------------------------------------------

Effect of Exchange Rate Changes on Cash                                    6,450             2,269         4,181
------------------------------------------------------------------------------------------------------------------

Increase in Cash                                                           3,965               432         2,587

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

Cash - End of Period                                                       3,965             3,965         3,533
==================================================================================================================

Non-cash Investing and Financing Activities

  Purchase of equipment under capital lease                               21,265            21,265             -
  Common shares issued to settle debt                                     82,500                 -        82,500
  Common shares issued to acquire property and equipment and
    intangible assets                                                  1,413,600         1,413,600             -
==================================================================================================================

Supplemental Disclosures

  Interest paid                                                              454               454             -
  Income taxes paid                                                            -                 -             -
==================================================================================================================

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

</TABLE>


                                      F-4
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity
Accumulated from January 28, 1998 (Date of Inception) to June 30, 2007
(expressed in U.S. dollars)

<TABLE>
<CAPTION>
                                                                                                             Deficit
                                                                                              Accumulated  Accumulated    Total
                                                    Additional  Common                           Other      During the Stockholders'
                                                     Paid-in    Stock    Donated    Deferred  Comprehensive Devlopments   Equity
                                  # of     Par Value Capital  Subscribed Capital  Compensation    Loss         Stage     (Deficit)
                                 Shares        $        $         $         $          $           $            $           $
<S>                            <C>            <C>      <C>        <C>       <C>        <C>      <C>           <C>           <C>

Balance at January 28, 1998
(Date of Inception)                     -           -        -         -         -          -          -             -           -
Shares issued to effect a
  reverse merger                15,000,00      15,000    3,398         -         -          -          -       (18,398)          -
Net loss for the period                 -           -        -         -         -          -          -       (93,633)    (93,633)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1998       15,000,000      15,000    3,398         -         -          -          -      (112,031)    (93,633)
Issuance of 1,900,000 shares    1,900,000       1,900   (1,900)        -         -          -          -             -           -
Issuance of shares for cash        23,600          24   13,576         -         -          -          -             -      13,600
Imputed Interest                        -           -        -         -    26,000          -          -             -      26,000
Net loss for the year                   -           -        -         -         -          -          -      (308,377)   (308,377)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 1999       16,923,600      16,924   15,074         -    26,000          -          -      (420,408)   (362,410)
Cancellation of shares
  previously issued            (1,900,000)     (1,900)   1,900         -         -          -          -             -           -
Issuance of shares for no
  consideration                 3,000,000       3,000   (3,000)        -         -          -          -             -           -
Issuance of shares pursuant
  to a subscription agreement   1,500,000       1,500  148,500         -         -          -          -             -     150,000
Imputed Interest                        -           -        -         -    30,735          -          -             -      30,735
Net loss for the year                   -           -        -         -         -          -          -      (324,144)   (324,144)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000       19,523,600      19,524  162,474         -    56,735          -          -      (744,552)   (505,819)
Issuance of shares to settle
  debt                          1,100,000       1,100  123,368         -         -          -          -             -     124,468
Imputed interest                        -           -        -         -    59,202          -          -             -      59,202
Net loss for the year                   -           -        -         -         -          -          -      (312,660)   (312,660)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2001       20,623,600      20,624  285,242         -   115,937          -          -    (1,057,212)   (634,809)
Issuance of shares to settle
  debt                            200,000         200    9,800         -         -          -          -             -      10,000
Issuance of shares for services   100,000         100    4,900         -         -          -          -             -       5,000
Issuance of shares for cash       377,000         376   30,810         -         -          -          -             -      31,186
Imputed interest                        -           -        -         -    58,932          -          -             -      58,932
Net loss for the year                   -           -        -         -         -          -          -      (167,850)   (167,850)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2002       21,300,600      21,300  331,352         -   174,869          -          -    (1,225,062)   (697,541)
Issuance of shares to settle
  debt                            600,000         600   77,400         -         -          -          -             -      78,000
Issuance of shares for cash        50,000          50    5,633         -         -          -          -             -       5,683
Imputed interest                        -           -        -         -    68,733          -          -             -      68,733
Net loss for the year                   -           -        -         -         -          -          -      (253,935)   (253,935)
----------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2003       21,950,600      21,950  414,385         -   243,602          -          -    (1,478,997)   (799,060)
Issuance of shares to settle
  debt                             67,778          68   13,723         -         -          -          -             -      13,791
Issuance of shares for services   755,833         756  116,581         -         -          -          -             -     117,337
Issuance of shares for cash       597,769         598   81,139         -         -          -          -             -      81,737
Imputed interest                        -           -        -         -    78,452          -          -             -      78,452
Donated services                        -           -        -         -     7,500          -          -             -       7,500
Deferred compensation                   -           -        -         -         -    (27,299)         -             -     (27,299)
Net loss for the year                   -           -        -         -         -          -          -      (312,249)   (312,249)
----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2004       23,371,980      23,372  625,828         -   329,554    (27,299)         -    (1,791,246)   (839,791)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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




                                      F-5
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Statement of Changes in Stockholders' Equity
Accumulated from January 28, 1998 (Date of Inception) to June 30, 2007
(expressed in U.S.dollars)

