For the Quarterly Period Ended March 31, 2001


For the Transition Period From _______ to _______

Commission File Number 0-29351

(Exact name of registrant as specified in its charter)

(State or other jurisdiction of incorporation or organization)

88 0384399
(I.R.S. Employer Identification No.)

PO Box 41118 RPOS Winfield, B.C., V1V 1Z7
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 250-868-0600

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

The number of shares outstanding of the registrant's common stock as of November 5, 2001 was 20,853,600.

The number of shares issued of the registrant's common stock as of November 5, 2001 was 21,286,353.

Transitional Small Business Disclosure Format (Check one): Yes [] No [X]



For the quarter ended March 31, 2001


Part I - Financial Information                                          Page

     Item 1.  Financial Statements.....................................F3-F10

          Balance sheet as of March 31, 2001...........................F-3

          Statements of operations for the quarters and
          the nine months ended March 31, 2001 and 2000................F-4

          Statements of cash flows for the nine months
          ended March 31, 2001 and 2000................................F-5

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

     Item 2. Management's Discussion and Analysis or
             Plan of Operation.........................................11

Part II - Other Information............................................15

     Item 6. Exhibits and Reports on Form 8-K..........................15


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

                                               March 31,   June 30,
                                                 2001        2000
                                                  $            $
                                              (unaudited)  (audited)

Current Assets

Cash                                                  15          485
Total Assets                                          15          485

Current Liabilities

Accounts payable                                   9,872        3,111
Accrued liabilities (Note 6(d))                   14,000           -
Advances payable (Note 5)                        119,356       42,013
Note payable (Note 5)                             33,638           -
Shareholder loan payable (Note 6(a))             195,751      163,748
Amounts owing to a Director (Note 6(b))          130,326       74,432
Total Current Liabilities                        502,943      283,304
Temporary Equity (Note 7(d))                     223,000      223,000
Stockholders' Deficit

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

Additional Paid-in Capital                       162,474      162,474

Donated Capital - Imputed Interest
(Notes 5 and 6)                                   98,817       56,735

Deficit Accumulated During the
Development Stage                             (1,006,743)    (744,552)
Total Stockholders' Deficit                     (725,928)    (505,819)
Total Liabilities and Stockholders' Deficit           15          485

Nature of Operations and Continuance of Business (Note 1)

Contingencies (Note 8)

(See Accompanying Notes to the Consolidated Financial Statements)


Hybrid Fuels, Inc.
(formerly Polo Equities, Inc.)
(A Development Stage Company)

Consolidated Statements of Operations

                            Accumulated from   Three months    Nine Months
                            February 26, 1960        Ended          Ended
                            (Date of Inception)    March 31,       March 31,
                            to March 31, 2001   2001     2000   2001     2000
                                $              $          $      $        $

Revenue - - - - -
General and Administrative Expenses

Advances to Blue Mountain Packers Ltd.

written-off (Note 4)        84,951          27,999       -    84,951     -
Deposit on plant written-off
(Note 3)                   170,561             -         -       -       -
Disputed compensation
(Note 8(b))                243,463             -         -       -       -
Executive compensation
(Note 6(b))                126,000          18,000   18,000   54,000   54,000
Filing and regulatory fees  14,246             141       -     3,808    1,915
General and administration  57,345             298      765    1,369    1,719
Imputed interest
(Notes 5 and 6)             98,817           16,307   8,192   42,082   21,436
Interest                     1,456              673      -     1,456      -
Investor relations          16,698             -      6,188    4,092    9,669
Professional fees          133,174            7,725     127   64,225   13,381
Rent and telephone          40,304            1,798   1,913    5,080    4,621
Research and development     8,000             -         -       -        -
Travel and promotion        11,728              155      95    1,128      285
                          1,006,743          73,096  35,280  262,191  107,026
Net Loss                 (1,006,743)        (73,096)(35,280)(262,191)(107,026)
Net Loss Per Share                             (.01)    (.01)  (.01)   (.01)
Weighted Average Shares
Outstanding                        19,457,000 19,100,000 19,457,000 15,609,000

(See Accompanying Notes to the Consolidated Financial Statements)


Hybrid Fuels, Inc.
(formerly Polo Equities, Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows

                                                          Nine Months
                                                            March 31,
                                                        2001         2000
                                                          $            $
Cash Flows To Operating Activities

Net loss                                             (262,191)  (107,026)

