UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                               Washington DC 20549

                                  FORM 10 KSB/A

                                   (Mark One)

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 For the fiscal year ended December 31, 2004


|_|   TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 For the transitional period from to_____

                        Commission File Number 333-33134


                            HYBRID FUEL SYSTEMS, INC.
                 (Name of Small Business Issuer in its charter)


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


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


                      Issuer Telephone Number: 813-979-9222

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

    Check whether the Issuer (i) has filed all reports required to be filed by
Section 13 or 15d of the Exchange Act during the past twelve months (or for such
shorter period that the registrant was required to file such reports), and; (ii)
and has been subject to such filing requirements for the past 90 days.
|X| Yes |_|  No

    Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and if no disclosure will be
contained, to the best of the Company'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. |_|

    Revenues for the fiscal year ended December 31, 2004 totaled $138,724 and
for fiscal year ended December 31, 2003 totaled $231,269

    As of March 24, 2005, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $18,812,367.

    At March 24, 2005, the registrant had outstanding 42,215 Series A Preferred
Shares and 195,209 Series B Preferred Shares. At March 24, 2005, the Company had
80,921,230 shares of its $0.001 par value common stock outstanding.

Transitional Small Business Disclosure format (check one) Yes |_| No |X|

<PAGE>

                            Hybrid Fuel Systems, Inc.

                Form 10KSB/A for the year ended December 31, 2004

                                Table of Contents

                                     Part I

Item 1  Description of Business
Item 2  Description of Property
Item 3  Legal Proceedings
Item 4  Submission of Matters to a Vote of Security Holders

                                     Part II

Item 5  Market for Common Equity, Related Stockholder Matters and Small Business
Issuer  Purchases of Equity Securities
Item 6  Management's Discussion and Analysis or Plan of Operations Risk Factors
Item 7  Financial Statements
Item 8  Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure
Item 8A Controls and Procedures Item 8B Other Information

                                    Part III

Item 9  Directors, Executive Officers, Promoters and Control Persons; Compliance
        With Section 16(a) of the Exchange Act
Item 10 Executive Compensation
Item 11 Security Ownership of Certain Beneficial Owners and Management and
        Related Stockholder Matters
Item 12 Certain Relationships and Related Transactions
Item 13 Exhibits
Item 14 Principal Accountant Fees and Services

        Signatures

<PAGE>

                                     PART I

The information set forth in this Report on Form 10-KSB contains "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended ("the Act"). The words "believes," "anticipates," "plans," "expects,"
"intends," "estimates," and similar expressions are intended to identify
forward-looking statements. In addition, any statements concerning future
financial performance, ongoing business strategies or prospects, and possible
future Company actions, which may be provided by management, are also
forward-looking statements as defined by the Act. Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors,
which may cause actual results, performance, or achievements of the Company to
materially differ from any future results, performance, or achievements
expressed or implied by such forward-looking statements and to vary
significantly from reporting period to reporting period. Actual results may
materially differ from those projected in the forward looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual future
results will not be different from the expectations expressed in this report.
The Company has no specific intention to update these statements.

Item one - Description of Our Business

Throughout this report, terms such as "we", "our", the "Company" or "Hybrid"
mean Hybrid Fuel Systems, Inc., a Georgia company.

General

We were incorporated in the State of Georgia in 1996 and since that date have
been in the business of manufacturing and marketing retrofit systems for the
conversion of gasoline and diesel engines, stationary or vehicular, to
non-petroleum based fuels such as compressed natural gas and liquefied natural
gas. We hold a world-wide exclusive license to commercialize the technology
embodied in five issued and one pending US patent. Since 1998, we have dedicated
our research and development exclusively to conversion systems for
diesel-powered engines. We currently offer the Fuel 2(TM) dual-fuel conversion
system designed to convert medium and heavy duty mobile diesel engines to
operate in a natural gas/diesel dual-fuel mode.

During the first quarter 2005 we completed the acquisition of various Horiba
emission testing equipment so that we could accelerate our internal research and
development and offer emission testing services for other companies. During the
first quarter 2005 we expanded the number of parts and components we offer for
resale.

We introduced our technology into the marketplace in the 1990's through the
conversion of gasoline and diesel engines to operate in a dual fuel mode. During
this period, we developed commercial versions of the fuel delivery system to fit
many older, naturally aspirated, diesel engine types and placed conversion units
into engines all around the world. The experiences gained during this period
including conversions on a wide array of engines operating under different
conditions with varying fuel requirements contributed significantly to the
subsequent four patents and the Company's first market application referred to
as the Fuel2(TM) conversion system.

During the first six months of 2004, we rededicated our development efforts and
re-engineered our primary system designed to convert medium and heavy duty
diesel engines to operate in a dual-fuel, natural gas and diesel mode for the
electronic version of our Fuel2 system. We refer to the commercial version of
our dual-fuel system as the Fuel2(TM) system.

Our Product

We are currently engaged in commercializing the Fuel 2(TM) system that allows a
medium or heavy duty diesel engine to operate in a dual-fuel, diesel/natural gas
mode. There are three main components to our Fuel 2(TM) system:

(i) the Electronic Control Unit or ECU,

(ii) the gas air mixing device and

(iii) the measuring, monitoring and reporting devices.

Our system can typically be installed in a day with two qualified technicians.
In addition to the installation of our system, our customers must also mount
fuel storage tanks and linkage. Typically, it takes approximately one-half day
to install fuel storage tanks and linkage.

The conversion of a vehicle to a dual fuel mode requires our Fuel 2(TM) system
together with a catalytic converter, fuel storage tanks and linkage. The
catalytic converter must be purchased from an approved vendor. The fuel storage
tanks and linkage can be purchased by our customers on the open market. We do
not provide the catalytic converter or fuel storage tanks.

Engine Families That Hybrid's Dual Fuel System can be Installed On as of January
1, 2005

<PAGE>

Both mechanical and electronic diesel engines are used in many applications with
various duty cycles not commonly seen in the average trucks and buses.
Therefore, when the opportunity to convert these engines arises, additional
programming may be required to assure the operation of the dual fuel matches the
performance of 100% diesel. These application can be varied and should be dealt
with on a case by case basis.

The following discussion specifies the electronic and mechanical engine families
our system has successfully converted to a dual fuel mode. However, until we
receive an Environmental Protection Agency/California Air Resource Board
(EPA/CARB) verification, we cannot engage in meaningful sales within the United
States. The following engines cited in both electronic and mechanical
discussions have been converted on an developmental basis.

Electronic Engines

      -     Mack E7 through 2003 year models;
      -     Cummins Celect System M11 and M14 through 2003 year models
      -     International DT466 through 2003 year models
      -     International T44E model

A survey form is required to determine changes in the electronic system
introduced by the OEM's in 2004.

Mechanical Engines

Our Fuel2 system can be installed on all 4-stroke diesel engines, excluding
pre-chambered engines and 2-stage combustion, typically a GM 5.2 liter to 5.6
liter engine. The International 1996 and older model 7.3 engines used in earlier
applications by Ford and International light-duty vehicles cannot be converted
to dual fuel.

Technology Verification

In order to market our Fuel 2(TM) system within the United States, we must first
receive verification of our technology. Vehicle emissions are regulated by
federal and state agencies with respect to the output of certain atmospheric
pollutants. A technology which impacts vehicle emissions such as our Fuel 2(TM)
system must first be independently evaluated and then formally recognized as not
likely to cause a vehicle to operate in violation of emission limitations.
Federal and State agencies have developed a series of programs designed to
verify the emission output of a particular technology.

The EPA and California Air Resource Board (CARB) have both signed a "memorandum
of agreement" to establish reciprocity and coordination in their efforts to
evaluate and verify emission reduction technologies and products. Under the
agreement, CARB conducts the verification of technologies such as our Fuel2 '
system under a program titled "Diesel Emission Control Strategies Verification"
which involves different paths depending on the type of emission reduction
technology.

Our Fuel2 System Verification Update

We are pursuing sales of our Fuel2(TM) system in the United States as well as
certain foreign markets. During June 2004, we began the first portion of the
protocol required to achieve verification. We previously provided detailed
information concerning the EPA/CARB verification program. The following is a
further update of the official emission measurements of our Fuel2 ' system.

During October 2004 , we received our first independent emission measurements.
We repeated this test again in January and February in an effort to achieve a
25% reduction in NOx. A 25% reduction in NOx would make us eligible for various
federal and state grants. We have not yet been successful in achieving a 25%
reduction in NOx.

If we do not receive a verification for our Fuel2(TM) technology, we will have
difficulty in marketing our system in the United States and our ability to
market the technology outside of the United Stats may also be adversely
affected. The following table details the independent emission measurements of
our Fuel2(TM) system.

                                                          NOx      PM

Required minimum emission reductions for verification      15%     50%
Hybrid's Fuel2(TM) October 2004 results                  19.3%     73%
Hybrid's Fuel2(TM) January 2005 results                  22.9%   78.9%
Hybrid's Fuel2(TM) February 2005 results                 17.9%   56.5%

<PAGE>

Our Emissions Lab

We intend to operate an emissions lab in our Atlanta, Georgia facility which
includes at a minimum the following equipment:

<TABLE>
<CAPTION>
<S>                                                    <C>
7 Rack Horiba Gas Analyzers                            2 Horiba Rack NOx Analyzers
2 Rack Horiba Constant Volume Samplers                 1 Horiba Exhaust Analyzer

1 Horiba Air Sampler                                   1 Varian Star Gas Analyzer
2 Horiba Air Sampler Hang Racks                        1 Zeo Air Supply
1 Horiba 48" Chassis Dyno w/controller & Power Rack    1 Zeo Air Generator
1 Horiba CDC 900 Dyno Controller                       1 Horiba Infrared Gas Analyzer
1 Horiba Power Converter                               2 Clayton Dynamometers
</TABLE>

In addition, we have also purchased a Taylor 535 horsepower dynometer to address
heavy-duty vehicles. Once the above listed equipment is installed, upgraded and
calibrated, we can offer services as an independent emissions lab.

We estimate our emission lab will be ready to offer services as an emission
testing facility after August 1, 2005.

The Fuel 2(TM) Marketplace

The universe for our Fuel 2(TM) conversion system encompasses all medium and
heavy duty diesel powered trucks and buses. The number of vehicles which are
eligible for our technology represent an estimated 3% or 3,660,000 units of the
total population of medium and heavy duty trucks and buses operating within the
United States.

    According to the United States Department of Transportation, Federal Highway
Administration (FHA) and the 2000 US Census there are a total of 83,800,000
trucks and buses in the United States. The FHA further defines this segment to
consist of 92% "light trucks" (74,000,000); 8% "medium trucks and buses"
(4,400,000), and; 2% "heavy trucks and buses" (1,700,.000). The vehicle
manufacturers truck classifications defines light trucks" as those with a weight
of 0 - 14,000 lbs; "medium trucks and buses" as those with a weight of 14,001 -
33,000, and; "heavy trucks and buses" as those with a weight of 33,001 and
higher.

    The population of vehicles available for our Fuel 2(TM) technology based on
size consists of approximately 6,100,000 units or 8% of the total population of
trucks and buses. We have no reliable data which provides an estimate about what
percent of the 6,100,000 units are diesel or which operate on a host of other
fuels such as gasoline, dedicated natural gas and hybrid vehicles. However, our
experiences indicate that more than 60% or 6 out of ten medium and heavy duty
trucks and buses are dedicated diesel vehicles and therefore, immediately
eligible for our technology.

    As a result of the foregoing factors, we estimate the number of trucks and
buses operating within the United State which are immediately eligible to
benefit from our Fuel 2(TM) technology are approximately 3,660,000 or 3% of the
total US truck and bus population.

Our Marketing Strategy

     We offer our Fuel 2(TM) system to parties interested in lowering their
transportation costs through the use of fuels that are less costly than diesel
or to achieve a certain reduction in emission pollutants or both. We believe our
Fuel 2(TM) system differentiates from competitive technologies in respect to
price, universal applications, ease of installation and fuel displacement.
Successful verification of our Fuel 2(TM) system as an Emission Control Device
would enhance our competitive position.

    We are currently engaged in introducing our Fuel 2(TM) to the marketplace
through a strategy that:

      o     Positions our Fuel 2(TM) system as means to take advantage of lower
            priced natural gas verse diesel as a fuel source. The US Department
            of Energy publishes a report approximately every six months titled
            Alternative Fuel Price Report . According to the report, the average
            price of a gallon of diesel over a five year period was $1.52. The
            average cost of an equivalent gallon of Compressed Natural Gas or
            CNG during the same five year period is $1.18. Consumers utilizing
            CNG during this five year period could reduce their fuel costs by an
            annual average of 22%. We believe this annualized savings can offset
            the purchase price of conversion. The ability to recoup investment
            through fuel savings would be primarily a function of mileage.

      o     Market our Fuel 2(TM) system as an Emission Control Device. As
            discussed elsewhere in this report under the heading Our
            Verification Progress , the use of our Fuel 2(TM) system together
            with a specialized catalytic converter has been demonstrated to
            lower the emissions an average of NOx by 20.03% and PM by 69.46%.

      o     Our Fuel 2(TM) system at a price point substantially less than the
            cost of alternative dedicated-engine dual-fuel technologies. The
            added cost to acquire a new natural gas powered medium and heavy

<PAGE>

            duty engine instead of a conventional diesel engine is approximately
            $20,000 to $30,000. The cost to convert an existing diesel engine to
            operate in a dual-fuel mode is approximately $40,000. The retail
            cost of our Fuel 2(TM) system is $4,500. In the case of all three
            approaches, the user would also have to purchase fuel storage tanks
            and a catalytic converter at a cost of approximately $5,000 per
            vehicle. We believe this system price differential is a significant
            competitive factor.

      o     Position our Fuel 2(TM) system is an economic and efficient
            improvement over diesel catalysts and emission traps. As discussed
            elsewhere in this report under the head Competition, as an Emission
            Control Device, our Fuel 2(TM) system is a superior means of
            reducing harmful atmospheric pollutants over Diesel Oxidation
            Catalysts and Diesel Particulate Filters.