<TABLE>
<CAPTION>
                                                                                                             Deficit
                                                                                              Accumulated  Accumulated       Total
                                                    Additional  Common                            Other     During the Stockholders'
                                                      Paid-in    Stock    Donated   Deferred  Comprehensive Development     Equity
                                # of     Par Value    Capital  Subscribed Capital Compensation    Loss         Stage       (Deficit)
                               Shares        $           $         $         $          $           $            $             $

<S>                         <C>            <C>        <C>       <C>      <C>        <C>          <C>         <C>           <C>
Balance at June 30, 2004    23,371,980     23,372     625,828       -    329,554    (27,299)            -    (1,791,246)   (839,791)
Issuance of shares for
services                     1,100,000      1,100     163,900       -          -          -             -             -     165,000
Issuance of shares for cash    703,000        703      57,583       -          -          -             -             -      58,286
Imputed interest                     -          -           -       -     78,910          -             -             -      78,910
Donated services                     -          -           -       -     30,000          -             -             -      30,000
Deferred compensation                -          -           -       -          -    (51,201)            -             -     (51,201)
Net loss for the year                -          -           -       -          -          -             -      (401,431)   (401,431)
------------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2005    25,174,980     25,175     847,311       -    438,464    (78,500)            -    (2,192,677)   (960,227)
Reallocation of par value
   of redeemable and
   restricted shares (Note
   7(b))                       232,753        233           -       -          -          -             -             -         233
Issuance of shares to
settle debt                    375,000        375      82,125       -          -          -             -             -      82,500
Issuance of shares for cash    550,200        550      77,531       -          -          -             -             -      78,081
Imputed interest                     -          -           -       -     78,911          -             -             -      78,911
Donated services                     -          -           -       -     30,000          -             -             -      30,000
Deferred compensation                -          -           -       -          -     78,500             -             -      78,500
Net loss for the year                -          -           -       -          -          -             -      (256,816)   (256,816)
------------------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2006    26,332,933     26,333   1,006,967       -    547,375          -             -    (2,449,493)   (868,818)
Issuance of shares for
acquiring assets             3,720,000      3,720   1,409,880       -          -          -             -             -   1,413,600
Common stock subscribed              -          -           -  20,000          -          -             -             -      20,000
Imputed interest                     -          -           -       -     78,911          -             -             -      78,911
Donated services                     -          -           -       -     30,000          -             -             -      30,000
Foreign currency
translation                          -          -           -       -          -          -          (582)            -        (582)
Net loss for the year                -          -           -       -          -          -             -      (357,248)   (297,094)
------------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2007    30,052,933     30,053   2,416,847  20,000    656,286          -          (582)   (2,806,741)    376,017
====================================================================================================================================
</TABLE>
              (The Accompanying Notes are an Integral Part of the
                       Consolidated Financial Statements)


                                      F-6
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

1.   Nature of Operations and Continuance of Business

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

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

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

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

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

     These consolidated financial statements have been prepared on a going
     concern basis, which implies the Company will continue to realize it assets
     and discharge its liabilities in the normal course of business. As at June
     30, 2007, the Company had a working capital deficit of $777,382 and has
     accumulated losses of $2,806,741 since inception. The continuation of the
     Company as a going concern is dependent upon the continued financial
     support from its shareholders, the ability of the Company to obtain
     necessary equity financing to continue operations, and the attainment of
     profitable operations. These factors raise substantial doubt regarding the
     Company's ability to continue as a going concern. These financial
     statements do not include any adjustments to the recoverability and
     classification of recorded asset amounts and classification of liabilities
     that might be necessary should the Company be unable to continue as a going
     concern.

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

2.   Summary of Significant Accounting Policies

     (a)  Consolidated Financial Statements and Basis of Presentation

          These consolidated financial statements represent the consolidation of
          the Company and its wholly-owned subsidiary, Hybrid Fuels (Canada)
          Inc. The Company's fiscal year end is June 30.

     (b)  Cash and Cash Equivalents

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


                                      F-7
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

2.   Summary of Significant Accounting Policies (continued)

     (c)  Use of Estimates

          The preparation of financial statements in conformity with US
          generally accepted accounting principles requires management to make
          estimates and assumptions that affect the reported amounts of assets
          and liabilities and disclosure of contingent assets and liabilities at
          the date of the financial statements and the reported amounts of
          revenues and expenses during the reporting period. The Company
          regularly evaluates estimates and assumptions related to valuation of
          long-lived assets, stock-based compensation, donated expenses and
          deferred income tax asset valuation allowances. The Company bases its
          estimates and assumptions on current facts, historical experience and
          various other factors that it believes to be reasonable under the
          circumstances, the results of which form the basis for making
          judgments about the carrying values of assets and liabilities and the
          accrual of costs and expenses that are not readily apparent from other
          sources. The actual results experienced by the Company may differ
          materially and adversely from the Company's estimates. To the extent
          there are material differences between the estimates and the actual
          results, future results of operations will be affected.

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

          The Company computes net income (loss) per share in accordance with
          SFAS No. 128, "Earnings per Share" which requires presentation of both
          basic and diluted earnings per shares (EPS) on the face of the income
          statement. Basic EPS is computed by dividing net income (loss)
          available to common shareholders (numerator) by the weighted average
          number of common shares outstanding (denominator) during the period.
          Diluted EPS gives effect to all dilutive potential common shares
          outstanding during the period including stock options, using the
          treasury stock method, and convertible preferred stock, using the
          if-converted method. In computing diluted EPS, the average stock price
          for the period is used in determining the number of shares assumed to
          be purchased from the exercise of stock options or warrants. Diluted
          EPS excludes all dilutive potential common shares if their effect is
          anti-dilutive.