Non-cash items
Imputed interest                                       42,082     21,436
Advances written-off                                   84,952       -
Adjustment to reconcile net loss to cash
Accounts payable and accrued liabilities               20,761       -
Net Cash Used In Operating Activities                (114,396)   (85,590)
Cash Flows To Investing Activities
Advances to Blue Mountain Packers Ltd.                (84,952)      -
Net Cash Used By Investing Activities                 (84,952)      -
Cash Flows From Financing Activities

Advances payable                                       77,343     27,967
Amounts owing to a Director                            55,894     55,823
Shareholder loans payable                              32,003      1,800
Proceeds from note payable                             33,638       -
Net Cash Provided By Financing Activities             198,878     85,590
Net Decrease in Cash                                     (470)      -

Cash - Beginning of Period                                485       -
Cash - End of Period                                       15       -
Non-Cash Financing Activities                             -         -
Supplemental Disclosures

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

(See Accompanying Notes to the Consolidated Financial Statements)


Notes to the Consolidated Financial Statements

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

In May 1998, the Company caused a Nevada corporation to be formed under the name Polo Equities, Inc., (Polo) (a Nevada corporation), with authorized capital of 50,000,000 common shares of $.001 par value. The two companies then merged pursuant to Articles of Merger adopted May 28, 1998 and filed with the State of Nevada on June 10, 1998, which changed its domicile to Nevada.

On May 28, 1998, the Company acquired, by issuing 12,000,000 shares, Hybrid Fuels, USA, Inc. and 330420 B.C. Ltd., which changed its name to Hybrid Fuels (Canada) Inc. This acquisition was accounted for as a reverse merger whereby the shareholder of Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. gained control of Polo Equities Inc. which changed its name to Hybrid Fuels, Inc. As part of the acquisition, three shareholders representing 12,000,000 previously issued shares returned their shares for cancellation. For accounting purposes the acquisition was treated as a business purchase by Hybrid Fuels, Inc. of Hybrid Fuels, USA, Inc. and Hybrid Fuels (Canada) Inc. No amount was allocated to the intellectual asset as it was acquired from a related party and the transfer had no cost basis associated with it. There was no public market for the shares of Polo Equities, Inc. at the time of the reverse merger. The Company operates through these two wholly-owned subsidiaries.

On May 29, 1998 the Company changed its name to Hybrid Fuels, Inc., herein "the Company". On June 10, 1998 the Company began trading on the OTC Bulletin Board under the symbol "HRID" and in December, 1999 was moved to the "Pink Sheets". From May 1998 to June 1999 the Company operated out of an office in California which was set up for investor relations and to raise additional capital. This office was shut down in June and the new President and directors are operating out of Kelowna, BC, Canada and Calgary, Alberta, Canada.

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

The Company is in the early development stage. In a development stage company, management devotes most of its activities in investigating business opportunities and further advancing its technologies. Because of a deficiency in working capital and other current commitments and significant operating losses, there is substantial doubt about the ability of the Company to continue in existence unless additional working capital is obtained.

Pursuant to a letter of intent and subject to a definitive agreement being consummated, the Company plans to sell a license to use its proprietary technology in a specified territory. The agreement contemplates a 50% up


1. Nature of Operations and Continuance of Business (con't)

front non-refundable fee which will be recognized as revenue when received and the balance will be paid over time. The Company will also need to rely on the forbearance of some creditors and related parties have agreed to continue to fund working capital as needed. The Company has entered into discussions with third parties to directly finance a facility in which the Company will then commence with its business plan.

2. Summary of Significant Accounting Policies

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

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

(c) Use of Estimates The preparation of financial statement in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

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

(e) Interim Financial Statements These interim unaudited financial statements have been prepared on the same basis as the annual financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period.

3. Deposit on Plant The Company deposited Cnd$250,000 ($170,561), with Mega Holdings, Inc., pursuant to an option agreement to purchase a beef processing plant owned by Mega Holdings, Ltd. The Company agreed to purchase the beef processing plant facility including land, buildings and equipment for Cnd$3,000,000 which was below appraised value. The purchase agreement required an additional payment of Cnd$150,000 on June 24, 2000, the parties agreed to extend the deadline for the payment until March 15, 2001. This payment was not made and the deposit was forfeited and the option agreement terminated. Upon anticipated completion of the purchase, this beef processing plant was to be operated by Blue Mountain Packers, Ltd. (a related company). The Company intended to acquire the issued and outstanding common shares of Blue Mountain Packers, Ltd. for a nominal amount and operate it as a wholly-owned subsidiary. Blue Mountain Packers, Ltd. had recently received certification by the Canadian Food Inspection Agency of the Government of Canada, Department of Agriculture for the


3. Deposit on Plant (con't)

processing of Canadian beef. Blue Mountain Packers is a related party due to having one common director. The Company advanced $84,951 to Blue Mountain Packers for plant refurbishing. These advances bear interest at 8%. Due to the termination of the option agreement these advances are considered uncollectible and have been charged to operations.