    To aid in the market introduction of our Fuel 2(TM) system, we have adopted
a marketing program including:

o     Our Vice President, Sales and Marketing makes direct contact with
      prospective customers in the private sector worldwide;

o     We have a license agreement with BAF Technologies to facilitate the sale
      of our Fuel 2(TM) system to various municipalities and governmental
      entities in the States of New York and Texas;

o     We have a license agreement with DRV Energy to facilitate the sale of our
      Fuel 2(TM) system throughout the mid-United States marketplace;

o     We have a license agreement with Civic Group based in Brazil to facilitate
      the sale of our Fuel 2(TM) system throughout South America.

o     We have entered a Memorandum of Understanding with WITCO, Inc. to
      commercialize our technology in China and India;

o     We have created a program trademarked No School Bus Left Behind
      Initiative(TM) which seeks the direct sale of our system to school systems
      throughout the continental United States.

Competition

Our competition comes from two areas: technology competitors such as catalysts
and traps and conversion competitors such as dedicated natural gas engines and
technologies to convert existing diesel engines.

Technology Competitors

Within the United States, we must qualify as an Emission Control Device. As an
Emission Control Device, our principal competitors will be certain catalytic
converters, emission traps and filters. We believe our Fuel 2(TM) system is
superior to our primary competitors: Diesel Oxidation Catalysts (DOC) and Diesel
Particulate Filters (DPF).

Diesel Oxidation Catalysts

Diesel Oxidation Catalysts or DOC's look like an automotive catalytic converter
and they act in a similar manner. A typical DOC has a ceramic honeycomb cylinder
that fits inside a standard-sized truck muffler. The exhaust passes over the
layers of the catalyst bed and comes into contact with a coating of
platinum-based or other catalysts.

    DOC's are a proven technology for controlling emissions of carbon monoxide,
volatile hydrocarbons, and other pollutants that are in gaseous or liquid phases
in diesel exhaust. A wide variety of catalytic coatings, sizes and
configurations are available from many manufacturers, each one tailored to
exhaust flows from particular engines and designed to optimize removal of
specific substances. The Fuel2 ' system uses a DOC to control hydrocarbons and
CO.

    DOC's can only remove about 20% of a typical engine's PM emissions. What is
called "Particulate Matter" is actually a complex and changeable mix of solid
carbon particles, sulfate particles and liquids and heavy gases. DOC's can only
act upon the liquids and gases of PM, solids and adsorbed liquids pass over the
catalytic bed unchanged.

Diesel Particulate Filters

    Outwardly, DPF's resemble DOC's. A typical trap is a ceramic catalyst coated
matrix that fits inside of a standard sized muffler. The exhaust passes through
a bed of ceramic material, or several of these layers.

<PAGE>

    The path of the exhaust in a DPF, however, is very different than in a DOC.
The DPF forces the smoke through channels of porous ceramic that are
deliberately dead-ended; the solid soot particles remain behind in the dead end
while the gas is forced through the pores.

If carbon particles continue to accumulate in the traps, the engine exhaust back
pressure becomes excessive causing the engine shut down. To prevent such
clogging, traps are designed to burn away the accumulated carbon and renew the
air flow and cleaning action. This burning away of accumulated carbon is
referred to as a regeneration cycle, which may be either continuous or periodic.

    The key to successful trap regeneration is temperature: the hotter, the
better. Traps have a successful history of operation, particularly in Europe, in
engines that operate under high loads and thus have exhaust temperatures
exceeding 300 degrees Celsius, a temperature at which regeneration is continual
and reliable.

    School buses, or any engine that operates in stop-start mode, are more
difficult for traps. There have been a series of failed installations of traps
on fleets of school buses, particularly in urban areas where frequent stops and
low speeds prevent the engines from attaining the temperatures required for
successful regeneration. Drivers are alerted to the clogging of the trap by a
backpressure sensor, which eventually shuts the engine down or does not allow it
to start.
(DPF systems are typically sold with a backpressure metering device).

Conversion competitors

There are relatively few alternative systems for converting medium and
heavy-duty diesel engines to natural gas. The competing systems offered by
competitors described below are more expensive than our technology or are
limited in their application to specific engine lines. Competitors include:

      o     IMPCO Technologies, Inc.

      o     Clean Air Power formerly " Clean Air Partners

      o     Westport Innovations Inc.

      o     The Innovative Technology Group, Corp.

Manufacturing & Inventory

We currently utilize contract manufacturers for key components of Fuel 2(TM)
system and assemble the components in-house. In order to operate converted
vehicles on natural gas, natural gas storage tanks must be installed on the
converted vehicle. We do not include gas storage tanks in our conversion system.
The customer purchases these separately from a number of companies who
manufacture them, or from us at the customer's request.

During December 2004 we leased a 12,000 square foot facility in Atlanta, Georgia
to house our engine room, emission lab, stock room, assembly, quality
inspection/testing, service and installation management. We intend to outsource
the manufacturing of our components and to conduct final assembly and shipping
at our new facility.

Regulatory Environment

Environmental Legislation Effecting the Demand for Natural Gas Vehicles

In addition to the fact that diesel gas is generally more expensive than natural
gas, one of the primary disadvantage of a diesel engine is that it emits far
more pollutants than its gasoline-fueled counterpart. Diesel exhaust contains
particulate matter, visible as soot that contains unburned and partially burned
fuel. These hydrocarbon emissions are a significant contributor to air pollution
and to human respiratory difficulties. Also of significance is the fact that
diesel fuel combustion produces Nitrogen Oxides (NOx), a toxin that is harmful
to humans and the environment. NOx is a major known contributor to greenhouse
gas formation resulting in global warming.

Increasingly, federal, state and local environmental legislation is being
enacted which either require, or provide incentives, for the reduction of
vehicle pollutants. For example, the Federal Clean Air Act was amended in 1990
(the "1990 Amendments") to, among other things, set emissions standards for
stationary and mobile pollutant sources and establish targets, standards and
procedures for reducing human and environmental exposure to a range of
pollutants generated by industry in general and transportation in particular.
Among other mandates, the 1990 Amendments require businesses that maintain
centrally fueled fleets of 10 or more vehicles in certain heavy smog locations
to convert, either through new vehicle purchases or by converting existing
vehicles, a portion of their fleet to clean burning alternative fuels. These
laws specifically include the diesel and natural gas dual fuel system as an
alternative fuel and specify actions that fleet operators must take in order to
comply and timetables for doing so.

<PAGE>

Similarly, the Energy Policy Act of 1992 (the "Energy Act") was created to
accelerate the use of alternative fuels in the transportation sector. The Energy
Act mandates the schedule by which Federal, state and municipal vehicle fleets
must incorporate alternative fueled vehicles into their overall vehicle mix.
This has significant ramifications for the military, which operates thousands of
diesel vehicles, and for the state departments of transportation, which operate
tens of thousands of diesel powered dump trucks and related highway service and
repair vehicles, plus the tens of thousands of vehicles operated by the private
contractors who support these agencies.

In addition to the foregoing, a variety of legislative and related incentive
programs relating to alternative fuel vehicle programs have been created,
including:

      o     Clean Cities Program . Created by the Department of Energy, the
            Clean Cities Program coordinates voluntary efforts between locally
            based government and industry to accelerate the use of alternative
            fuels and expand the alternative fuel vehicle refueling
            infrastructure. Grants are available for natural gas fueling
            stations and vehicle conversions to natural gas. Typical grants
            offset the cost of conversion by as much as 80%.

      o     Alternative Fuel Vehicle Credits Program . Congress created this
            credits program to encourage fleets to increase the number of
            alternative fuel vehicles in their fleets early and aggressively.
            Credits are allocated to state fleet operators and cover alternative
            fuel provider fleet operators when alternative fuel vehicles are
            acquired over and above the amount required, or earlier than
            expected. Since credits can be traded and sold, fleets have the
            flexibility to acquire alternative fuel vehicles on the most
            cost-effective schedule.

      o     State Energy Program . States will promote the conservation of
            energy,reduce the rate of growth of energy consumption, and reduce
            dependence on imported oil through the development and
            implementation of a comprehensive State Energy Program. The State
            Energy Program is the result of the consolidation of two Federal
            formula-based grant programs - the State Energy Conservation Program
            and the Institutional Conservation Program. The State Energy Program
            includes provisions for financial assistance for a number of
            state-oriented special project activities. These activities
            specifically include programs to accelerate the use of alternative
            transportation fuels for government vehicles, fleet vehicles, taxis,
            mass transit, and individuals' privately owned vehicles.

      o     EPA's Clean School Bus USA , a program designed to reduce both
            children's exposure to diesel exhaust and the amount of air
            pollution created by diesel school buses.

Employees

As of December 31, 2004, the Company had 9 employees and one technical
consultant on a full-time basis, of which 4 were engaged in research and
development and 4 were engaged in administrative, clerical and accounting
functions and 2 were engaged in sales and marketing. We believe that our
relationship with our employees is good and we are not a party to any collective
bargaining agreement.

Intellectual Property

Our success depends to a great extent on our ability to protect our intellectual
property. We license our core intellectual property pursuant to a license
agreement. We rely primarily on a combination of copyright and trade secret
protection together with the protections under the Licensing Agreement and
nondisclosure and confidentiality agreements to establish and protect our
proprietary rights. The patent protection afforded to our licensed intellectual
property is uncertain and may involve complex legal and factual issues.

We license patents that relate to a universal aftermarket fuel delivery system.
The delivery system is compatible with any existing mobile or stationary
combustion engine. The delivery system can regulate any type of alternative fuel
with any conventional fuel. The patents that we license contain ninety-nine
claims unique to our commercial product.

We have filed a U.S. Non-Provisional Patent Application No. 10/668,589, titled
Methods and Apparatus for Operation of Multiple Fuel Engines , which was filed
September 23, 2003. This patent embodies the electronic version of our fuel
delivery system.

Item two - Description of Property

We lease 1,500 square feet of manufacturing/office space from our Senior
Technical Consultant at a rate of $1,500 per month on a month-to-month basis. We
intend to continue this facility through May 2005 afterwhich we will operate our
of our new leased facility in PeachTree City, Georgia.

During December 2004 we subleased a 12,000 square foot stand alone facility in
PeachTree City, Georgia at the rate of $5,600 per month. We are obligated under
the terms of the sublease to a two-year period commencing March 1, 2005. We

<PAGE>

currently maintain our executive offices in Tampa, Florida. Our executive office
space in Tampa, Florida is provided at no charge by our management company White
Knight SST.

Item three - Legal Proceedings

On November 14, 2003, Ambac International Corporation (" Ambac.") filed a
lawsuit seeking $109,915 together with interest at the rate of 15% per annum.
The suits stems from a contract for delivery of certain parts for use in the
manufacturing of our systems from 2002. We maintain the parts were delivered
substantially past the date of anticipated delivery and that the parts when
received were defective. We are now scheduled to enter mediation with Ambac
during January 2005. As of March 22, 2005, AMBAC has not responded to requests
to schedule the mediation.

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

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

Since January 2001, there have been no matters submitted to a vote of security
holders.


                                     PART II

Item five - Market for Common Equity and Related Stockholder Matters

Our securities are traded on the OTC Electronic Bulletin Board maintained by the
National Association for Securities Dealers, Inc. (OTCBB) under the trading
symbol " HYFS". Prior to November 23, 2004, our shares traded on the "pink
sheets." Between April 2001 and May 2002 our common stock was quoted on the
OTCBB. Our securities were delisted from the OTC Electronic Bulletin Board on
May 23, 2002 due to the Company's failure to file periodic reports in a timely
fashion.

The following table sets forth representative high and low bid prices by
calendar quarters as reported in either the OTC Bulletin Board or the Pink
Sheets during the last two fiscal years. The level of trading in the Company's
common stock has been limited and the bid prices reported may not be indicative
of the value of the common stock or the existence of an active market. The OTC
market quotations reflect inter-dealer prices without retail markup, mark-down,
or other fees or commissions, and may not necessarily represent actual
transactions.

                                Bid Price        Ask Price

 2003
       First Quarter            $       0.02     $      0.03
       Second Quarter           $       0.04     $      0.05
       Third Quarter            $       0.04     $      0.09
       Fourth Quarter           $       0.03     $      0.05

 2004
       First Quarter            $       0.03     $      0.09
       Second Quarter           $       0.06     $      0.09
       Third Quarter            $       0.15     $      0.22
       Fourth Quarter           $       0.50     $      0.85

At December 31, 2004, we have an aggregate of 65,509,843 of our $.001 par value
common shares issued and outstanding. As of March 22, 2005, 80,921,230 shares of
our $.001 par value common shares issued and outstanding. At December 31, 2004
we have 42,216 shares of Series A Preferred Stock (which are convertible into an
aggregate of 526,304 shares of common stock), and 195,209 shares of Series B
Preferred Stock (which are convertible into 2,272,238 shares of common stock)
issued and outstanding.

Shareholders

As of March 22, 2005, the number of holders of record of our common stock was
246 with any shares held by persons or companies in street or nominee name
counted only under such street or nominee name.

Dividends

We have not paid any cash dividends in the past and have no present intention of
doing so. Payment of future cash dividends will be determined from time to time
by our Board of Directors, based upon our future earnings (if any), financial
condition, capital requirements and other factors, the company is not presently
subject to any contractual or similar restriction on its present or future
ability to pay such dividends, except that the Company cannot pay dividends on
its common stock unless a dividend is paid on the outstanding Series A and
Series B preferred shares on an as-converted basis.