     (e)  Foreign Currency Translation

          The functional currency of the wholly-owned subsidiary is the Canadian
          dollar. The financial statements of this subsidiary are translated to
          United States dollars under the current rate method in accordance with
          SFAS No. 52 "Foreign Currency Translation". Under the current rate
          method, all assets and liabilities are translated at the rates of
          exchange in effect at the balance sheet date and revenues and expenses
          are translated at the average rates of exchange during the year. The
          effect of this translation is recorded in a separate component of
          stockholders' equity. A cumulative translation adjustment of $582 as
          of June 30, 2007 has been included in accumulated other comprehensive
          loss in the accompanying consolidated balance sheet. Gains and losses
          arising on translation or settlement of foreign currency denominated
          transactions or balances are included in the determination of income.

          Transactions in foreign currencies are recorded at the approximate
          rate of exchange at the transaction date. Monetary assets and
          liabilities resulting from these transactions are translated at the
          rate of exchange in effect at the balance sheet date. All differences
          are recorded in the results of operations.

     (f)  Comprehensive Loss

          SFAS No. 130, "Reporting Comprehensive Income," establishes standards
          for the reporting and display of comprehensive loss and its components
          in the financial statements. As at June 30, 2007, the Company's only
          component of comprehensive loss was foreign currency translation
          adjustments. As at June 30, 2006, the Company has no items that
          represent a comprehensive loss and, therefore, has not included a
          schedule of comprehensive loss in the financial statements.

     (g)  Financial Instruments

          The fair values of certain financial instruments, including include
          cash, accounts payable, accrued liabilities, notes and advances
          payable, due to related parties, due to a former director and capital
          lease obligation approximate their carrying values due to the
          immediate or short-term maturity of these financial instruments. The
          fair value of the capital lease obligation is estimated to approximate
          its carrying value based on borrowing rates currently available to the
          Company for loans with similar terms. The Company's operations are in
          Canada which results in exposure to market risks from changes in
          foreign currency rates. The financial risk is the risk to the
          Company's operations that arise from fluctuations in foreign exchange
          rates and the degree of volatility of these rates. Currently, the
          Company does not use derivative instruments to hedge exposure to
          foreign currency risk.


                                      F-8
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

2.   Summary of Significant Accounting Policies (continued)

     (h)  Income Taxes

          The Company accounts for income taxes using the asset and liability
          method in accordance with SFAS No. 109, "Accounting for Income Taxes".
          The asset and liability method provides that deferred tax assets and
          liabilities are recognized for the expected future tax consequences of
          temporary differences between the financial reporting and tax bases of
          assets and liabilities, and for operating loss and tax credit
          carryforwards. Deferred tax assets and liabilities are measured using
          the currently enacted tax rates and laws that will be in effect when
          the differences are expected to reverse. The Company records a
          valuation allowance to reduce deferred tax assets to the amount that
          is believed more likely than not to be realized.

     (i)  Stock-based Compensation

          Prior to January 1, 2006, the Company accounted for employee
          stock-based awards under the recognition and measurement provisions of
          Accounting Principles Board Opinion No. 25, "Accounting for Stock
          Issued to Employees" using the intrinsic value method of accounting.
          Effective January 1, 2006, the Company adopted the fair value
          recognition provisions of SFAS No. 123R "Share Based Payments", using
          the modified prospective transition method. The Company had not issued
          any stock options and had no unvested share based payments prior to
          January 1, 2006. Accordingly, there was no effect on the Company's
          reported loss from operations, cash flows or loss per share as a
          result of adopting SFAS No 123R.

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

     (j)  Property and Equipment

          Property and equipment are recorded at cost. Amortization has been
          provided using the following rates and methods:

          Building                                      10 years straight line
          Equipment                                     5 years straight line
          Tractor                                       5 years straight line

     (k)  Intangible Assets

          Intangible assets consist of intellectual property, including
          engineering and proprietary design of a hydroponics green grass
          growing system and are recorded at cost. Amortization of these costs
          has been provided over their estimated useful life of 5 years using
          the straight line method.

     (l)  Long-lived Assets

          In accordance with SFAS No. 144, "Accounting for the Impairment or
          Disposal of Long-Lived Assets", the Company tests long-lived assets or
          asset groups for recoverability when events or changes in
          circumstances indicate that their carrying amount may not be
          recoverable. Circumstances which could trigger a review include, but
          are not limited to: significant decreases in the market price of the
          asset; significant adverse changes in the business climate or legal
          factors; accumulation of costs significantly in excess of the amount
          originally expected for the acquisition or construction of the asset;
          current period cash flow or operating losses combined with a history
          of losses or a forecast of continuing losses associated with the use
          of the asset; and current expectation that the asset will more likely
          than not be sold or disposed significantly before the end of its
          estimated useful life. Recoverability is assessed based on the
          carrying amount of the asset and its fair value which is generally
          determined based on the sum of the undiscounted cash flows expected to
          result from the use and the eventual disposal of the asset, as well as
          specific appraisal in certain instances. An impairment loss is
          recognized when the carrying amount is not recoverable and exceeds
          fair value.