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

5. Advances Payable A non-related company coordinated investor relations services for the Company and paid expenses of $69,248 on behalf of the Company and loaned the Company Cnd$78,000 ($50,220) for a total amount owing of $119,468. This debt was settled on June 29, 2001 by the issuance of 1,000,000 restricted common shares of the Company. These advances were non-interest bearing and unsecured until the settlement date. Imputed interest of $8,856 (2000 - $1,654) was charged to operations and treated as donated capital.

6. Related Party Transactions/Balances

(a) Cash loans of $499,059 were advanced to the Company by the major shareholder. A total of $365,590 was repaid with cash. The controlling shareholder also paid office, rent and professional fees totalling $62,786 on behalf of the Company. The balance of $196,255 is owing without interest or specific repayment terms. Imputed interest of $21,691 (2000 - $15,600) was charged to operations and treated as donated capital.

(b) The President who is also a Director of the Company, has paid office and related expenses from personal funds in the amount of $10,626 of which $6,300 has been reimbursed with cash. Effective July 1, 1999 the President is entitled to a deferred salary of US$6,000 per month and was owed a total of $126,000 at March 31, 2001. These amounts are unsecured, non-interest bearing and due on demand. Imputed interest of $11,535 (2000 - $4,182) was charged to operations and treated as donated capital.

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

7. Stockholders' Equity

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


7. Stockholders' Equity (con't)

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

(c) On May 17, 2000 the Company issued 1,500,000 shares pursuant to a subscription agreement for $150,000 dated February 17, 2000. On February 17 and 18, 2000, the Company accepted subscription agreements and notes whereby the Company would receive $300,000 for 3,000,000 shares. The 3,000,000 shares were issued and were then held in escrow. These shares were subsequently released from escrow to the investors to facilitate financing. The notes were to bear interest at 8% and were to be paid within 60 days or at the discretion of the President. In June 2000 the President extended the time for repayment to one week of the Company being re-listed on the Over-The-Counter Bulletin Board or other suitable exchange. When it became apparent there were going to be long delays the notes were demanded to be repaid by February 21, 2001. The notes were not paid as demanded, and the 3,000,000 shares have since been sold by the investors to innocent third parties. The investors did not and have not paid the Company for these shares, despite demands. Since these shares have been resold to innocent third parties they must be considered outstanding. The Company intends to sue the investors for the balance due on the notes, however the Company believes the balance is uncollectible.

(d) Between October 1998 and June 1999, the previous administration sold a total of 361,120 common shares of the Company to 34 subscribers on the basis of an Offering Memorandum that contained a significant number of inaccuracies. A total of $223,000 was raised pursuant to this Offering. The current administration has concerns regarding possible misstatements, omissions and misleading statements. On the advice of legal counsel, the Company offered these 34 subscribers the option of receiving restricted stock as the Company did not and does not have the funds to repay these subscribers. Those who opted to receive restricted stock were also given an undertaking that they would receive a rescission offer when the Company was in a position to repay their money plus appropriate interest, in return for a return of the restricted stock, or they could elect to retain the stock. To date, 23 subscribers, have, pursuant to this offer received 237,753 shares, representing $158,000. These shares are issued but not considered outstanding. The remaining 11 subscribers, who paid $65,000 for 123,367 shares, have not responded to the offer. These subscriptions are recorded as temporary equity until rescission rights have been revoked.


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

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

(b) Unauthorized and/or unsupported payments in the amount of $243,463 were made from Company funds by past officers of the Company during the period May, 1998 to June, 1999. The Company has requested a full accounting from the past president. All amounts that were unauthorized by the board of directors or amounts that are not properly documented with invoices and receipts have been accounted for as disputed executive compensation. Actions of the previous administration have been reported to the Securities and Exchange Commission. At such time as Company resources permit, the Company will seek legal advice to determine whether or not it is possible to recover all such disputed and unauthorized amounts from the previous administration.