<PAGE>

Recent Sales of Unregistered Securities

On September 12, 2004, we issued 7,083,331 restricted common shares comprised
of: (i) 5,799,980 to certain employees as compensation; (ii) 683,351 to settle
prior indebtedness; (iii) 100,000 shares for legal fees and (iv) 500,000 shares
for consulting services.

On October 13, 2004 we issued 28,633,333 restricted common shares comprised of:
(i) 250,000 to our VP Operations; (ii) 11,900,000 shares to secure our Chairman
and Chief Executive Officer for a period of two years; (iii) 16,433,333 for
conversion of debt owed to our management company for cash investments and; (iv)
50,000 shares for legal services.

On November 1, 2004 we issued 1,750,000 restricted common shares comprised of
(i) 200,000 to certain employees as compensation; (ii) 1,550,000 shares through
the exercise of warrants which were issued in 2001.

During December 2004, we agreed to issue 300,000 to two individuals for the sale
of our restricted securities. Further during December 2004, we agreed to issue
10,005,175 restricted common shares to White Knight for partial conversion of
their debt. We subsequently issued these shares on January 10, 2005.

During January 2005, we issued 3,150,000 restricted common shares comprised of
(i) 100,000 shares to certain employees as compensation; (ii) 2,000,000 shares
for partial conversion of White Knight's debt; (iii) 1,000,000 shares for
consulting services, and; (iv) 50,000 shares for legal fees.

During February 2005, we issued 13,850,000 restricted common shares comprised of
(i) 100,000 as a hiring incentive for our VP Sales and Marketing; (ii)
11,750,000 shares for partial conversion of White Knight's debt.

During December 2004, we issued 3,004,338 shares which comprise the fees owed to
White Knight pursuant to their management agreement.

Item six - Management's Discussion and Analysis or Plan of Operation

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

OVERVIEW

We were incorporated in the State of Georgia in 1996 to manufacture and market
retrofit systems for the conversion of gasoline and diesel engines, stationary
or vehicular, to non-petroleum based fuels such as compressed natural gas and
liquefied natural gas. We hold a world-wide exclusive license to commercialize
the technology embodied in five issued and one pending US patent. Since 1998, we
have dedicated our research and development exclusively to conversion kits for
diesel-powered engines. We currently offer the Fuel 2(TM) dual-fuel conversion
system designed to convert medium and heavy duty mobile diesel engines to
operate in a natural gas/diesel dual-fuel mode.

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

The following compares our financial statements for the quarterly periods ended
March 31, 2005 and 2004 and the years ended December 31, 2003 and 2004. During
the year ended December 31, 2004, we reengineered our principal product and
addressed a number of legal and financial matters which had been created over a
period from our inception in 1996 through December 2003. Therefore, the
following may not be indicative of our future operating results.

Overview

Notwithstanding the Company's formation during 1996, Hybrid is still in the
beginning stage. Prior to January 2004, the Company experienced significant lack
of capital. The cumulative effect of under capitalization, principally between
the years 2000 through 2003 created an overall shareholder deficit of
$(1,941,684). Also the lack of capital retarded our abilities to engage in
meaningful product development. As a result, as of December 2003, our product
was not commercially proven. For these reasons, we encountered a number of
financial and operational factors during 2004 that we don't believe are
indicative of our future operating outlook.

At the conclusion of 2004, we believe we accomplished milestones which position
our enterprise for future growth. However, there are uncertainties and
challenges which we discuss in the following summary as well as in our
discussion of the year to year change for each major line item. We also devote a
section in the following discussion relating to our liquidity and capital
resources.

<PAGE>

Uncertainties and challenges

A critical key to the future of our Company is our ability to successfully
complete the protocol required by the California Air Resource Board (CARB) in
order to achieve a designation as an "Emission Control Device." If we are
successful in achieving this designation, we will be able to commercialize our
technology in the domestic market. If we are unsuccessful, we will only be able
to commercialize our technology in foreign markets where emission standards are
less stringent.

In order to achieve designation as an Emission Control Device, we must
demonstrate through third party testing that when our system is installed, the
emissions containing NOx have been reduced by at least 15% and PM or particulate
matters has been reduced by at least 50%. We have to date tested according to
CARB mandates through Olson-Egologic lab in California on three occassions. The
average of these tests reflect a reduction in NOx of approximately 17% - 22% and
a reduction in PM of approximately 55% - 79%. We intend to utilize these
measurements in our application to CARB. As they exceed the minimum levels
required to achieve Emission Control Device designation, we are optimistic of a
successful outcome.

The CARB testing protocol requires that we conduct the initial tests cited
above. Following CARB's acceptance of those measurements, we must then subject
the engine to 1,000 hours or what is commonly referred to as the "durability
cycle." Upon the conclusion of the 1,000 hours, we must re-measure the emissions
to ensure the outcome is approximately consistent with data derived from the
intial tests cited above. This is a significant uncertainty because should the
results derived from the measurements taken following durability not be
consistent with our intial testing, it is unlikely we will achieve the required
designation.

Should we be successful and achieve our designation, the second uncertainty
relates to our ability to commercialize the technology under terms and
conditions which will allow us to achieve profitability. We have to date
installed our electronic system on snow-plows in New York, New York, a school
bus in Albany, New York, a refuse hauler in Dallas, Texas and in the United
Kingdom. We have received repeat orders for our systems in New York, New York
and the United Kingdom. The systems installed in Albany and Dallas were the
result of government grants arranged by our sub-licensee and may or may not
result in additional system requests. This limited success indicates to us that
our are operating efficiently in the marketplace.

However, this small number of vehicles is not suffcient to demonstrate our
ability to successfully commercialize our technology sufficiently to achieve
profitability. There are many uncertainties in migrating a new technology from
the development to the commercialization stage. Some of these uncertainties are
within our control. However, other factors such as new technologies which may be
superior to our Fuel2(TM) system or established, large companies which may
decide to enter our marketplace. These factors, taken together with our history
make it impossible for us to assure our future success.

A series of recent events have created an opportunity for us to accelerate our
commercialization plan but at the same time, introduce an uncertainty relating
to our future, continued success. During approximately the past 24 months, the
price of fuels such as diesel and gasoline have increased while the price of
natural gas has remained relatively stable. Our information is substantially
derived from the Alternative Fuels Price Report, a publication promulgated by
the US Department of Energy which has produced fourteen reports during the
period April 2000 - March 2005. According to the Alternative Fuels Price Report,
since December 2003, the price of diesel has increased from an average of $1.50
a gallon to an average of $2.20 a gallon. During this same period, a natural
gas-gallon equivalent has grown in price from $1.40 - $1.50. Further, the five
year trend reflects that the average five year price of diesel is approximately
$1.58 while the five year price of natural gas is $1.22. We also refer to a New
York Times article published June 15, 2005 which quotes a senior energy analyst
with Foresight Research Solutions in New York which claims the cost of an energy
equivalent barrel of natural gas would cost between $18 to $24 dollars while the
cost of a barrel of oil in the world market would cost approximately $50.

This price differential is meanginful because our system has demonstrated the
ability to displace between 50 and 80% of the diesel with natural gas. Should
this price differential continue, we believe this economic factor will aid our
efforts to commercialize our technology. However, should the price of diesel
fuel fall or the price of natural gas increase, we would lose this significant
advantage.

<PAGE>

                                One-Time Factors

2004 was a period when we sought to finalize our product development as well as
confront a number of financial issues created principally during the period 1999
through 2003. For example, we settled with the internal revenue service
outstanding balances which were created in 1999 and 2000 through the initial
payment of $20,000 followed by a $5,000 a month payment schedule. We also made a
$30,000 payment during December in an effort to accelerate the full repayment of
this debt. During the first quarter 2005, we also reached a settlement with
Peachtree National Bank under which we made an initial payment of $20,000 and we
are required to remit $5,000 a month until the debt is fully paid. We similarily
settled a range of issues such that we eliminated approximately $702,941 in past
liabilities.

During 2004, we made stock payments to our employees in an amount which is
recorded at approximately $1,200,000. We made these payments based on a review
of the history of the Company, the reduced levels of compensation accepted by
the employees during the period principally between 1999 and 2003 and the value
brought by our CEO and Chairman including their personal financial commitment to
our continued operations. We do not have any employee stock participation plans
at this time and we do not foresee that we would compensate our future employees
with shares of our stock except when approved by our Board of Directors and
which is considered essential to attract and retain qualified personnel.

                         Liquidity and Capital Resources

Previously, we have met our cash needs through the sale of our common stock,
loans and contributions from our principals. We recently concluded a $1,200,000
in financing and we have received the first $600,000, minus expenses. We are
also beginning to sell our Fuel2 system in quantities which are meaningful such
as a 25 system order for a United Kingdom based client and a 50 Fuel2 system to
a Florida based client. We are scheduled to receive the second increment of
$600,000 upon the effectiveness of our SB-2 registration statement. Further, our
Chairman and our Chief Executive Officer and White Knight SST, Inc. have
previously provided our financing in exchange for our common stock.

Extraordinary items which will impact our cash include a one-time fee payable to
our Licensor in the amount of $250,000, an estimated $100,000 toward finalizing
our new facility in PeachTree City, an estimated $150,000 for equipment
purchasing as well as an approximately $80,000 debt in default with PeachTree
bank.

Based on the cash we receive from the financing, minus the extraordinary
commitments cited above, taken together with income from the sales of our Fuel2
system, we believe we can meet all our obligations for the foreseeable future.
Although we have no written agreement in place, any short falls we encounter in
our cash will be provided by our principals. For example, we are required to
make a $101,000 payment towards the build-out of our facility in PeachTree City
no later than Monday, September 26, 2005. Our principals have made these funds
available to ensure we do not miss this payment deadline. In the event that our
principals are not able to provide such financing as needed, we will have to
seek additional financing. There can be no assurance that financing will be
available in amounts or on terms acceptable to us, if at all. The inability to
obtain additional capital will restrict our ability to grow and may reduce our
ability to continue to conduct business operations. If we are unable to obtain
additional financing, we will likely be required to curtail our marketing and
development plans and possibly cease our operations. Any additional equity
financing may involve substantial dilution to our then existing shareholders.

We believe that additional sales of our Fuel2 system will allow us to continue
meeting our obligations for the foreseeable future.

The following depicts our year-to-year fianancial condition comparing 2003 to
2004. However, as previously discussed, the debts we owed had been accumulated
over a three to five year period and accordingly, the changes highlighted should
not be considered indicative of our future operating results.

Balance Sheet

Assets

For the year ended December 31, 2003, the Company had current assets of $28,938
and total assets of $44,515. For the year ended December 31, 2004, current
assets increased 153% to $73,498 and total assets increased 84.2% to $82,005.
The increase of approximately $44,500 was the result of acquiring certain minor
equipment and the accumulation of various parts required to continue our
research and development. However, in the future, we may acquire more or less
equipment and parts and this purchase should not be taken as a standard in our
operating condition.

In addition, during the first quarter 2005, we arranged for the purchase of
various Horiba and other emission testing equipment for $40,000. The seller
which is a utility operating in Georgia had been active in the alternative fuels
industry in the late 1990s and had since curtailed that portion of their
business and stored all the idle equipment. As our operations are located in
Atlanta, Georgia when we began to set up our new facilities in PeachTree City,
Georgia, we informally inquired the availablility of this equipment. We were
informed that we could purchase the entire room of equipment for a one-time
payment of $40,000. We did not purchase any other assets or liabilities and
there are no further obligations. The seller of the equipment is not a related
party to our Company. In addition, during February 2005 we made a $76,000
deposit toward the purchase of a new Taylor dynometer at a total cost of
approximately $232,000. Final delivery is expected during September 2005. We
intend to locate the equipment in our new 12,000 square-foot facility in
PeachTree City, Georgia.

Liabilities

For the year ended December 31, 2003, the Company had current liabilities of
$1,456,199 and total liabilities of $1,986,199 including $530,000 of redeemable
securities. For the year ended December 31, 2004, current liabilities had been
reduced by 48.3% to $753,258 and total liabilities had been reduced by
$1,232,941 to $753,258 or 61.9%. The significant reduction in our current and
total liabilities was made possible solely by the cash investments made by White
Knight. These liabilities were created over an extended period of time from
approximately 1999 through 2003.

<PAGE>

During this period, convertible debt in default was reduced by 72.4% from
$283,200 at year ended December 31, 2003 to $78,200 at year ended December 31,
2004 through a negotiated settlement with a series of note holders and the
issuance of our common stock. During 2004, the Company repaid amounts owed to
the Internal Revenue Service since 1999. In addition, the Company reduced the
sales and payroll taxes payable by $115,151 or 47% from $245,245 at year ended
December 31, 2003 to $130,094 at the year ended December 31, 2004. The
negotiated settlement with the note holders, the payment of past due federal
payroll taxes are both one-time events which we believe will not occur again.
These reductions in significantly past due federal taxes were made possible by
infusions of cash by White Knight and were not repaid from our operational
revenue.

Since the year ended December 31, 2004, we have reached a settlement with the
item listed as accounts payable in settlement which relates to debts incurred
during 2001 and 2002 and we have negotiated a settlement with PeachTree National
Bank which is listed as debt in default. We anticipate both these items will be
liquidated by the year ended December 31, 2005.

Stockholders' Deficit

For the period ended December 31, 2003, the Company reflected $3,987,712 in
paid-in capital and the Company had $12,164 of common stock and a shareholder
deficit totaling $(1,941,684). For the period ended December 31, 2004, paid-in
capital increased by approximately 117.6% to $8,677,270 and the common stock had
increased by 438.5% to $65,510. During the 2004 fiscal year, total shareholders'
deficit was reduced 65.4 % from $(1,941,684) at the year end December 31, 2003
to $(671,253) at year ended 2004.