                                      F-9
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

2.   Summary of Significant Accounting Policies (continued)

     (m)  Recently Issued Accounting Pronouncements

          In February 2007, the Financial Accounting Standards Board ("FASB")
          issued SFAS No. 159, "The Fair Value Option for Financial Assets and
          Financial Liabilities - Including an Amendment of FASB Statement No.
          115". This statement permits entities to choose to measure many
          financial instruments and certain other items at fair value. Most of
          the provisions of SFAS No. 159 apply only to entities that elect the
          fair value option. However, the amendment to SFAS No. 115 "Accounting
          for Certain Investments in Debt and Equity Securities" applies to all
          entities with available-for-sale and trading securities. SFAS No. 159
          is effective as of the beginning of an entity's first fiscal year that
          begins after November 15, 2007. Early adoption is permitted as of the
          beginning of a fiscal year that begins on or before November 15, 2007,
          provided the entity also elects to apply the provision of SFAS No.
          157, "Fair Value Measurements". The adoption of this statement is not
          expected to have a material effect on the Company's financial
          statements.

          In September 2006, the FASB issued SFAS No. 158, "Employers'
          Accounting for Defined Benefit Pension and Other Postretirement Plans
          - an amendment of FASB Statements No. 87, 88, 106, and 132(R)". This
          statement requires employers to recognize the overfunded or
          underfunded status of a defined benefit postretirement plan (other
          than a multiemployer plan) as an asset or liability in its statement
          of financial position and to recognize changes in that funded status
          in the year in which the changes occur through comprehensive income of
          a business entity or changes in unrestricted net assets of a
          not-for-profit organization. This statement also requires an employer
          to measure the funded status of a plan as of the date of its year-end
          statement of financial position, with limited exceptions. The
          provisions of SFAS No. 158 are effective for employers with publicly
          traded equity securities as of the end of the fiscal year ending after
          December 15, 2006. The adoption of this statement is not expected to
          have a material effect on the Company's future reported financial
          position or results of operations.

          In September 2006, the FASB issued SFAS No. 157, "Fair Value
          Measurements". The objective of SFAS No. 157 is to increase
          consistency and comparability in fair value measurements and to expand
          disclosures about fair value measurements. SFAS No. 157 defines fair
          value, establishes a framework for measuring fair value in generally
          accepted accounting principles, and expands disclosures about fair
          value measurements. SFAS No. 157 applies under other accounting
          pronouncements that require or permit fair value measurements and does
          not require any new fair value measurements. The provisions of SFAS
          No. 157 are effective for fair value measurements made in fiscal years
          beginning after November 15, 2007. The adoption of this statement is
          not expected to have a material effect on the Company's future
          reported financial position or results of operations.

          In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting
          for Uncertainty in Income Taxes, an interpretation of FASB Statements
          No. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty
          in income taxes by prescribing a two-step method of first evaluating
          whether a tax position has met a more likely than not recognition
          threshold and second, measuring that tax position to determine the
          amount of benefit to be recognized in the financial statements. FIN 48
          provides guidance on the presentation of such positions within a
          classified statement of financial position as well as on
          derecognition, interest and penalties, accounting in interim periods,
          disclosure, and transition. FIN 48 is effective for fiscal years
          beginning after December 15, 2006. The adoption of this statement is
          not expected to have a material effect on the Company's future
          reported financial position or results of operations.

     (n)  Recently Adopted Accounting Pronouncements

          In September 2006, the SEC issued Staff Accounting Bulletin ("SAB")
          No. 108, "Considering the Effects of Prior Year Misstatements when
          Quantifying Misstatements in Current Year Financial Statements." SAB
          No. 108 addresses how the effects of prior year uncorrected
          misstatements should be considered when quantifying misstatements in
          current year financial statements. SAB No. 108 requires companies to
          quantify misstatements using a balance sheet and income statement
          approach and to evaluate whether either approach results in
          quantifying an error that is material in light of relevant
          quantitative an qualitative factors. SAB No. 108 is effective for
          fiscal years ending after November 15, 2006. The adoption of SAB No.
          108 did not have a material effect on the Company's reported financial
          position or results of operations.


                                      F-10
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

2.   Summary of Significant Accounting Policies (continued)

     (n)  Recently Adopted Accounting Pronouncements (continued)

          In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
          of Financial Assets, an amendment of FASB Statement No. 140,
          Accounting for Transfers and Servicing of Financial Assets and
          Extinguishments of Liabilities". This statement requires all
          separately recognized servicing assets and servicing liabilities be
          initially measured at fair value, if practicable, and permits for
          subsequent measurement using either fair value measurement with
          changes in fair value reflected in earnings or the amortization and
          impairment requirements of Statement No. 140. The subsequent
          measurement of separately recognized servicing assets and servicing
          liabilities at fair value eliminates the necessity for entities that
          manage the risks inherent in servicing assets and servicing
          liabilities with derivatives to qualify for hedge accounting treatment
          and eliminates the characterization of declines in fair value as
          impairments or direct write-downs. SFAS No. 156 is effective for an
          entity's first fiscal year beginning after September 15, 2006. The
          early adoption of this statement in fiscal 2007 did not have a
          material effect on the Company's financial statements.