(c) See Note 7(d) for temporary equity and related rescission rights for subscribers of 361,120 shares of the Company.

9. Subsequent Events

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

(b) See Note 5 for 1,000,000 restricted common shares issued to a non-related company to settle debt of $119,468. (c) A total of 100,000 restricted common shares, valued at $5,000, were issued to the plant manager of Blue Mountain Packers Ltd. for plant refurbishing work to March 15, 2001.


Item 2. Management's Discussion and Analysis or Plan of Operation

This Form 10-QSB contains forward-looking statements. The words "anticipate", "believe", "expect", "plan", "intend", "estimate", "project", "could", "may", "foresee", and similar expressions identify forward-looking statements that involve risks and uncertainties. You should not place undue reliance on forward- looking statements in this Form 10-QSB because of their inherent uncertainty. The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto and other financial information included in this Form 10-QSB and our Form 10-KSB for the year ended June 30, 2000. Actual results could differ materially from the results discussed in the forward-looking statements.

The Company is a developmental stage company and has had no income since the acquisition of the hybrid fuels technology in June 1998, nor is it likely to have any significant cash flow until after the end of its current fiscal period ending June 30, 2001. If the Company is unable to obtain funds from external sources, it is probable that it will be unable to continue to operate in the long term.

Although the Company is in the developmental stages, the process behind Hybrid's business has been researched and developed over more than a decade. A plant that integrated the process described below was constructed and operated near Dalem, Alberta during 1994 and 1995. That operation is the source of the actual operating results that are referred to later in this report.

After that plant was closed in 1995, further research, development and construction helped us discover ways to improve the buildings and equipment and refine the process, which is now ready for market.

The Company's business plan is to sell and build farm scale plants that produce ethanol and are integrated with a cattle finishing operation. Grain, corn or other feedstock is fermented and then distilled to make the ethanol. Left over from the ethanol production process are a high protein mash, called "distillers grain" and water, called "stillage water". These are used as feed and water for beef animals because they contain nutrients. In addition, the fermentation process plus an enrichment process that is used free a higher percentage of the total food value from the feedstock and make it more "available" to the animals digestive system. The result is higher than average weight gains for the animals without the use of hormones. By using the distillers grain and stillage water on site the animals get the benefit of the nutrients in these byproducts and the plants save the energy it would otherwise require to dry and transport the distillers grain.

The manure and used bedding straw are cleaned up frequently, thus removing the media in which disease would otherwise grow. They are burned in a gasifier and the heat produced is used in the fermentation and distillation processes, with leftover heat being available to operate a greenhouse. The ethanol is mixed with a proprietary emulsifier and diesel. When this emulsion was tested at The British Columbia Institute of Technology, in an unaltered diesel engine, it reduced the particulate (black smoke) emissions by over 62% and the NOx emissions by over 22%, without any loss of power.

These plants are referred to as "micro energy food factories" or "MEFFs", because of the small amount of energy from outside sources that is necessary to operate them.


Item 2. Management's Discussion and Analysis or Plan of Operation (con't)

Hybrid plans to earn revenue from several streams:

1. profit on the sale of each MEFF;
2. the royalties and service fees that each operator will pay;
3. the purchase of the ethanol mixture from the operator at 80 % of wholesale value and the sale to distributors or end-users;
4. the marketing of the finished animals.

Royalties and service fees will be payable monthly in amounts yet to be determined. Incentives in the form of reduced royalties may be offered to the first 10 to 20 operators who make early commitments to purchase plants. Service fees to cover the cost of ongoing training, service, technical support, and quality control are expected to be in the $150 to $250 per month range.

Initially it is anticipated that most of the finished beef will be sold at auction until the Company develops specialty markets. In the test trials at the prototype plant, the purchaser of the first lot of beef agreed to pick up subsequent lots at the plant and pay a premium of $0.10 per pound for all of the beef that could be produced by this process. The Company believes that it will be able to generate premium prices for the beef because of its high quality and taste. The Company anticipates entering into an agreement with its operators which will pay the Company an incentive for obtaining premium prices for the sale of the beef. We anticipate this will be in the form of a percentage of the premium realized.

Possible sources of premium prices that the Company has investigated include markets in Europe and the Far East, high-end restaurants, cruise ships and specialty meat markets that sell organic and hormone free meat to concerned consumers.