In summary, during the twelve months ended December 31, 2004, we increased
current assets by 153.9% and total assets by 84.2 % while reducing current
liabilities by 48.3% and total liabilities by 72.4%. During this period, we
increased paid-in capital by 117.6% and common stock by 438.5% while reducing
shareholders' deficit by 65.4 % and increasing shareholders' equity by
$1,207,431. These reductions in liabilities and increases in assets were the
direct result of the negotiated settlements and direct payments made by White
Knight on our behalf. As these changes to our financial condition were the
result of capital provided and not derived, it is impossible to associate these
changes with our prospective future operating results except to observe they
represent an improvement in our financial condition over the previous reporting
period.

Statement of Operations

For the year ended December 31, 2003, the Company posted revenues of $231,269
and gross profit of $155,354. During 2004, we dedicated our resources to
reengineering the technology and to pursuing the EPA/CARB technology
verification described elsewhere in this report. As a result, revenues during
2004 decreased by approximately 40.1% to $138,724 and gross profit decreased by
49% to $79,336. Previously, all our revenue were derived exclusively through
selling our systems to certain governmental entities and municipalities who had
received grant funds for the purpose of converting vehicles to achieve an
emissions target. The reduction in sales is a function of grant availability and
the abilities of our sub-licensee to aquire such grant projects. A major thrust
of our marketing strategy going forward is to pursue the commercial marketplace
as predicating our business success on the realibilty of consistent grant
financing is unreliable.

During the 12 month period ended December 31, 2004, our consulting fees
increased by approximately 101% from $203,859 to $410,183 and our research and
development costs increased from $0 at year ended 2003 to $130,814 at year ended
December 31, 2004. The majority of the research and development costs were
incurred in connection with EPA/CARB verification application. Compensation
during this period increased from $110,013 at year ended December 31, 2003 to
$1,415,576 at year ended December 31, 2004. However, approximately $1,200,000 or
84.7% of the compensation expenses were one-time issuances of stock to our
employees and consultants. The cash compensation was approximately $216,000.

Total operating expenses during the 12 months ended December 31, 2004 increased
from $(515,689) to ($2,113,045). Total operating expenses minus the one-time
charge for the issuance of stock was $(913,045). This increase in our cash
expenses during this period was because we had the available cash (provided by
White Knight) to meet a number of our past due obligations. Many of these
expenses were incurred prior to 2004. The Company's net loss increased from
$(548,821) at year ended December 31, 2003 to $(2,972,473) at year ended
December 31, 2004. Our overall net loss for this period is principally the
result of White Knight providing capital to meet our obligations created prior
to January 2004 and our efforts to re-engineer our technology.

Basic and diluted loss per share increased from $(0.05) at the year ended
December 31, 2003 to $(0.12). Taking into account the one-time charge for the
issuance of stock, during the 12 month period ended December 31, 2004, the basic
and diluted loss per share would have been approximately $(0.09).

In summary, during the twelve month period ended December 31, 2004, the
Company's revenues and gross profit decreased by 40% and 49% respectively and
operating expenses including the one-time charge for the issuance of stock
increased 309.8%, research and development increased by 100% and compensation
increased by 1,186.7% and the basic and diluted loss per share increased by
140%. Excluding the one time charge for the issuance of common stock, total
operating expenses increased by 77%, and compensation increased by 96.3% for the
periods ended December 31, 2003 compared to the same period ended December 31,
2004. However, the change in revenues and gross profit are incidental in that
during this fiscal period we sold a total of less than approximately 12 dual
fuel systems. Lacking any meaningful sales at all, the changes we encountered in
our operating posture, consulting fees, compensation and our net loss to
operations are the result of rebuilding our enterprise and not as a result of
our operations. Further, we don't believe the majority of these expenses will
recur and thus, we don't believe a comparison between these two fiscal periods
is in any way indicative of our anticipated future operating performance.

<PAGE>

Controls and Procedures

Evaluation of disclosure controls and procedures.

As of December 23, 2003, the Company had not filed required Securities and
Exchange Commission (SEC) reports since December 31, 2001. During the 12 months
ended December 31, 2004, we filed annual reports for the years ended 2002 and
2003 as well as our required quarterly reports for 2004. Prior to January 2004,
we had minimal accounting resources available due to lack of capital. During the
first quarter 2004, we relocated our executive offices and financial
administration to our offices in Tampa, Florida and instituted professional
accounting controls and systems.

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

Changes in internal controls.

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

During November, 2004 we made application to the National Association of
Securities Dealers (NASD) to resume trading on the over-the-counter Bulletin
Board (OTCBB). On December 10, 2004, the Company's securities were cleared for
trading on the OTCBB.

Product/technology development

Prior to December 2003, the Company had been unable to conduct any meaningful
product development due to lack of capital. As a result, since inception in
1996, the Company has been unsuccessful in any meaningful sales of its
technology. Between January and June 2004, we spent six months re-engineering
the electronic version of our Fuel2 system. As discussed elsewhere in this
report, during June 2004, we commenced the independent testing required in order
for our Fuel2 system to receive EPA/CARB verification.

Sales and Marketing

As discussed previously, we have been unable to engage in meaningful sales
lacking an EPA/CARB verification of our Fuel2 system. However, we took certain
steps and negotiated agreements which provide an entry point for the sale of
Fuel2 system in the continental US, South America, China and India. Since
December 2003 we have:

      o     We renegotiated a license agreement with BAF Technologies to
            facilitate the sale of our Fuel 2(TM) system to various
            municipalities and governmental entities in the States of New York
            and Texas;

      o     We renegotiated a license agreement with DRV Energy to facilitate
            the sale of our Fuel 2(TM) system throughout the mid-United States
            marketplace;

      o     We negotiated a license agreement with Civic Group based in Brazil
            to facilitate the sale of our Fuel 2(TM) system throughout South
            America.

      o     We have entered a Memorandum of Understanding with WITCO, Inc. to
            commercialize our technology in China and India;

During 2005, we

      o     We hired an industry-experienced Vice President, Sales and Marketing
            to make direct contact with prospective customers in the private
            sector worldwide;

      o     We have launched a program trademarked No School Bus Left Behind
            Initiative(TM) which seeks the direct sale of our system to school
            systems throughout the continental United States.

<PAGE>

Facilities

Prior to December 2003, we shared our office and work space with the technology
inventor. This facility had no meaningful testing or research and development
equipment. The research and development we conducted during the first six months
of 2004 required us to make use of our licensee's facility in Texas.

During December 2004, we negotiated a lease for a 12,000 square foot facility in
PeachTree City, Georgia. During the first quarter 2005, we acquired a variety of
Horiba emission testing equipment. Further during 2005, we acquired a Taylor
dynamemter designed to handle heavier vehicles. Our new facility, when fully
installed and calibrated, will have two engines rooms and a state-of-the-art
emission testing lab. We believe this asset will allow us to substantially
accelerate the development of future products as well as permit us to offer the
greatest degree of efficiency for our customers.

We have no off-balance sheet items connected with our Company or our operations.

Certain expectations for 2005

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

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

Risk Factors

The Company's liquidity, capital resources, and results of operations indicate
that an investment in the Company remains speculative, involves a high degree of
risk, and should not be made by persons who cannot afford the loss of their
entire investment. Prospective investors in the Company should carefully
consider all of the information contained in this Report before deciding whether
to purchase securities of the Company, and, in particular, the factors set forth
below.

Risks associated with our Company

We Have A History Of Losses And May Never Achieve Profitability.

We have incurred net losses since our inception. At December 31, 2004, our
accumulated deficit was $(7,821,406) We anticipate that we will continue to
incur additional operating losses in the near term. Our losses to date have
resulted principally from expenses incurred in our research and development
programs, including beta testing, and from general and administrative and sales
and marketing expenses. We cannot assure you that we will attain profitability
or, if we do, that we will remain profitable on a quarterly or annual basis in
the future.

Our Limited Success Makes It Difficult To Analyze Our Prospects For Future
Success.

We were organized on April 1, 1996 and have conducted only limited operations to
date, consisting of negotiating the license to use the patents, further research
and development, including beta testing, and limited sales efforts. No
assurances can be given that we will develop a marketing and sales program which
will generate significant revenues from the sales of our dual fuel conversion
systems. The likelihood of our success must be viewed in light of the delays,
expenses, problems and difficulties frequently encountered by an enterprise in
its development stage, many of which are beyond our control. We are subject to
all the risks inherent in the development and marketing of new products.

Technological Change May Make Our Products Obsolete Or Difficult To Sell At A
Profit.

To date, the market for alternative fuel technology systems and equipment has
not, to our knowledge, been characterized by rapid changes in technology.
However, there can be no assurance that new products or technologies, presently
unknown to management, will not, at any time in the future and without warning,
render our dual fuel technology less competitive or even obsolete. Major
automobile and truck companies, academic and research institutions, or others,
for example, could develop new fuels or new devices which could be installed at
the original equipment manufacturer level and which could potentially render our
systems obsolete. Moreover, the technology upon which our dual fuel systems are
based could be susceptible to being analyzed and reconstructed by an existing or
potential competitor. Although the Company is the license holder of certain
United States patents respecting its proprietary dual fuel system, we may not
have the financial resources to successfully defend such patent, were it to
become necessary, by bringing patent infringement suits against parties that
have substantially greater resources than those available to us.

<PAGE>

In addition, competitors may develop technology and systems that can be sold and
installed at a lower per unit cost. There can be no assurance that we will have
the capital resources available to undertake the research which may be necessary
to upgrade our equipment or develop new devices to meet the efficiencies of
changing technologies. Our inability to adapt to technological change could have
a materially adverse effect on our results of operations.

We license our proprietary technology from a related third party and such
technology may not be adequately protected from unauthorized use by others,
which could increase our litigation costs.

Our success depends to a great extent on our ability to protect our intellectual
property. We license our core intellectual property pursuant to a license
agreement between the Company and Electronic Controls Technology LLC ("ECT").
Our ability to compete effectively will depend in part on our ability to develop
and maintain proprietary aspects of our technology and either to operate without
infringing the proprietary rights of others or to obtain rights to technology
owned by third parties. Pursuant to the License Agreement, we have licensed
certain patents from ECT. We cannot assure you that any of our licensed
technology rights will offer protection against competitors with similar
technology. We cannot assure you that the patents covered by the License
Agreement will not be challenged, invalidated or circumvented in the future or
that the rights created by those patents will provide a competitive advantage.
We also rely on trade secrets, technical know-how and continuing invention to
develop and maintain our competitive position. We cannot assure you that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets.

We cannot assure you that we will not become subject to patent infringement
claims and litigation in the United States or other countries or interference
proceedings conducted in the United States Patent and Trademark Office to
determine the priority of inventions. The defense and prosecution of
intellectual property suits, interference proceedings, and related legal and
administrative proceedings are costly, time-consuming and distracting. We may
also need to pursue litigation to enforce any patents issued to us or our
collaborative partners, to protect trade secrets or know-how owned by us or our
collaborative partners, or to determine the enforceability, scope and validity
of the proprietary rights of others. Any litigation or interference proceeding
will result in substantial expense to us and significant diversion of the
efforts of our technical and management personnel. Any adverse determination in
litigation or interference proceedings could subject us to significant
liabilities to third parties. Further, as a result of litigation or other
proceedings, we may be required to seek licenses from third parties which may
not be available on commercially reasonable terms, if at all.

We Have Limited Manufacturing Experience and Will Rely Upon Third Party Contract
Manufacturers Who Have Not Yet Been Contractually Secured

To be successful, we must manufacture, or contract with a third party for the
manufacture of, our current and future products in sufficient quantities and on
a timely basis, while maintaining product quality and acceptable manufacturing
costs. Should we not timely secure a contract manufacturer, or for some reason
we are no longer able to obtain key elements from a supplier, we will not be
able to produce or will be delayed in producing conversion systems for sale or
distribution, which could cause delays in our operation or sales or make
continued operation or sales unprofitable.

The sale of our Fuel 2(TM) system must be conjunction with components we do not
offer

The conversion of a medium or heavy duty mobile diesel engine requires three
primary components: (i) our Fuel 2(TM) conversion system; (ii) fuel storage
tanks, and; (iii) a specialized catalytic converter (for sales as an Emission
Control Device). While we can control the pricing and delivery of our Fuel 2(TM)
systems, we have no control over pricing, availability or delivery of fuel
storage tanks or specialized catalytic converters. The costs of these items can
potentially prevent us from selling our Fuel 2(TM) system either because the
costs of these additional components make the conversion of a vehicle
uneconomical or the due to lack of availability of either additional component.
We believe fuel storage tanks are readily available on the open market at prices
that will allow us to commercialize our Fuel 2(TM) system and we believe the
specialized catalytic converters can be likewise acquired on the open market at
prices that will allow us to commercialize our Fuel 2(TM) system. However, there
can be no assurance given that our customers will be able to acquire these
components at prices that permit us to sell our Fuel 2(TM) system as a fuel
savings device because the upfront costs to acquire and install these
components.

<PAGE>

The Limited Availability of Alternative Fuels Can Hinder Our Ability to Market
Our Products.