          In February 2006, the FASB issued SFAS No. 155, "Accounting for
          Certain Hybrid Financial Instruments-an amendment of FASB Statements
          No. 133 and 140", to simplify and make more consistent the accounting
          for certain financial instruments. SFAS No. 155 amends SFAS No. 133,
          "Accounting for Derivative Instruments and Hedging Activities"; to
          permit fair value re-measurement for any hybrid financial instrument
          with an embedded derivative that otherwise would require bifurcation,
          provided that the whole instrument is accounted for on a fair value
          basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the
          Impairment or Disposal of Long-Lived Assets", to allow a qualifying
          special-purpose entity to hold a derivative financial instrument that
          pertains to a beneficial interest other than another derivative
          financial instrument. SFAS No. 155 applies to all financial
          instruments acquired or issued after the beginning of an entity's
          first fiscal year that begins after September 15, 2006, with earlier
          application allowed. The early adoption of this statement in fiscal
          2007 did not have a material effect on the Company's financial
          statements.

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

3.   Asset Purchase Agreement

     On December 14, 2006, the Company entered into an Asset Purchase Agreement
     ("Agreement") to acquire certain assets that include a steel-construction
     cattle barn and ethanol plant, interior operating systems, equipment, a
     gasifier and facility designs at fair value of $851,618, and intellectual
     property at fair value of $561,982, totaling $1,413,600. Pursuant to the
     terms of the Agreement, the Company issued 3,720,000 shares of common stock
     at a fair value of $0.38 per share. Of these issued shares a director of
     the Company and the President of the Company received a total of 1,860,000
     shares and a shareholder received 1,193,333 shares.

4.   Property and Equipment

<TABLE>
                                                                                     June 30,          June 30,
                                                                                       2007              2006
                                                                   Accumulated     Net Carrying      Net Carrying
                                                      Cost         Amortization        Value            Value
                                                        $               $                $                $
<S>                                                  <C>              <C>               <C>
      Buildings                                      765,160          41,508            723,652              -
      Equipment                                       86,458           8,646             77,812              -
      Tractor                                         21,265           2,127             19,138
      -------------------------------------------------------------------------------------------------------------
                                                     872,883          52,281            820,602              -
      =============================================================================================================

     The tractor is under capital lease.
</TABLE>

                                      F-11
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

5.   Intangible Assets

<TABLE>
<CAPTION>
                                                                                     June 30,          June 30,
                                                                                       2007              2006
                                                                  Accumulated     Net Carrying      Net Carrying
                                                      Cost        Amortization        Value             Value
                                                       $                $               $                 $

<S>                                                    <C>           <C>              <C>
      Intellectual property rights                     561,982       56,198           505,784                -
      ===========================================================================================================
</TABLE>

     The following is the estimated annual amortization expense for each of the
     next five years:

                                       $

                         2008        112,400
                         2009        112,400
                         2010        112,400
                         2011        112,400
                         2012         56,184
                                     -------
                                     505,784
                                     =======

6.   Note Payable and Other Advances

     (a)  On September 15, 2000, the Company issued a note to a company
          controlled by the President of the Company for Cdn$50,000 payable on
          or before September 15, 2001 plus 8% interest. The Company extended
          repayment of the note until the completion of a financing arrangement.
          The note payable was $47,215 after translation into U.S. dollars as at
          June 30, 2007 (June 30, 2006 - $44,655).

     (b)  As at June 30, 2007, cash advances totalling $2,833 (Cdn$3,000) (June
          30, 2006 - $2,679 (Cdn$3,000)) from unrelated parties are non-interest
          bearing, unsecured and due on demand.

7.   Related Party Transactions

     (a)  A shareholder is owed $200,677 (June 30, 2006 - $199,371) for payment
          of rent, office expenses and professional fees on behalf of the
          Company. Imputed interest of $29,906 (2006 - $29,906), calculated at a
          rate of 15% per annum, was charged to operations and treated as
          donated capital. This amount owing is unsecured, non-interest bearing
          and due on demand.

          On December 14, 2006, the Company issued 1,193,333 shares of common
          stock to this shareholder at a fair value of $0.38 per share pursuant
          to an Asset Purchase Agreement. See Note 3.

     (b)  During the year ended June 30, 2007, the Company recognized a total of
          $30,000 (2006 - $30,000) for donated services provided by the
          President of the Company.

     (c)  At June 30, 2007, officers of the Company are owed $29,027 (2006 -
          $10,000) for advances and expenses paid on behalf of the Company. This
          amount is unsecured, non-interest bearing and due on demand.

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

8.   Amounts Owing to a Former Director

     The former President, who was also a director of the Company, is owed
     $326,701 as at June 30, 2007 (June 30, 2006 - $326,701). This amount is
     unsecured, non-interest bearing and due on demand. During the fiscal year
     ended June 30, 2007, imputed interest of $49,005 (2006 - $49,005),
     calculated at a rate of 15% per annum, was charged to operations and
     treated as donated capital.


                                      F-12
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

9.   Common Stock

     (a)  During the fiscal year ended June 30, 2007, the Company accepted stock
          subscriptions for 58,800 shares of restricted common stock at $0.34
          per share for proceeds of $20,000. As at June 30, 2007, the proceeds
          are recorded in common stock subscribed. On September 4, 2007, the
          58,800 shares of common stock were issued.

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

     (c)  On April 18, 2006, the Company issued 299,000 shares of common stock
          at a price of $0.17 per share for proceeds of $50,487 (Cdn$58,486).