Management has recognized that it would be advantageous to be able to control the processing, marketing and distribution of the finished beef. A number of possibilities have been considered with the most promising being Company operated or sponsored retail outlets, development of foreign markets and specialty markets. The first, and perhaps the most important, obstacle encountered was the lack of meat processing facilities that could and would process the beef to our specifications.

In the second quarter of 2000, Hybrid found a packing plant that was within a two-hour drive of our head office and was not operating. This plant seemed to be perfect for our needs because of its size and the fact that it was constructed to meet the specifications necessary in order to process beef for shipment to Europe and the Far East. The Company negotiated an agreement with the owners to take possession of the plant, get it operating and obtain an operating certificate from the Canadian Food Inspection Agency (CFIA). The agreement contemplated the Company operating the plant for several months before the balance of the purchase price was due to be paid. That operating period was necessary in order to satisfy the financial institutions who were to advance the money to pay the balance of the purchase price of our ability to generate cash flow from the operation.

Relying on written commitments of equity financing from investors, the Company made the deposit on the packing plant just prior to the end of last fiscal year. For financing reasons, a new company, Blue Mountain Packers LTD., was incorporated. This company was intended to be the operating company and it did the work to get the plant operating. It was further intended that Hybrid would acquire all of the shares of Blue Mountain Packers LTD., for a nominal amount and operate it as a wholly owned subsidiary. Hybrid borrowed money and advanced it to Blue Mountain to pay start-up costs.


Item 2. Management's Discussion and Analysis or Plan of Operation (con't)

By mid-October 2000 the plant was approved by CFIA and ready to operate. However, the investors failed to deliver the balance of money as promised. The result was that we were unable to commence operations and create the cash flow that would have enabled us to raise the money to purchase the plant.

During the quarter ended March 31st, 2001, the deadline for purchasing the meat packing plant expired. As the Company was unable to obtain the financing to close the purchase, the deposit was forfeited and the money which was loaned to Blue Mountain Packers Ltd., and spent on preparing the plant for operations is unlikely to be recovered. As such the deposit has been removed as an asset, and the amounts loaned to Blue Mountain Packers Ltd., have been classified as bad debts, in the financial statements. See Notes 3 & 4 to the financial statements.

The Company has discussed its failure to exercise the option with the owners of the packing plant. The owners have verbally agreed that they will sell the plant to the Company at any time that we are able to pay the purchase price for the plant, assuming that it has not already been sold. There is no agreement with the owners concerning whether or not the deposit would be subtracted from the purchase price.

The meat packing plant is unlikely to sell quickly because of its size and location. Any prospective purchaser will need to have a supply of animals and a market to make the plant profitable. At present that is a problem because meat prices have increased dramatically and finished animal supplies have been committed much earlier than normal as a result of "mad cow" and hoof and mouth disease. The Company is satisfied that it has a workable business plan to make the packing plant operate profitably by building the MEFFs in close proximity to the packing plant. To ensure that a supply of enough hormone free feeders for finishing are committed to keep the MEFFs and the packing plant running at full capacity, a premium would be paid to the cow/calf ranchers. On the marketing side, the Company believes it is possible to generate higher than industry average returns because the process produces high quality meat which the Company would market to high-end specialty restaurants, cruise ships and markets in Europe and the far east.

As a consequence, the Company and Blue Mountain Packers Ltd., continue to search for money to acquire the plant. No commitment will be made to purchase the plant until sufficient money is committed to pay the purchase price and cover operating expenses, until positive cash flow is achieved. Cash flow would begin within 30 to 60 days after operations begin and it would take about six to nine months to achieve positive cash flow.

At the beginning of the quarter, the Company was the holder and payee of two outstanding promissory notes from two investors for shares that had been issued pursuant to an Offering under Rule 504. At their request, the makers of the notes were granted several extensions of time to pay and the shares were delivered to the Investors to facilitate the raising of money. On February 6, 2001, the Company demanded payment of those notes by February 21, 2001. The notes were not paid as demanded, and the shares have not been returned. It is unlikely that the Company will be able to collect the balance that is due on the promissory notes and that legal proceedings will need to be commenced to recover the shares. At this time, the Company does not have the financial resources to retain attorneys to commence those legal proceedings. The money owing pursuant to the promissory notes is disclosed as a reduction of shareholders equity in the financial statements.