Alternative fuel engines have been commercially available in the past; however,
the most significant impediment to the growth in the market for alternative fuel
vehicles traditionally has been the limited availability of alternative fuel
sources, such as natural gas and propane. The success of engines based on
alternative fuels will probably be directly effected by the development of the
infrastructure of the natural gas industry and the widespread availability of
such fuel sources. To some degree, this problem will remain at the forefront of,
and be an impediment to, the success of alternative fuel power sources. However,
we believe that with the development of the dual fuel conversion system,
vehicles will not be tied exclusively to alternative fuels, but will have the
option and ability to operate on standard diesel fuel alone. In all events, our
business and the market for alternative fuel vehicles would benefit
substantially from the growth of the infrastructure of the natural gas industry
and the more widespread availability of alternative fuels. Conversely, our
business and the market for alternative fuel vehicles would be substantially
hurt by a diminished or lack of growth of the infrastructure of the natural gas
industry and the less widespread availability of alternative fuels.

The Nature of Our Products Subjects us to Product Liability Risks.

Our product and services relate to fuel system components which handle or come
into contact with natural gas which is highly combustible. A malfunction of or
design defect in certain of our products or improper design, construction,
installation or servicing of facility and equipment infrastructure could result
in liability, tort or warranty claims. Although we attempt to reduce the risk of
exposure from such claims through warranty disclaimers and liability limitation
clauses in our sales agreements and by maintaining product liability insurance,
we cannot assure you that these measures will be effective in limiting our
liability for any damages. Any liability for damages resulting from product
malfunctions or services provided could be substantial and could have a material
adverse effect on our business and operating results. In addition, a
well-publicized actual or perceived malfunction or impropriety involving our
products or service could adversely affect the market's perception of our
products in general, regardless of whether any malfunction or impropriety is
attributable to our products or services. This could result in a decline in
demand for our products and services, which would have a material adverse effect
on our business and operating results.

Competition From Companies With Already Established Marketing Links To Our
Potential Customers May Adversely Effect Our Ability To Market Our Products.

Current and potential competitors have longer operating histories, larger
customer bases, greater brand name recognition and significantly greater
financial, marketing and other resources than we have. Certain of our
competitors may be able to secure product from vendors on more favorable terms,
devote greater resources to marketing and promotional campaigns, and adopt more
aggressive pricing or inventory availability policies, than we will. There can
be no assurance that we will be able to compete successfully against current and
future competitors, and competitive pressures faced by us are likely to have a
materially adverse affect on our business, results of operations, financial
condition and prospects.

Risks associated with our securities

Unless An Active Public Trading Market Develops For Our Securities, You May Not
Be Able To Sell Your Shares

To date, there has been a very limited public market for our Common Stock,.
There can be no assurance that an active trading market will ever develop or, if
developed, that it will be maintained. Failure to develop or maintain an active
trading market could negatively affect the price of our securities.

<PAGE>

Our Common Stock May be Subject to Penny Stock Regulation.

The Securities Enforcement and Penny Stock Reform Act of 1990 requires special
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a "penny stock". Securities Exchange Commission
("Commission") regulations generally define a penny stock to be an equity
security that has a market price of less than $5.00 per share. These regulations
subject all broker-dealer transactions involving such securities to the special
"Penny Stock Rules" set forth in Rule 15g-9 of the Securities Exchange Act of
1934 (the "34 Act"). These Rules affect the ability of broker-dealers to sell
the Company's securities and also may affect the ability of purchasers of the
Company's common stock to sell their shares in the secondary market, if such a
market should ever develop.

We May Issue Preferred Stock With Certain Preferences which May Depress Market
Price Of The Common Stock.

The Board of Directors may designate additional series or classes of preferred
shares without shareholder consent and those designations may give the holders
of the preferred stock, if previously issued, voting control and other preferred
rights such as to liquidation and dividends. The authority of the Board of
Directors to issue such stock without shareholder consent may have a depressive
effect on the market price of our common stock even prior to any such
designation or issuance of preferred stock.

Members of our Board of Directors either own or control 61% of our voting shares

Primarily as repayment of cash investments, our Chairman and our Chief Executive
Officer combined directly own approximately 37% of our voting common stock.
Further, White Knight SST, our management company which is owned by our Chairman
and our Chief Executive Officer owns approximately 24% of our voting common
shares. As a result, these two individuals may direct approximately 61% of our
voting common shares. As such, they may approve or disapprove items to which you
may not agree.

<PAGE>

Item seven - Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Hybrid Fuel Systems, Inc.

We have audited the accompanying balance sheets of Hybrid Fuel Systems, Inc. as
of December 31, 2004 and 2003 and the related statements of operations, changes
in shareholders' equity, and cash flows for the years then ended. 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). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated 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 consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.

The financial statements referred to above have been restated for the correction
of an error. The statements did not originally include an amortization of
embedded discount for a conversion feature of convertible debt which has been
reflected in the restated financial statements. See footnote 2.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hybrid Fuel Systems, Inc. and
as of December 31, 2004 and 2003 and the results of operations and cash flows
for the years ended December 31, 2004 and 2003, in conformity with accounting
principles generally accepted in the United States of America.

/s/ BRIMMER, BUREK & KEELAN LLP

Brimmer, Burek & Keelan LLP

Tampa, Florida

March 24, 2005 and April 1, 2005 as to Notes 1 & 12
and September 2, 2005 as to Note 2

<PAGE>

                            HYBRID FUEL SYSTEMS, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                     ASSETS

                                                           2004           2003
<S>                                                    <C>            <C>
Current assets
Cash                                                   $      2,025   $          6
Accounts receivable, net of $10,000 and $0 allowance         27,005         10,953
in 2004 and 2003, respectively

Other receivables                                                --          5,395
Prepaid expenses and deposits                                 7,845             --
Inventories                                                  36,623         12,584
                                                       ------------   ------------
Total Current Assets                                         73,498         28,938

Property plant & equipment, net                               8,507         15,577
                                                       ------------   ------------
Total assets                                           $     82,005   $     44,515

</TABLE>




             Please Read Accompanying Notes to Financial Statements

<PAGE>

                            HYBRID FUEL SYSTEMS, INC.

                                 BALANCE SHEETS
                           DECEMBER 31, 2004 AND 2003

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                                                     2004            2003
                                                                 ------------    ------------
<S>                                                              <C>             <C>
Accounts payable                                                 $    120,980    $    166,734
Accounts payable in settlement                                        121,956         121,956
Debt in litigation                                                    109,868         109,868
Due to related parties                                                  7,197         157,528
Due to related parties, convertible debt                               18,866         179,746
Debt in default                                                       123,272         123,272
Convertible debt in default                                            78,200         283,200
Sales and payroll taxes payable                                       130,094         245,245
Other current liabilities                                              42,825          68,650
                                                                 ------------    ------------
 Total current liabilities                                            753,258       1,456,199

Redeemable securities                                                      --         530,000

                              SHAREHOLDERS' DEFICIT

Shareholders' deficit

Preferred A stock ( .01 par value; 42,215 shares authorized;              422             422
42,215 shares issued and outstanding) (liquidation preference
                                                                                 $      8,021)

Preferred B stock ( .01 par value; 954,563 shares authorized;           1,952           1,952
195,209 shares issued and outstanding) (liquidation preference

Common stock ($.001 par value; 150,000,000 and 95,000,000
shares authorized respectively; 65,509,843 and 12,163,646
shares issued and outstanding, respectively)                           65,510          12,164
Additional paid-in capital                                          8,677,270       3,987,712
Deferred Compensation                                                (500,000)
Accumulated deficit                                                (8,916,407)     (5,943,934)
                                                                 ------------    ------------

  Total shareholders' deficit                                        (671,253)     (1,941,684)
                                                                 ------------    ------------

   Total liabilities and shareholders' deficit                   $     82,005    $     44,515
                                                                 ============    ============
</TABLE>


             Please Read Accompanying Notes to Financial Statements

<PAGE>

                            HYBRID FUEL SYSTEMS, INC.

                             STATEMENT OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

                                                    2004            2003
REVENUES
Revenue from product sales and related income   $    138,724    $    231,269

Cost of product sales                                 59,388          75,915
                                                ------------    ------------
Gross profit                                          79,336         155,354
                                                ------------    ------------

EXPENSES
Operating expenses
Consulting fees                                      410,183         203,859
Research and development                             130,814              --
Compensation                                       1,415,576         110,013
Other operating expenses                             156,472         201,817
                                                ------------    ------------
Total expenses                                     2,113,045         515,689
                                                ------------    ------------
Loss from operations                              (2,033,709)       (360,335)

Other expenses (income)
Inventory obsolescence                                    41          11,186
Settlements                                          (17,911)          9,227
Interest expense                                     968,041         169,448
Other income                                         (11,407)         (1,375)
                                                ------------    ------------
(Income) loss from other expenses                    938,764         188,486

Net loss                                          (2,972,473)       (548,821)

Basic and diluted loss per share                $      (0.12)   $      (0.05)

Basic and diluted weighted average number of
common shares outstanding                         23,857,093      12,054,742



             Please Read Accompanying Notes to Financial Statements

<PAGE>

                               HYBRID FUEL SYSTEMS

                  STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003


<TABLE>
<CAPTION>
                                                 Preferred Stock                              Common Stock
                                                 ---------------                               ------------
                               Shares         Amount         Shares         Amount
                              Series A       Series A       Series B       Series B        Shares         Amount
                            ------------   ------------   ------------   ------------   ------------   ------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>
 Balance Dec 31, 2002             45,215   $        422        195,209   $      1,952     11,963,646   $     11,964
Amorization of Debt
Discount
 Stock issued for                                                                            100,000            100
  legal settlement
 Issuance of stock
   for conversion of note                                                                    100,000            100
 Net loss                             --             --             --             --             --             --
                            ------------   ------------   ------------   ------------   ------------   ------------
Balance  Dec 31, 2003             45,215   $        422        195,209   $      1,952     12,163,646   $     12,164
                            ------------   ------------   ------------   ------------   ------------   ------------
Redemption termination
Amorization of Debt
Discount
Common Stock Issued:
Debt                                                                                       3,450,000          3,450
Compensation                                                                               3,983,351          3,983
Services                                                                                     150,000            150
Warrants                                                                                   1,550,000          1,550
Cash                                                                                         300,000            300
Convertible debt                                                                           2,570,000          2,570
Deferred compensation                                                                     11,900,000         11,900
Management fees                                                                            3,004,338          3,004
Related party debt                                                                        26,438,508         26,439
 Net loss                             --             --             --             --             --             --
                            ------------   ------------   ------------   ------------   ------------   ------------
Balance Dec 31, 2004        $     42,215   $        422   $    195,209   $      1,952     65,509,843   $     65,510
                            ============   ============   ============   ============   ============   ============
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                                                             Total
                            Paid-In         Deferred      Accumulated    Shareholders'
                            Capital       Compensation      Deficit         Deficit
                          ------------    ------------   ------------    ------------
<S>                       <C>             <C>            <C>             <C>
 Balance Dec 31, 2002     $  3,832,912                   $ (5,395,113)   $ (1,547,863)
Amorization of Debt
Discount                                                                      135,000
 Stock issued for              135,000                                         10,000
  legal settlement               9,900
 Issuance of stock
   for conversion of note                                                      10,000
                                 9,900
 Net loss                                                    (548,821)       (548,821)
                          ------------    ------------   ------------    ------------
Balance  Dec 31, 2003     $  3,987,712    $         --   $ (5,943,934)   $ (1,941,684)
                          ------------    ------------   ------------    ------------

Amorization of Debt
 Discount                      960,000                                        960,000
Redemption termination         530,000                                        530,000
Common Stock Issued:
Debt                           148,681                                        152,131
Compensation                   515,853                                        519,836
Services                        17,850                                         18,000
Warrants                       213,900                                        215,450
Cash                            49,700                                         50,000
Convertible debt               221,769                                        224,339
Deferred compensation          583,100        (500,000)                        95,000
Management fees                417,603                                        420,607
Related party debt           1,031,102                                      1,057,541
Net Loss                            --              --     (2,972,473)     (2,972,473)
                          ------------    ------------   ------------    ------------
December 31, 2004            8,677,270    $   (500,000)    (8,916,407)       (671,253)
                          ------------    ------------   ------------    ------------
</TABLE>

             Please Read Accompanying Notes to Financial Statements

<PAGE>

                            HYBRID FUEL SYSTEMS, INC.

                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                     2004            2003
                                                                                 ------------    ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                              <C>             <C>
 Net loss                                                                        $ (2,972,473)   $   (548,821)
  Adjustments to reconcile net income to net cash provided (used) by operating
  activities:
    Depreciation                                                                       10,271           9,804
Amortization of Debt Discount                                                         960,000         135,000
Warrants for services and warrant modification                                        213,900              --
    Common stock issued for settlement of debt                                             --          10,000
    Common stock issued for legal services                                             18,000              --
    Common stock issued for compensation                                              519,836              --
    Common stock issued for management fees                                           420,607              --
 Change in operating assets and liabilities
    Accounts receivable                                                               (16,052)            243
    Inventory                                                                         (24,039)          6,951
    Accounts payable                                                                  (45,753)         24,852
    Accrued tax settlement                                                              5,000              --
    Accrued expenses                                                                   (4,848)         29,296
    Related party payable                                                                  --         106,144
    Deferred compensation                                                             100,000              --
    Prepaid and deposits                                                                7,845              --
                                                                                 ------------    ------------
          Net cash provided (used) by operating activities                           (807,706)       (226,531)

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of leasehold improvements                                                 (3,200)             --
                                                                                 ------------    ------------
          Net cash provided (used) by investing activities                             (3,200)             --

CASH FLOWS FROM FINANCING ACTIVITIES:
 Loans to employees                                                                        --          (3,756)
 Loans from related parties                                                           896,660         179,746
 Payments on notes payable                                                                 --         (49,600)
 Payments on settlement                                                               (15,006)             --
 Proceeds from convertible debt                                                            --         100,000
 Payments on tax settlement                                                          (120,279)             --
 Proceeds from the sale of common stock                                                50,000
 Proceeds from the exercise of warrants                                                 1,550              --
                                                                                 ------------    ------------
          Net cash provided (used) by financing activities                            812,925         226,390
                                                                                 ------------    ------------

Net decrease in cash and cash equivalents                                               2,019            (141)
Beginning cash and cash equivalents                                                         6             147
                                                                                 ------------    ------------
Ending cash and cash equivalents                                                 $      2,025    $          6
                                                                                 ============    ============

</TABLE>

             Please Read Accompanying Notes to Financial Statements

<PAGE>

                        HYBRID FUEL SYSTEMS, INC.