     (d)  On February 13, 2006, the Company issued 30,000 shares of common stock
          at a price of $0.15 per share for cash proceeds of $4,506 (Cdn$5,192).

     (e)  On January 31, 2006, the Company issued 12,000 shares of common stock
          at a price of $0.14 per share for cash proceeds of $1,734 (Cdn$1,990).

     (f)  On January 6, 2006, the Company issued 6,600 shares of common stock at
          a price of $0.13 per share for cash proceeds of $863 (Cdn$1,000).

     (g)  On January 5, 2006, the Company issued 15,500 shares of common stock
          at a price of $0.14 per share for cash proceeds of $2,153 (Cdn$2,500).

     (h)  On December 13, 2005, the Company issued 30,000 shares of common stock
          at a price of $0.08 per share for cash proceeds of $2,539 (Cdn$3,000),
          and 20,000 shares of common stock at a price of $0.13 per share for
          cash proceeds of $2,585 (Cdn$3,000).

     (i)  On December 9, 2005, the Company issued 50,400 shares of common stock
          at a price of $0.10 per share for cash proceeds of $5,051 (Cdn$5,990).

     (j)  On October 5, 2005, the Company issued 30,000 shares of common stock
          at a price of $0.08 per share for cash proceeds of $2,532 (Cdn$3,000),
          and 56,700 shares of common stock at a price of $0.10 per share for
          cash proceeds of $5,631 (Cdn$6,590).

     (k)  On August 16, 2005, the Company issued 375,000 shares of common stock
          at a fair value of $82,500 to settle an outstanding debt of $50,000
          and accrued interest of $43,000, resulting in a gain on debt
          settlement of $10,500.



                                      F-13
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

10.  Commitments and Contingencies

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

          i)   On August 4, 1998 and March 23, 1999, the Company's former Board
               of Directors authorized the issuance of 1,000,000 and 900,000
               shares respectively to individuals without consideration. On
               August 21, 1999, the current Board of Directors resolved that
               share certificates representing ownership of these 1,900,000
               shares were issued without adequate consideration being paid to
               the Company and were therefore not fully paid and non-assessable.
               The Company cancelled the share certificates and indemnified the
               transfer agent, for any costs or liability that may incur arising
               out of the cancellation of such shares. The transfer agent
               removed the 1,900,000 shares from the stockholder list
               effectively reversing the issuance. Six of the cancelled
               certificates, totaling 550,000 shares, have been endorsed and
               returned to the Company for cancellation. The contingencies
               regarding the cancelled shares relate to anyone who may have
               subsequent holder rights, and possibly the individuals who were
               issued those shares who may claim that they were issued for due
               consideration. The Company has determined that there is no amount
               to be accrued for future liabilities associated with claims by
               subsequent shareholders. To date when these shares have been
               delivered to a broker for possible resale, the broker has
               informed the Company or the transfer agent and the shares are
               kept and cancelled. The Company will continue to monitor this
               issue. No other contingent liabilities have been included, as
               some of the previous directors have been informed verbally of the
               cancellation. No formal legal demand has been made as former
               management has failed to provide addresses despite a number of
               requests.

          ii)  Between October 1998 and June 1999, the management at that time
               sold a total of 361,120 common shares of the Company to 34
               subscribers on the basis of an Offering Memorandum ("Offering")
               that contained a significant number of inaccuracies. A total of
               $223,000 was raised pursuant to this Offering. Management had
               concerns regarding possible misstatements, omissions and
               misleading statements. On the advice of legal counsel, the
               Company offered these 34 subscribers the option of receiving
               restricted stock as the Company did not have the funds to repay
               these amounts to the subscribers. Those who opted to receive
               restricted stock were also given an undertaking that they would
               receive a rescission offer when the Company was in a position to
               repay their money plus appropriate interest, in return for a
               return of the restricted stock, or they could elect to retain the
               stock. To date, 23 subscribers, have, pursuant to this offer
               received 232,753 shares, representing $158,000. The remaining 11
               subscribers, who paid $65,000 for 128,367 shares, did not respond
               to the offer. These subscriptions were recorded as redeemable and
               restricted common shares until rescission rights have been
               revoked.

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

     (c)  The Company is committed to a lease for the land where its building is
          located. The Company is required to pay a monthly rent of $1,000 up to
          December 31, 2008 when the lease expires.



                                      F-14
<PAGE>

Hybrid Fuels, Inc.
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2007
(expressed in U.S. dollars)

11.  Capital Lease Obligation

          During the year ended June 30, 2007, the Company assumed a leasing
          arrangement involving equipment. The lease is for a term expiring on
          October 31, 2009, and requires payments of $671 (Cdn$711) per month.

          The following represents future minimum lease payments under capital
          leases and the present value of the minimum lease payments as of June
          30, 2007:

                                                                          $
                                                            2008          8,053
                                                            2009          8,053
                                                            2010          2,685
                                                                    ------------
                                            Total lease payments         18,791
           Less: Amounts representing interest at 4.9% per annum         (1,068)
                                                                    ------------
                         Present value of minimum lease payments         17,723
               Current portion of obligation under capital lease         (7,349)
                                                                    ------------
             Long-term portion of obligation under capital lease         10,374
                                                                    ============

12.  Income Taxes

     The Company has net operating losses carried forward of approximately
     $1,603,000 available to offset taxable income in future years which begin
     expiring in fiscal 2018.