Until such time as the Company sells and constructs MEFFs and recognizes revenue, the Company will continue to experience a cash shortage. Because the Company is a developmental stage company, it is unlikely to be able to borrow money from banks and other traditional financial institutions. The lack of


Item 2. Management's Discussion and Analysis or Plan of Operation (con't)

long term, adequate financing continues to be of great concern to management. The Company will require additional capital in the near future in order for it to continue as a going concern in the long term. For the coming quarter, management anticipates spending most of its energies on raising money and complying with public reporting requirements.

To solve the cash shortage problem, the Company is involved in discussions to sell a license to use the technology in a specified territory. Although the parties have signed a letter of intent, no definitive agreement has been signed and no money has changed hands. The discussions contemplate payment of an up-front fee plus royalties for the use of the technology. In addition, the licensee would be required to purchase certain items of equipment from the Company on an ongoing basis. If the parties are able to reach an agreement as presently being discussed, the license fee would be sufficient to pay the Company's outstanding payables and operating costs for the next 12 months. The sale of such a license is expected to be a one time event.

If the Company is unable to realize income by selling a license to use the technology in a specified territory, the Company will need to raise money in some other way to continue operating for the next 12 months. To do so, it is likely that the Company will sell additional shares of its common stock to pay operating expenses for the next 12 months. The Company's general and administrative expenses for the next 12 months are expected to be less than $1500 per month, exclusive of executive compensation, which is deferred, and professional fees for legal and accounting services. It is anticipated that related parties will continue to pay these operating expenses and advance funds to pay legal and accounting fees, but no assurances can be given.

Management is convinced that an environmentally friendly project such as ours, which produces cleaner food, cleaner air and cleaner water is a sound basis for a successful business. For this and other reasons, we believe that building and operating the first MEFF is essential to create cash flow and to demonstrate to potential operators that the technology works as advertised.

The prospective operators want to see it in operation before they commit themselves and so do the people who will approve the financing for the construction of plants.

The Company has found a suitable location for its first MEFF, which will be located near Kelowna, B.C., Canada. The Company will own this first MEFF and use it as a demonstration and training facility. The Company is presently negotiating with a private source to obtain the necessary financing to construct this first MEFF and expects to have funding committed and construction started in late May or early June 2001. The lender will be given security on the plant in return for the loan.

We anticipate it will take approximately two months from the start of construction until the plant is operational and four to five months before it is generating positive cash flow. The financing that is being negotiated will be sufficient to cover all construction and operating expenses until positive cash flow is achieved. Once the first MEFF is operating we expect to receive approval for financing subsequent plants within two to three weeks. By that time, the Company expects it will have qualified and trained two or more operators.

The Company will lease parts of the technology to the operators on a permanent basis to protect the secrecy of the most vital pieces of the technology. The Company will earn a profit and recognize revenue on the sale of each plant. The Company will also receive a royalty, which is initially expected to be


Item 2. Management's Discussion and Analysis or Plan of Operation (con't)

$2500US per month which will begin when each MEFF begins operation. The profit on the sale of each plant will be sufficient to cover all of the operating expenses the Company will incur until revenues are received from royalties.

To date, the Company has received applications from more than fifty farmers who are interested in acquiring MEFFs. The Company is currently developing a screening process to select suitable candidates and assist them in obtaining financing, if necessary, for plant construction. The intention is to have at least four candidates approved for training by the time the demonstration MEFF is operating.

We continue to make progress towards the sale of a license to operate in a specified territory, as the prospective purchaser continues their "due diligence" and organizational activities. At this stage, it appears that it will take another several months to finalize a deal with a comprehensive written agreement and payment of the license fee.

Until such time as we have succeeded in obtaining financing, the Company will not proceed with construction and will keep operating costs to a minimum. Once money is available to pursue our program, operating costs will be kept to a minimum by using paid consultants as necessary on an ad hoc basis and no new employees will be hired until the Company has sufficient revenues.


Item 6. Exhibits and Reports on Form 8-K:

(a) Exhibits
    Exhibit No. 3.1* - Articles of Incorporation
                3.2* - Bylaws

4.1~ - Specimen Stock Certificate

*Incorporated by reference from the registrant's Form 10-SB filed with the Commission on February 4, 2000.

~ Incorporated by reference from the registrant's Form 10-KSB filed for the period ended June 30, 2000 and filed with the Commission on June 12, 2001.

(b) Reports on Form 8-K. None.


In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


/s/Clay Larson         November 5, 2001
By Clay Larson         Date
Its President