                        STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
                               (continued)


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
<S>                                                           <C>          <C>
Cash paid during the year for interest                        $       --   $    9,517

Non-Cash investing and financing activities:

Common stock issued for settlement of debt                    $  152,131   $   10,000

Common stock issued for conversion of convertible note        $  224,339   $   10,000

Common stock issued for compensation                          $  512,023   $       --

Common stock issued for services                              $   18,000   $       --

Common stock issued for warrants exercised and modification   $  215,450   $       --

Common stock issued for deferred compensation liability       $  595,000   $       --

Common stock issued for related party debt                    $1,057,541   $       --

Common stock issued for management fees                       $  420,607   $       --
</TABLE>

             Please Read Accompanying Notes to Financial Statements

<PAGE>

                            HYBRID FUEL SYSTEMS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 2003 AND 2004

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Hybrid Fuel Systems, Inc. (the " Company.") manufactures retrofit systems for
the conversion of gasoline and diesel engines to non-petroleum based fuels such
as compressed natural gas. The Company manufactures and sells its systems to
customers pursuant to a license agreement originally acquired on June 1, 1996
and again on August 31, 2004 with a related party. The Company has exclusive
world-wide rights to all things which result from five issued and one pending
U.S. Patent.

Cash and Cash Equivalents

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

Accounts Receivable

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

Inventories

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

Property, Plant and Equipment

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

Impairment of Assets

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

Income Taxes

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

Earnings (Loss) Per Common Share

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

<PAGE>

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at December 31, 2004 and 2003, as well as the
reported amounts of revenues and expenses for the years then ended. The actual
outcome of the estimates could differ from the estimates made in the preparation
of the financial statements.

Revenue Recognition

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

Stock Based Compensation

The Company has adopted the disclosure-only provisions of SFAS No. 123, "
Accounting for Stock Based Compensation.", but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for options
issued to employees. Under Opinion No. 25, the intrinsic method is used to
determine compensation expense when the fair market value of the stock exceeds
the exercise price on the date of grant. As of December 31, 2003 and 2004, no
options had been granted under the plan and therefore no compensation expense
has been recognized.

During October 2004, the Company modified certain outstanding warrant rights
from $.01 per share to $.001 per share and increased those warrants from 1,550
to 1,550,000. Immediately thereafter the holders redeemed their warrants. As a
result the Company used the Black Scholes method of valuation of the modified
warrants and expensed the valuation as determined in the amount of $213,900. The
fair value per option (in dollars) was $0.139. The Black Scholes calculation was
based on an expected option term of less than one year, volatility was 241.28%,
risk free interest rate 2.88% and expected dividend yield of 0.00%

Research and Development Costs

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

Fair Value of Financial Instruments

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

Cash, Accounts Receivable, Accounts Payable and Accrued Expenses : The carrying
amounts reported in the balance sheet for cash, accounts receivable, accounts
payable and accrued expenses approximate their fair value due to their
relatively short maturity.

Long-Term Obligations : The fair value of the Company's fixed-rate long-term
obligations is estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. At December 31, 2004 and 2003, the Company did not have any
long-term obligations.

Going Concern:

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern for a reasonable period, not to exceed one
year. As reflected in the financial statements, the Company has negative working
capital for the year ended December 31, 2004 and a loss from operations for the
year 2004. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. The Company has adequate financing in place and
subsequent to December 31, 2004 has completed significant trials on its new
conversion kits and has received initial potential orders for sales so as to
provide funding for the continued operations of the Company.

In addition, the Company has entered into an agreement with certain accredited
investors to advance $1,200,000 to the company. The first advance of funds is
April 1, 2005 in the amount of $600,000 with the second advance to be made upon
approval of the Form SB-2 herewith being filed. The financing is in the form of
convertible debt with a conversion into stock at the rate of $0.55 per share for
a total 2,181,818 shares. In addition, the investors will be issued warrants to
purchase the common stock of the Company for $0.81 per share. The initial
advance will receive 1,636,364 warrants and the second advance will receive
1,636,364 warrants. The warrants are five year warrants and are immediately
exercisable upon issue. These additional funds are expected to allow the Company
to continue to fund its operations for the ensuring twelve months.

NOTE 2 RESTATEMENTS

Deferred related party compensation

The Company has an employment agreement with White Knight (WK) in which to
executive officers of WK will serve as the principal executive officers of the
Company for a period of two years beginning in September 2004. Compensation
related to this agreement provided for a total of $25,000 per month (inclusive

<PAGE>

for both executives) to be paid exclusively through the issuance of restricted
common stock with an equivalent value. The common stock issued for the
compensation will vest quarterly in advance.

As of December 31, 2004, the Company had issued approximately 12,000,000 shares
of common stock related to the total compensation of $600,000. The Company
recorded an asset for the deferred related party compensation, which was reduced
by the amortization of $100,000 to compensation expense. After further analysis,
it was determined that the deferred related party compensation should be
classified as an equity transaction and was reclassified to such in the amended
filing.

Convertible Debt

White Knight (WK) has provided financing to the Company since the last quarter
of 2003. The agreement to this financing, in addition to WK providing management
services to our company, was that nay of the debt financing provided by WK could
be repaid in common shares at a conversion rate of $0.04 per share. The
conversion rate was determined at the time the Company's stock was trading at
$0.03 per share.

Due to the conversion feature, of the debt financing, the Company has restated
the financial statements for the amortization of the calculated debt discount
for the years ended December 31, 2004 and 2003.

The effect of the restatement was to increase interest expense at December 31,
2003 by $135,000 for the amortization of the debt discount. As of December 31,
2004, the amortization of debt discount to interest expense was $960,000. The
amortization of the debt discount reflected a non-cash expense for the embedded
conversion feature of the debt agreement.

The restatement was required to correct an error. Previously, we did not include
an amortization of embedded discount for a conversion feature of convertible
debt which has been reflected in the restated financial statements. The
restatement had the effect of increasing the loss per share for December 31,
2003 and 2004 by $0.02 and $0.04, respectively.

NOTE 3 OPERATING LEASES

For the year ended December 31, 2004 and the fourth quarter of the year ended
December 31, 2003, the Company subleased its building from a related party on a
month to month basis with the same terms and amounts as the primary lease. The
monthly rental payments were $1,500. Prior to September, 2003, the Company
leased a facility for monthly base rent of $2,351 plus cost of living increases,
property taxes and water fees. This lease was terminated when the Company moved
in September 2003.

In addition, in the year ended December 31, 2003 the Company had a vehicle lease
which expired during the year then ended. The Company also has a lease for
office equipment which is currently on a month to month basis.


Rent expense for the years ended December 31, 2004 and 2003 was $20,124 and
$33,507, respectively.

During December 2004, the Company executed a two year lease for a 12,000 square
foot facility. The monthly base rental expense is $5,230 and the lease expires
on December 31, 2006. The lease requires comprehensive coverage insurance with
minimum limits of $500,000 per person and $1,000,000 per incident and property
damage limits of $100,000 or the minimum amount of coverages required in the
master lease, whichever is greater. All applicable terms and conditions of the
master lease are incorporated into the sublease.

The following is a schedule by years of the future minimum lease payments under
this operating lease:

December 31,

2005                                          $57,530
2006                                           62,760
2007                                           0
2008                                           0
2009                                           0
Total minimum lease payments                  $120,290

NOTE 4 RELATED PARTY TRANSACTIONS

License Agreement

The Company entered into a licensing agreement collectively with Frank Davis (a
significant stockholder and consultant) and Engine Control Technology LLC (ECT).
The license gives the Company the exclusive world-wide rights, to utilize and
exploit five issued and one pending patents including marketing and selling
products. The underlying patents were developed by Frank Davis and other family
members who are employees of the Company and have since been assigned to ECT,
the owner of which is Patricia Davis. Patricia Davis is the wife of Frank Davis
our Chief Technical Consultant.

In addition, the Company has a consulting agreement with Frank Davis to probvide
various technical consulting services. the agreement expires in 2009 but is
automatically renewable annually thereafter, if not terminated by written

<PAGE>

notice. During the term of the agreement, the consultant shall receive health
and dental insurance for himself and his immediate family which includes his
wife, the use of a vehicle and reimbursement of certain related expenses.

Leases

The Company currently subleases a building from ECT on a month to month basis on
the same terms and amount as the primary lease. The monthly lease amount is
$1,500.

Equity

At the beginning of 2004, the Company issued 3,450,000 shares of common stock as
bonus compensation to various members of the Davis family and to Frank Davis,
all of whom are employees of our Company. During December, 2004, the Company
issued 3,004,338 shares of common stock as payment to White Knight for fees
earned pursuant to the Company's agreement.

The Company receives financing from White Knight SST, Inc., (WK). WK is a major
stockholder and has officers who serve in management positions for the Company.
Per our agreement with WK, any funding provided by WK is to be repaid in common
shares of stock at a conversion price of $0.04 per share. The conversion price
was agreed upon when the Company's stock was trading at $0.03 per share.

During the year ended December 31, 2004, a total of approximately $1.1 million
was received as financing from WK and approximately 26,400,000 shares of common
stock was issued for conversion of outstanding debt due to WK during the year
then ended.

Due to the convertible nature of the advances, the Company has calculated the
embedded conversion benefit for each period of advances, in accordance with EITF
00-27 and recorded the debt discount applicable to each period. For the years
ended December 31, 2004 and 2003, the Company calculated the intrinsic value
between the per share conversion price of $0.04 and the average stock closing
price for each quarter in the year. If the calculated debt discount exceeded the
current period advances, the debt discount was limited to the actual debt
financing received for that period in accordance with EITF 00-27. The Company
amortized a total of $960,000 and $135,000 debt discount to interest expense for
the years ended December 31, 2004 and 2003, respectively. The amortization of
the debt discount reflected a non-cash expense for the embedded conversion
feature of the debt agreement. Since there is no stated redemption date, the
discount is being amortized during the periods in which the advances were made.

During the year ended December 31, 2004, the Company also had an employment
agreement with WK to provide executive management services to the Company. WK's
two principal executive officers serve as the Company's President, CEO, Director
and as Chairman of the Board for a period of two years. Compensation is paid
exclusively through the issuance of restricted common stock equal to a cash
value of $25,000 per month total for the services of both executives. The common
stock issued pursuant to the agreement vests on a quarterly basis in advance.
During the year ended December 31, 2004, the Company issued approximately
12,000,000 shares of common stock for the total $600,000 compensation due. As of
December 31, 2004, the Company had amortized $100,000 of the deferred related
party compensation to the compensation expense.

NOTE 5 PROPERTY, PLANT AND EQUIPMENT, NET

At December 31, 2004 and 2003, property, plant and equipment, net consist of the
following:

                                                       2004            2003

Machinery and equipment                           $     63,652    $     63,651
 Furniture, fixtures and equipment                $      7,461    $      7,461
 Vehicles                                         $     41,336    $     46,336
 Leasehold improvements                           $      3,200    $      5,775
 Less accumulated depreciation and amortization   $   (107,142)   $   (107,646)

 Total                                            $      8,507    $     15,577

Depreciation expense charged to operations was $10,471 and $9,804 for the years
ended December 31, 2004 and 2003, respectively.

<PAGE>

NOTE 6 - INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 2004 and 2003 are
as follows:

<TABLE>
<CAPTION>
                                                          2004            2003

<S>                                                   <C>             <C>
Current income tax expense (benefit)                  $         --    $         --
Deferred income tax expense (benefit) net operating
  loss carryforward                                       (746,834)       (287,490)

Change in valuation allowance                             (746,834)       (287,490)

     Income tax expense (benefit)                     $         --    $         --
</TABLE>

Income taxes for the years ended December 31, 2004 and 2003 differ from the
amounts computed by applying the effective income tax rate of 37% to income
before income taxes as a result of the change in the valuation allowance.

Temporary differences and carryforwards that give rise to deferred tax assets
and liabilities as of December 31, 2004 and 2003 are as follows:

As of December 31, 2004, the Company has a net operating loss carryforward of
approximately $6,658,867 available to offset taxable income through 2025


                            2004                2003

Net operating loss     $  2,463,780       $   1,716,946
carryforwards

Valuation allowance    $  2,463,780       $   1,716,946

NOTE 7 DEBT IN DEFAULT

The Company did not meet the payment terms on the note payable to Peachtree
National Bank during the years ended December 31, 2004 and 2003. The note is
secured by the common stock owned by Robby Davis and Ricky Davis, both employees
of the Company. The provisions of the note allow for the note to become
immediately and fully payable upon default of payments. While the bank had not
initiated any remedy actions for the default as of December 31, 2004 or 2003,
the full balance of the note has been reclassified as a current liability for
both years.

During March, 2005, the Company negotiated a settlement with PeachTree National
Bank requiring the Company to remit $20,000 upon acceptance of the transaction,
followed by a $30,000 payment followed by a monthly payment plan of $10,000
until the PeachTree Note is paid in full. The payment of $20,000 was delivered
to PeachTree during March 2005.