     The income tax benefit differs from the amount computed by applying the
     federal income tax rate of 35% to net loss before income taxes for the
     years ended June 30, 2007 and 2006 as a result of the following:

<TABLE>
<CAPTION>
                                                                      Year Ended             Year Ended
                                                                       June 30,               June 30,
                                                                         2007                   2006
                                                                          $                      $

<S>                                                                   <C>                      <C>
Income tax benefit computed at statutory rates                        (125,037)                (89,886)

Non-deductible expenses                                                 38,119                  56,669

Valuation allowance change                                              86,918                  33,217
---------------------------------------------------------------------------------------------------------
Provision for income taxes                                                   -                       -
=========================================================================================================
</TABLE>

     Significant components of the Company's deferred tax assets and liabilities
     as at June 30, 2007 and 2006, after applying enacted corporate income tax
     rates, are as follows:

<TABLE>
<CAPTION>
                                                                        June 30,             June 30,
                                                                          2007                 2006
                                                                            $                    $
<S>                                                                     <C>                  <C>
Deferred tax asset

  Net operating losses carried forward                                  561,050              448,603

  Valuation allowance                                                  (535,521)            (448,603)
---------------------------------------------------------------------------------------------------------

Total deferred tax asset                                                 25,529                 -

Deferred tax liability

  Property and equipment                                                (25,529)                -
---------------------------------------------------------------------------------------------------------
Net deferred income tax asset                                              -                    -
=========================================================================================================
</TABLE>


                                      F-15

<PAGE>

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

N/A

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

Based on an evaluation as of the end of the period, the Company's Principal
Executive Officer and Principal Financial Officer has concluded that the
Company's disclosure controls and procedures as defined in Exchange Act Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act 1934 (the "Exchange
Act") are effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.

There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation. There were no significant deficiencies or material weakness,
and therefore there were no corrective actions taken.

CODE OF ETHICS

The Company has adopted a code of ethics that applies to our executive officers
and directors. This code of ethics is posted the Company's website at
www.hybridfuels.com. The Code of Ethics is filed as Exhibit 14.1 to this report.

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

N/A

                                    PART III

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


As of June 30, 2006, the Board had a membership of three Directors: Douglas
Dickie (Acting President/CEO and Acting CFO), Rolly Hein (Acting
Secretary-Treasurer)and Dale Johnson.

On July 12, 2006, Douglas Dickie (incumbent Director), Rolly Hein (incumbent
Director) and Edward Melenka were elected to the Board of Directors at the
annual shareholder meeting held July 12, 2006 in Winfield, BC, Canada.



The following table sets forth the name, age, and position of each of the
persons who were serving as executive officers of Hybrid Fuels Inc. as of June
30, 2007:

NAME            AGE          POSITION                 DIRECTOR OR OFFICER SINCE

Douglas Dickie   60     President/Director            April 12, 2006

Rolly Hein       62     Secretary-Treasurer/          April 12, 2006
                        Director

Edward Melenka   65     Director                      July 12, 2006

                                       22
<PAGE>

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

Douglas Dickie
--------------
Mr. Dickie (60) has been the Acting President/CEO/CFO and Director for Hybrid
Fuels since April 12, 2006. Mr. Dickie has a farming background in eastern
Saskatchewan. He earned a Bachelor of Science Degree in Pharmacy from the
University of Saskatchewan in 1968; practiced pharmacy in Saskatchewan, the
Yukon and Vernon, BC, where he currently resides. Mr. Dickie has owned and
operated various pharmacies; served as a Director of Peoples Drug Mart (BC) Ltd.
and numerous private companies, and is currently a member of the College of
Pharmacists of BC.

Rolly Hein
----------
Rolly Hein (62) has been the Acting Vice President/Secretary-Treasurer and
Director since April 12, 2006. Mr. Hein is a former two-term Mayor of the
District of Lake Country, BC, Canada and has been engaged in the cattle and meat
processing business for 40 years. Mr. Hein has been very active in protecting
watersheds and in creating more opportunities on agricultural lands,
specifically in the creation of the Mayor's Task Force on Agriculture and the
resolution of Council for the creation of an Agricultural Advisory Commission
within the District.

Edward Melenka
--------------
Edward Melenka (65) was born and raised in Trail, BC. Mr. Melenka graduated from
the University of British Columbia in 1966 with a Bachelor of Science in
Pharmacy. Upon graduation he joined Woodwards Stores Ltd as a practicing
pharmacist. Shortly thereafter he moved into the management sector leading to
several upper management positions during 15 years of service with the company.
In 1984, Mr. Melenka began a new career in Vancouver as the General Manager of
Peoples Drug Mart Ltd., a retail pharmacy group of 55 stores. Early in 1993 he
became the General Manager of a sister company, Unipharm Wholesale Drugs Ltd., a
major pharmaceutical distribution company in BC servicing 170 retail pharmacies
throughout BC and the Yukon. In 1996 he was appointed CEO for the company,
servicing Unipharm until his retirement in 2004. Thereafter, he relocated to the
Okanagan Valley to become owner and manager of Aurora Orchard, a 15-acre parcel.

TERMS OF OFFICE

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

The Company believes that all Section 16(a) Securities and Exchange Commission
filing requirements applicable to our directors and executive officers for the
fiscal year ended June 30, 2007 were timely met.