NOTE 8 COMMITMENTS AND CONTINGENCIES

Operating Leases

Describe new facility lease:


The Company is delinquent in the payment of payroll and state sales taxes. The
Company is currently following payment schedules, developed after negotiations
with the taxing authorities. Amounts in arrears for delinquent taxes, along with
estimated penalties and interest assessed by the taxing authorities are as
follows, as of December 31, 2004 and 2003


                             2004             2003

Payroll and sales
 taxes                  $    85,588      $  162,739
Penalties and
 interest               $    44,506      $   82,506

                        $   130,094      $  245,245

<PAGE>

Litigation

The Company is, from time to time, involved in litigation relating to claims
arising out of its operations in the ordinary course of business. The Company
believes that none of the claims that were outstanding as of December 31, 2004
and 2003 should have a material adverse impact on its financial condition or
results of operations.

NOTE 9 STOCK OPTIONS

The Company's Stock Option Plan (" SOP.") was adopted in 2001 to provide for the
grant to employees up to 2,000,000 incentive stock options within the meaning of
Section 422 of the Internal Revenue Code. The SOP, which is administered by the
Company's Board of Directors, is intended to provide incentives to directors,
officers, and other key employees and enhance the Company's ability to attract
and retain qualified employees. Stock options are granted for the purchase of
common stock at a price not less than the 100% of fair market value of the
Company's common stock on the date of the grant (110% for holders of more than
10% of the total combined voting power of all classes of capital stock then
outstanding). As of December 31, 2004 and 2003, no options had been granted
under the plan.

Warrants

The Company has issued warrants to purchase shares of common stock to
consultants and other non employees. The company uses the Black Scholes option
pricing model to value warrants issued to non employees.

The following table summarizes the Company's warrant activity:


                                             Number of          Weighted Average
                                              Warrants           Exercise Price

Balance as of December 31, 2002               1,935,000                 0.7
              Additions
              Exercised
             Expirations                       -352,500               -0.94

Balance as of December 31, 2003               1,582,500           $    0.58
Modifications                                 1,395,000
Exercised                                     1,550,000
Expired                                        (565,000)
Balance as of December 31, 2004                  862,500          $    0.57


<TABLE>
<CAPTION>
                     Warrants           Outstanding                             Warrants          Exercisable

                Number Outstanding       Weighted           Weighted            Warrants            Weighted
                                          Average           Average          Exercisable at         Average
                                         Remaining          Exercise                                Exercise
                                     Contractual Life        Price
<S>            <C>                   <C>                   <C>               <C>                <C>
Range of            12/31/2004            (years)          12/31/2004          12/31/2004            Price
Exercise
Prices
$.50 - $1.00            862,500               0.90      $       0.57               862,500     $        0.57
</TABLE>


NOTE 10 SHAREHOLDERS' EQUITY

Preferred Stock

Effective February 1, 2002, the Company designated 999,779 shares of previously
undesignated preferred stock as Series A Preferred Stock, for which 45,215
shares are authorized and Series B Preferred Stock, for 954,563 shares are
authorized.

Series A Preferred Stock is convertible, at the option of the holder, at any
time, into shares of the Company's common stock as determined by dividing $.19
by a conversion price determined on the date the related certificate is
surrendered. The conversion price is subject to periodic adjustment and is

<PAGE>

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

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

The Company had previously issued common stock to an investor and had granted
that investor a put option for the common stock in the amount of $530,000. That
option expired unexercised in June 2004 due to the lapse of time per the
agreement. That put option was recorded as a liability in the financial
statements. Upon the lapse of that agreement, the liability was reclassified to
paid in capital since it was no longer a liability.

NOTE 11 - CONCENTRATION OF CREDIT RISK

The Company has reduced its sales of conversion units during 2004 and 2003 while
it conducted research on the new digital based units. It primarily has sold a
limited number of units through one sales representative. This represents a
concentration of credit risk since most sales are through that one source. If
that source were to be lost, it would have a significant detrimental affect on
the Company. The Company is currently cultivating other markets and
representatives for its old and new products which they anticipate being
successful to mitigate this concentration.

NOTE 12 SUBSEQUENT EVENT

During the quarter ended March 31, 2005, the Company acquired various Horiba
emission and vehicle testing equipment for $40,000 in cash. The Company also
acquired a Taylor Dynamometer for approximately $232,000.

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

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

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

We issued an aggregate of 1,636,364 Class A common stock purchase warrants to
the investors and will issue an additional 1,636,364 Class A common stock
purchase warrants at the second closing. The Class A warrants are exercisable
until five years from the initial closing date at an exercise price equal to the
lower of $0.81 per share or 101% of the closing bid price of our common stock on
the last trading day preceding the initial closing. The exercise price of the

<PAGE>

Class A warrants will be adjusted in the event of any stock split or reverse
stock split, stock dividend, reclassification of common stock, recapitalization,
merger or consolidation. In addition, the exercise price of the warrants will be
adjusted in the event that we spin off or otherwise divest ourselves of a
material part of our business or operations or dispose all or a portion of our
assets.

Due to there being detachable warrants and a beneficial convertible feature of
the note, the Company will record a discount to the debt in the amount of
$1,200,000 (assuming both draws are made), in accordance with EITF Issue No.
98-5 "Accounting For Convertible Securities With Beneficial Conversion Features
or Contingently Adjustable Conversion Ratios", and EITF 00-27 "Application of
EITF Issue No. 98-5 To Certain Convertible Instruments". The value of the
detachable warrants was determined to be $1,945,594 using the Black Scholes
option pricing model with a volatility of 234.42 % and risk free interest rate
of 4.13%. In accordance with EITF 00-27,when the calculated value of the
detachable warrants exceeds the amount of the debt, the discount is limited to
the amount of the debt. Since the debt is $1,200,000, the discount associated
with the warrants would be limited to that amount. In the calculation of
discount for the warrants and the embedded conversion feature with the warrants
to be calculated first, the entire discount is being allocated to the warrants
since that exceeds the maximum discount allowed. Therefore, there is no
allocation of the discount to the embedded conversion feature of the debt. The
discount of $1,200,000 will then be amortized over the life of the debt which is
twenty eight months or approximately $43,000 per month

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


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

<PAGE>

                                    PART III

Item nine - Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

Name        Age  Position/Office Held

John        56   Chairman of the Board of Directors
Stanton
Mark Clancy 49   Chief Executive Officer, Chief Financial Officer
                 Director

John Stanton - Chairman of the Board of Directors . Since December 23, 2003,
John Stanton has served as our Chairman of the Board of Directors . Mr. Stanton
is also the Chief Executive Officer and Chairman of the Board of Directors of
White Knight. From 1987 through the present, Mr. Stanton has served as the
President and Chief Executive Officer of Florida Engineered Construction
Products Corporation. Mr. Stanton has served as Chairman and President of
several public and private companies. Since the early 1990's, Mr. Stanton has
been, and continues to be, involved in turn-around management for financially
distressed companies, providing both management guidance and financing. Mr.
Stanton worked with the international professional services firm that is now
known as Ernst & Young, LLP from 1973 through 1981. Mr. Stanton, a Vietnam
veteran of the United States Army, graduated from the University of South
Florida with a Bachelors Degree in Marketing and Accounting in 1972, and with an
MBA in 1973. Mr. Stanton earned the designation of Certified Public Accountant
in 1974 and was a Sells Award winner in the CPA examination. Mr. Stanton is a
lifetime resident of Tampa, Florida.

Mark Clancy - Chief Executive Officer and Director . Since December 23, 2003,
Mark Clancy has served as our Chief Executive Officer and our Chief Financial
Officer and as a Director . Mr. Clancy is also the President of White Knight
SST, Inc., a publicly-traded company and the Chief Executive Officer of White
Knight Strategies, Inc. Mr. Clancy founded White Knight Strategies during
December 2001 and was acquired by White Knight SST during December 2003 . Since
April 2000, Mr. Clancy has participated in turn-around management for
financially distressed companies. From November 1997 through April 2000, Mr.
Clancy was co-founder, Director and Executive Vice President of publicly-traded
EarthFirst Technologies, Inc.. Mr. Clancy has been an advisor to the Chairman of
the Board of EarthFirst since that company's sale in May 2000. From 1992 through
1997, Mr. Clancy served as the Chief Compliance Officer for a Largo, Florida
based boutique investment banking firm. Mr. Clancy was honorably discharged
after six years of service with the United States Marine Corps. Mr. Clancy was
born in Massachusetts and has resided in Florida since 1982. Mr. Clancy holds a
Bachelors Degree from the University of South Florida and is a lifetime member
of various academic honor societies including Phi Theta Kappa, Phi Alpha Theta
and USF Arts and Sciences Honor Society. Rule 406 Code Of Ethics

The Company has adopted a Code of Ethics and has posted our Code of Ethics on
our internet web site at hybridfuelsystems.com. Our Code of Ethics applies to
all our employees and those doing business with our Company and specifically
applies to our Chief Executive Officer, Chief Financial Officer and all persons
serving in similar capacities.

Item 10 - Executive Compensation

Executive Compensation

None of the Company's employees have earned $100,000 per year during 2003 and
2004. Our current Chief Executive Officer and Chief Financial Officer are
provided by White Knight.
<PAGE>
<TABLE>
<CAPTION>
                                                                                        Long term compensation

                                                    Other annual
                                                    compensation
Name and                                                    ($)
Principal                        Year
Position
                                                                                              Securities               All other
                                       Annual                               Restricted        underlying               compensation
                                    Compensation                            Stock Awards      options         LTIP

                                 Salary   Bonus                                               SARs            Payouts
                                 ($)      ($)                                ($)              (#)             ($)         ($)
<S>                     <C>     <C>       <C>       <C>                     <C>               <C>             <C>         <C>
Clancy,                 2003     0        0         0                       0                   0               0           0
Mark

CEO/CFO

                        2004     0        0         0                       $335,000 (1)        0               0           0

Stanton,                2003     0        0         0                       0                   0               0           0
John

Chairman

                        2004     0        0         0                       $335,000 (1)        0               0           0
</TABLE>


(1)   Messrs. Clancy and Stanton each received a total of 750,000 restricted
      common shares as an employee bonus and 5,950,000 restricted common shares
      in fulfillment of a two year employment agreements with our Company.

Item 11 - Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

The following table sets forth, as of March 2005, the beneficial ownership of
the Company's Securities by (i) each current member of the Board of Directors of
the Company, (ii) the executive officer named in the Section entitled "Executive
Compensation," above; (iii) all persons or entities known by us who own more
than 5% of our voting common stock, and; (iv) all current directors and
executive officers of the Company as a group. On March 22, 2005, the Company had
80,921,230 shares of common stock issued and outstanding.


Name and Address                          Number of               Percent
                                        Owner Shares              of Class
of Beneficial


John Stanton                                19,471,948                24%
Chairman of the Board
Frank Davis                                 1,708,000                 2.11%
Chief Technical Consultant
Mark Clancy                                 11,101,035                13%
Chief Executive Officer
Director
White Knight SST, Inc. 1                    20,000,000                24.7%
Officers & Directors as a group             32,280,983                40%

(1)   White Knight SST, Inc. is a publicly-traded company of which Mr. Stanton
      owns approximately 92% and Mr. Clancy owns approximately 3%.

Item 12 - Certain Relationships and Related Transactions

The following summarizes pertinent agreements relating to our operations
including our agreement with White Knight, our Proposed Technology License
Agreement and our Chief Technical Consultant Agreement.

Our Agreement with White Knight SST, Inc. (White Knight)

Since December 2003 we have operated under an Agreement with White Knight SST,
Inc., (White Knight). Under the terms of our Agreement, White Knight was to:
provide up to $250,000 working capital and the President of White Knight was to
serve as our Chief Executive Officer. Further, the President and Chief Executive
Officers of White Knight are to be nominated to fill vacancies on our Board of
Directors until the next annual meeting of shareholders. The Agreement further
required the resignation of certain former Officers and consultants and adoption
of White Knight's proposed operating plan. The Agreement requires that we issue
5% of our common stock as compensation for White Knight's participation.

<PAGE>

As a part of the following Technology License Agreement, our current Chairman of
the Board John Stanton and our Chief Executive Officer Mark Clancy have agreed
to continue in executive roles for a minimum of twenty-four months following the
execution of the License Agreement. Mr. Stanton and Mr. Clancy do not receive
any cash compensation from the Company.

Our Technology License

All of the technology, know-how, devices and apparatus embodied in the patents
and incorporated into the various products sold by us were developed and
patented by Frank Davis or Frank Davis and Robby E. Davis. Previously we
licensed the worldwide rights to commercialize the Dual-Fuel Technology from a
Trust established for the Davis family. In the course of reorganizing our
enterprise, we have negotiated a new License Agreement to embody all of our
technology and know how into one comprehensive, world-wide exclusive agreement
We executed our license agreement August 31, 2004 between Hybrid Fuel Systems,
Inc. and Electronic Control Units, LLP ("ECT") ("License Agreement."). ECT is
owned by Frank Davis the technology inventor and holder of the patents. The
following details the License Agreement.

Under the terms of the License Agreement, Hybrid has the worldwide exclusive
right to use, manufacture, lease and/or sell products and/or systems embodying
the following patents and related technical know-how:

      1.    U.S. Patent Serial No. 5,083,547, dated January 28, 1992 for a
            natural gas and air mixing device, as assigned to Licensor; any
            divisions or continuations in whole or in part thereof; any U.S.
            patents or applications that are later added to this license; any
            patents issuing on any of such applications; any reissues or
            extensions or reexaminations of any such patents; and


      2.    U.S. Patent Serial No. 5,408,978, dated April 25, 1995, for a
            natural gas and air mixing device, as assigned to Licensor; any
            divisions or continuations in whole or in part thereof; any U.S.
            patent or applications that are later added to this license; any
            patents issuing on any of such applications; any reissues or
            extensions or reexaminations 'of any such patents; and


      3.    U.S. Patent Serial No. 5,370,097, dated December 6, 1994, for a dual
            fuel control system which controls the flow of liquid fuel alone or
            in combination with a gaseous fuel, as assigned to Licensor; any
            divisions or continuations in whole or in part thereof; any U.S.
            patent or applications that are later added to this license; any
            patents issuing on any of such applications; any reissues or
            extensions or reexaminations of any such patents; and


      4.    U.S. Patent Serial No. 5,103,795, dated April 14, 1992 for a natural
            gas and air mixing device, as assigned to Licensor; any divisions or
            continuations in whole or in part thereof; any U.S. patent or
            applications that are later added to this license; any patents
            issuing on any of such applications; any reissues or extensions or
            reexaminations of any such patents; and


      5.    U.S. Patent Serial No. 4,479,466, dated October 30, 1984 for a
            natural gas and air mixing device, as signed to Licensor; any
            divisions or continuations in whole or in part thereof.; any U.S.
            patent or applications that are later added to this license; any
            patents issuing on any of such applications; any reissues or
            extensions or reexaminations. of any such patents;


      6.    U.S. Non-Provisional Application No. 10/668,589, METHODS AND
            APPARATUS FOR OPERATION OF MULTIPLE FUEL ENGINES, Filed September
            23, 2003, Priority based on U.S. Provisional Application No.
            60/413,269, ELECTRONIC FUEL CONTROL SYSTEMS, Filed September 24,
            2002 PCT Application No. PCT/US03/29914, METHODS AND APPARATUS FOR
            OPERATION OF MULTIPLE FUEL ENGINES, Filed September 23, 2003,
            Priority based on U.S. Provisional Application No. 60/413,269,
            ELECTRONIC FUEL CONTROL SYSTEMS, Filed September 24, 2002.


The term of the license shall expire upon the later of (i) the expiration of the
last-expiring patent covered, including any extensions, or (ii) ten (10) years
from the date of execution of the License Agreement. In exchange for the
worldwide exclusive rights described above, we are required to make a one-time
license acquisition payment of $250,000 (two hundred and fifty thousand dollars
which amount would be due and payable (i) the first anniversary of the execution
of the License Agreement, (ii) the Company's closing on an equity or debt
financing, or a combination thereof, following the date of the License Agreement
in which we receive gross aggregate proceeds in an amount no less than USD$1
million, or (iii) the sale of the 100th Unit.

Following the one-time fee, we are required to pay $250.00 per Unit sold (we
estimate at this time our Units will range in price from $3,500 to $4,500 each)
with a minimum royalty of $250.00 and maximum royalty of $1,000 for Unit. We are
further obligated to pay a royalty rate of 3.5% for any items which are not
included in the per system royalty calculation such as spare parts and
consulting services. Under the terms of the License Agreement, we are obligated
to sell a minimum of 750 Units during 2005 and 2,500 Units during 2006 and for
each subsequent year during the term of the License.

<PAGE>

ECT shall have the right to immediately terminate the License Agreement by
giving written notice to the Company in the event Hybrid:

      1.    is adjudicated bankrupt or insolvent, enters into a composition with
            creditors, makes an assignment of all or substantially all of its
            assets for the benefit of its creditors, or if a receiver is
            appointed for its assets;


      2.    fails to produce, manufacture, sell, market, or distribute or cause
            to be produced, manufactured, sold, marketed, or distributed the
            Units;


      3.    or its Affiliates, agents, distributors or sublicensees is in
            material breach or default of any provision of the Proposed License
            Agreement which default or breach is not cured within the applicable
            time period;


      4.    fails to pay the royalty when and as it becomes due and payable;


      5.    or its Affiliates, agents, distributors or sublicensees pledge,
            lien, mortgage, secure or otherwise encumber the Licensed Patents in
            any manner, whether arising by contract, as a matter of law, by
            judicial process or otherwise;


      6.    experiences a material adverse effect in the financial condition,
            operations, assets, business, properties or prospects of the
            Company. " Material adverse effect." means any event, change,
            violation, inaccuracy, circumstance or effect that is or is
            reasonably likely to be, individually or in the aggregate,
            materially adverse to the condition (financial or otherwise),
            capitalization, operations or business of the Company;


      7.    fails to maintain its status as a public company.


Our Chief Technology Consulting Agreement

In order to ensure ourselves of the continuation of the technology inventor Mr.
Frank Davis, we have entered a Consulting Agreement between the Company and
Electronic Controls Technology LLC (the " Consulting Agreement."). Under the
terms of the Consulting Agreement, we are to compensate Electronic Fuel
Technology LLC $7,000 per month until we complete our current verification after
which we are to remit $12,000 per month. In exchange for such compensation,
Electronic Controls Technology LLC . We opted to increase the monthly payment
from $7,000 to $12,000 effective January 1, 2005. The Consulting Agreement
further requires we provide health insurance to Mr. Frank Davis and his wife
which was effective January 1, 2005. Under the terms of the Consulting
Agreement, ECT shall:

      1.    provide general advice, guidance and counsel to, and consult with,
            senior management of Hybrid with respect to all aspects of Hybrid's
            business; and


      2.    shall explain to senior management of Hybrid, in such detail as may
            be reasonably requested by Hybrid, the current condition, history
            and prospects of Hybrid and its predecessors, including with respect
            to operating, financial and organizational matters; manufacturing,
            marketing, planning and other activities; inventions, patents,
            patent applications, and other intellectual property rights and
            interests; relationships with stockholders, subsidiaries,
            affiliates, employees, suppliers, customers, advisers, consultants
            and others; transactions; and other matters as may be reasonably
            requested by Hybrid; and


      3.    deliver to Hybrid, in good condition, all Confidential Information
            and all files, documents and other books and records, in whatever
            form or media, relating to Hybrid's business or its history,
            prospects, financial condition or results of operations; and


      4.    shall maintain a regular, ongoing and routine physical presence at
            the Atlanta area research, development, and distribution center of
            Hybrid .


Employment Agreement

Effective August 30th, 2004, we entered a 24-month Employment Agreement with our
Chairman an with our Chief Executive Officer and Director. Together, these two
individuals are referred to as the "Employee" for the purposes of the Employment
Agreement.

Under the terms of the agreement, the Employee is entitled to compensation at
the rate of $25,000 per month (for both individuals combined), payable
exclusively in restricted common shares. All restricted common shares due under

<PAGE>

the Employment Agreement were issued to Messrs. Stanton and Clancy and shall
vest on a quarterly basis in advance of each quarter.

Item 13 - Exhibits and Reports on Form 8-K

Reports on Form 8-K
We filed a Form 8-k on March 26, 2004 reporting that March 16, 2004, the Company
dismissed its former independent accountant and engaged Brimmer, Burek and
Keelan, LLP as our independent accountants.

Exhibits

The following exhibits are filed as a part of, or are incorporated by reference
into, this Report on Form 10-KSB/A:

Exhibit     Description

2.1         Asset Purchase Agreement between the Company and New York State
            Electric & Gas Corporation, dated as of October 29, 2001,
            incorporated by reference to Exhibit 2.1 of the 8-K filed on
            December 26, 2001.
2.2         Secured Promissory Note in favor of New York State Electric & Gas
            Corporation, dated as of December 11, 2001, incorporated by
            reference to Exhibit 2.2 of the 8-K filed on December 26, 2001.
2.3         Security Agreement between the Company and New York State Electric &
            Gas Corporation, dated as of December 11, 2001, incorporated by
            reference to Exhibit 2.3 of the 8-K filed on December 26, 2001.
2.4         Guaranty from the Company in favor of New York State Electric & Gas
            Corporation, dated as of December 11, 2001, incorporated by
            reference to Exhibit 2.4 of the 8-K filed on December 26, 2001.
3.1         Articles of Incorporation of Save On Energy, Inc., incorporated by
            reference to Exhibit 3.1 to the SB-2 filed on March 23, 2000.
3.2         Amendment to Articles of Incorporation of Save On Energy, Inc.,
            incorporated by reference to Exhibit 3.2 to the SB-2 filed on March
            23, 2000.
3.3         By-laws of Save On Energy, Inc., incorporated by reference to
            Exhibit 3.3 to the SB-2 filed on March 23, 2000.
4.1         Certificate of Designation of Series A Preferred Stock filed with
            the Secretary of State on February 19th, 2002 [incorporated by
            reference to Exhibit 4.1 to the 10-KSB filed on May 30, 2002.*
4.2         Certificate of Designation of Series B Preferred Stock filed with
            the Secretary of State on May 7th, 2002 [incorporated by reference
            to Exhibit 4.2 to the 10-KSB filed on May 30, 2002.*
4.3         Subscription Agreement, dated March 31, 2005, by and among Hybrid
            Fuel Systems, Inc. and the investors named on the signature pages
            thereto, incorporated by reference to Exhibit 4.1 to the 8-K filed
            on April 5, 2005.
4.4         Form of Convertible Note of Hybrid Fuel Systems, Inc. issued to the
            investors named on the signature pages thereto incorporated by
            reference to Exhibit 4.2 to the 8-K filed on April 5, 2005.
4.5         Form of Class A Common Stock Purchase Warrant of Hybrid Fuel
            Systems, Inc. issued to the investors named on the signature pages
            thereto incorporated by reference to Exhibit 4.3 to the 8-K filed on
            April 5, 2005.
4.6         Form of Security Agreement by and between Hybrid Fuel Systems, Inc.
            and Barbara Mittman as collateral agent incorporated by reference to
            Exhibit 4.4 to the 8-K filed on April 5, 2005.
4.7         Form of Collateral Agent Agreement among Barbara R. Mittman, as
            collateral agent, and the Lenders as defined therein incorporated by
            reference to Exhibit 4.5 to the 8-K filed on April 5, 2005.
5.1         Opinion of Sichenzia Ross Friedman Ference LLP*
10.1        License Agreement by and between the Davis Family Trust and
            Electronic Fuel Control, Inc. dated May 13, 1996, incorporated by
            reference to Exhibit 10.1 to the SB-2 filed on March 23, 2000.
10.2        Amendment to License Agreement by and between the Davis Family Trust
            and Electronic Fuel Control, Inc, dated June 18, 1998, incorporated
            by reference to Exhibit 10.2 to the SB-2 filed on March 23, 2000.
10.3        Amendment to License Agreement by and between the Davis Family Trust
            and Electronic Fuel Control, Inc. dated January 3, 2000,
            incorporated by reference to Exhibit 10.3 to the SB-2 filed on March
            23, 2000.
10.4        Consulting Agreement between Save on Energy, Inc. and MBO, Inc.
            dated November 23, 1999, Trust and Electronic Fuel Control, Inc,
            incorporated by reference to Exhibit 10.4 to the SB-2 filed on March
            23, 2000.
10.5        Exclusive Supply Agreement between Ambac International Corporation
            and Electronic Fuel Control, Inc. dated April 29, 1996, incorporated
            by reference to Exhibit 10.5 to the SB-2 filed on March 23, 2000.
10.6        Agreement re: International Fuel Systems, Inc. and Davenport, dated
            January 7, 2000, incorporated by reference to Exhibit 10.6 to the
            SB-2 filed on March 23, 2000.
10.7        Employment Agreement with Robert Stiles, dated July 17, 2001,
            incorporated by reference to Exhibit 10.1 of the 10-QSB filed on
            November 19, 2001.
10.8        2001 Stock Option Plan - Incorporated by reference to the 2001
            Annual Proxy Statement filed October 1, 2001.
10.9        Stock Purchase Agreement between the Company and SWI Holdings,
            Limited, dated as of December 10, 2001 (Composite Version),
            incorporated by reference to Exhibit 10.1 of the 8-K filed on
            December 26, 2001.
10.10       Security Agreement between the Company and SWI Holdings, Limited,
            dated as of December 10, 2001, incorporated by reference to Exhibit
            10.2 of the 8-K filed on December 26, 2001.

<PAGE>

10.11       Convertible Secured Promissory Note issued to SWI Holdings, Limited,
            dated April 23, 2002 incorporated by reference to Exhibit 10.11 to
            the 10-KSB filed on May 30, 2002.*
10.12       Security Agreement between the Company and SWI Holdings, Limited,
            dated as of April 23, 2002 incorporated by reference to Exhibit
            10.10 to the 10-KSB filed on May 30, 2002.*
10.13       Agreement re: White Knight SST, Inc. and Hybrid Fuel Systems, Inc.
            (formerly Save On Energy, Inc.) dated December 22, 2003 incorporated
            by reference to Exhibit 10.13 to the 10-KSB filed on August 16,
            2004.
31.a        Chief Financial Officer Section 302 Certification
31.b        Chief Executive Officer Section 302 Certification
32.a        Chief Financial Officer Certification
32.b        Chief Executive Officer Certification

Item 14 - Principal Accountant Fees and Services

Audit Fees: The aggregate fees billed by BBK for professional services rendered
for the audits of the Company's annual financial statements for the years ended
December 31, 2004 and 2003 were approximately $65,000.

Audit Related Fees. The Company did not engage BBK to provide professional
services to the Company regarding audit related matters during the years ended
December 31, 2004 and 2003.

Tax Fees. The Company did not engaged BBK for professional services regarding
tax advice or return preparation.

All Other Fees. There were no fees billed by BBK for services rendered to the
Company, other than the services covered above for the years ended December 31,
2004 and 2003.

<PAGE>

                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned; thereunto duly authorized, on this 27th day of
September, 2005.

                            Hybrid Fuel Systems, Inc.

                        By: /s/ Mark Clancy
                            Mark Clancy
                            Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities indicated on September 27, 2005.

/s/ John Stanton        Chairman of the Board of Directors
John Stanton

/s/ Mark Clancy         Chief Executive Officer (Principal Executive Officer)
Mark Clancy             and Chief Financial Officer (Principal Financial
                        Officer) and Director