AUDIT COMMITTEE

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

                                       23
<PAGE>

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

President and CEO, Douglas Dickie, donated services valued at $30,000 during the
period from July 1, 2006 to June 30, 2007 inclusive.

                           SUMMARY COMPENSATION TABLE
                   Annual compensation         Long term compensation
-----------------------------------------------------------------------------
                                 Other   Restricted Securities   LTIP    All
                                 Annual    stock    underlying   payouts other
Name &          Yr  Salary Bonus Compen-   awards   options/SARs  ($)    Compen-
Principal            ($)    ($)  sation($)  ($)        (#)               sation
Position
-----------------------------------------------------------------------------
Douglas Dickie 2007   nil   -0-    -0-      -0-         -0-       -0-     -0-
Douglas Dickie 2006   nil   -0-    -0-      -0-         -0-       -0-     -0-
Paul Warkentin 2006   nil   -0-    -0-      -0-         -0-       -0-     -0-
Paul Warkentin 2005   nil   -0- 11,358      -0-         -0-       -0-     -0-
Paul Warkentin 2004   nil   -0-    -0-      -0-         -0-       -0-     -0-
Clay Larson    2004   nil   -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO      2003 72,000  -0-    -0-      -0-         -0-       -0-     -0-
Alan Urschel   2004 13,670  -0-    -0-      -0-         -0-       -0-     -0-
Pres./CEO
-----------------------------------------------------------------------------

At the present time, the Company does not have any other compensation agreements
or plans with any officers and/or directors of the Company. The Company does
intend to enter into such agreements in the future when resources allow.
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in Cash Compensation
set out above that would in any way result in payments to any such person upon
termination of their employment with the company or its subsidiaries, or any
change in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.

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

The following table sets forth as of October 12, 2007, 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 30,111,733 issued and
outstanding shares (see Consolidated Statement of Shareholders Equity in
Financial Statements) of the Registrant's Common Stock, and the name and
shareholdings of each director and of all officers and directors as a group.


Title  of   Name and Address of       Amount and Nature of     Percentage of
Class       Beneficial Owner          Beneficial Ownership     Class
--------------------------------------------------------------------------------
Common      Donald  Craig                    2,293,333                 7.62%
            12650 Ponderosa Road
            Winfield, B.C. V4V 2G8

Common      Douglas Dickie (1)               1,641,033                 5.45%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

                                       24
<PAGE>

Common      Rolly Hein (1)                     100,000                 0.33%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Edward Melenka (1)                 810,882                 2.69%
            237 Main Street
            Box 880
            Niverville, MB
            R0A 1E0

Common      Killaloe Ltd.                    2,000,000                 6.64%
            Don Murray,
            Drake Chambers,
            Tortula, BVI

--------------------------------------------------------------------------------
Common      Total Officers and Directors
            as a  Group (3 Persons)          2,551,915                 8.47%
--------------------------------------------------------------------------------

(1)  Officer and/or director. Elected to Board of Directors July 12, 2006 at
     annual shareholder meeting.

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



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

Donald Craig, who owns more than 5% of the issued shares of the
Company, is owed $200,677 (June 30, 2006 - $199,371) for payment of rent, office
expenses and professional fees on behalf of the Company. Imputed interest of
$29,906 (2006 - $29,906), calculated at a rate of 15% per annum, was charged to
operations and treated as donated capital. This amount owing is unsecured,
non-interest bearing and due on demand.

Current President, Douglas Dickie, donated services valued at $30,000 during the
period from July 1, 2006 to June 30, 2007 inclusive.

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

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

a. EXHIBITS:

Exhibit 3.1 Articles of Incorporation (1)

Exhibit 3.2 Bylaws (1)

Exhibit 4.1 Specimen stock certificate (2)

Exhibit 14.1 Code of Ethics

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

Exhibit 31.2 Principal Financial Officer Certification (section 302 of the
Sarbanes-Oxley Act of 2002)

                                       25
<PAGE>

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

Exhibit 32.2 Principal Financial Officer Certification (section 906 of the
Sarbanes-Oxley Act of 2002)

(1)  Incorporated by reference to Form 10-SB filed February 7, 2000.

(2)  Incorporated by reference to Form 10-QSB filed May 15, 2001.


b. REPORTS ON FORM 8-K:

On December 15, 2006, Hybrid Fuels Inc., issued a press release announcing an
asset acquisition (incorporated by reference to Form 8K filed December 15,
2006).

On December 19, 2006, Hybrid Fuels Inc., issued a press release announcing a
joint venture agreement between its wholly-owned subsidiary Hybrid Fuels
(Canada) Inc. and the A4 Bar Cattle Company Ltd. (incorporated by reference to
Form 8K filed December 21, 2006).


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

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

Type Of Services Rendered           Fiscal Yr 2007    Fiscal Yr 2006

Audit Fees                          $15,250           $8,900
Audit-Related Fees                  nil               nil
Tax Fees                            nil               nil
All Other Fees                      nil               nil


                                   SIGNATURES
                                   ----------

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Hybrid Fuels, Inc.

Date: October 15, 2007

By: /s/ Douglas Dickie                          By: /s/ Rolly Hein
----------------------                          ------------------

Name: Douglas Dickie                            Name: Rolly Hein
Title: President/CEO/CFO                        Title: Secretary-Treasurer



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