For the Quarterly Period Ended March 31, 2002


For the Transition Period From _______ to _______

Commission File Number 0-29351

(Exact name of registrant as specified in its charter)

     NEVADA                                                      88 0384399
(State or other jurisdiction of
incorporation or organization)              (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 [X] No[]

The number of shares outstanding of the registrant's common stock as of May 13, 2002 was 21,148,600.

The number of shares issued of the registrant's common stock as of May 13, 2002 was 21,386,353.

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



For the nine months ended March 31, 2002


Part I - Financial Information

      Item 1.  Financial Statements                                    Page

        Balance sheet as at June 30, 2001 and March 31, 2002............F-3

        Statements of operations for the three months and the
        nine months ended March 31, 2002 and 2001.......................F-4

        Statements of cash flows for the nine months ended
        March 31, 2002 and 2001.........................................F-5

        Notes to Financial Statements...................................F-6-F-10

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

Part II - Other Information.............................................19



Hybrid Fuels, Inc.,
(A Development Stage Company)

Consolidated Balance Sheets

                                             March 31,     June 30,
                                              2002          2001
                                           (unaudited)     (audited)
                                                $             $

Current Assets

Cash                                           4,114            2
Total Assets                                   4,114            2

Current Liabilities

Accounts payable                              21,964       14,807
Accrued liabilities                              900       15,000
Note payable (Note 4)                         33,638       33,638
Shareholder loan payable (Note 6(a))         199,635      196,255
Amounts owing to a Director (Note 6(b))      205,521      152,111
Total Current Liabilities                    461,658      411,811
Temporary Equity (Note 7(d))                 223,000      223,000
Stockholders' (Deficit)

Common Stock (Note 7): $0.001 par value; 50,000,000 shares authorized 21,122,300 and 20,623,600 shares are issued and outstanding respectively 21,122 20,264

Additional Paid-in Capital 312,126 285,842

Donated Capital - Imputed Interest (Notes 5 and 6) 159,182 115,937 Deficit Accumulated During the Development Stage

(1,172,974) (1,057,212)

Total Stockholders' Deficit                 (680,544)    (634,809)
Total Liabilities and Stockholders' Equity     4,114            2

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

(See Accompanying Notes to the Consolidated Financial Statements)


Hybrid Fuels, Inc.
(A Development Stage Company
Consolidated Statements of Operations

                         February 26,
                         1960              Three months ended  Nine months ended
                         (Date of Inception)     March 31,          March 31,
                                                 Restated           Restated
                          to March 31,       (See Note 9)  (See Note 9)
                            2002           2002         2001    2002       2001
                             $              $            $       $          $
Revenue                      -              -            -       -          -

Consulting fees               840          6,313         -      6,313       -
Advances written-off
(Note 3)                   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))               198,000         18,000       18,000  54,000     54,000
Filing and regulatory fees 17,091                         141   1,561      3,808
General and administration 59,484            422          298     535      1,369
Interest                    4,173           -             673   2,049      1,456
Imputed interest
(Notes 5 and 6)           159,182         28,255       16,307  43,245     42,082
Investor relations         16,698           -            -       -         4,092
Professional fees         148,683          1,513        7,725   7,315     64,225
Rent and telephone         42,431            160        1,798     510      5,080
Research and development    8,000            -            -       -          -
Travel and promotion       13,944                         155     234      1,128

1,172,974 49,190 73,096 115,762 262,191

Net Loss (1,172,974) (49,190) (73,096)(115,762)(262,191)
Net Loss Per Share (.01) (.01) (.01) (.01)
Weighted Average Shares Outstanding
21,122,300 19,457,000 20,873,000 19,457,000

(See Accompanying Notes to the Consolidated Financial Statements)


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

                                                         Nine months ended
                                                         March 31,
                                                         Restated (See Note 9)
                                                      2002               2001
                                                        $                  $
Cash Flows To Operating Activities

Net loss                                            (115,762)         (262,191)

Non-cash items
Imputed interest                                      43,245            42,082
Advances written off                                                    84,952
Adjustment to reconcile net loss to cash
Accounts payable and accrued liabilities               8,057            20,761
Net Cash Used In Operating Activities                (64,460)         (114,396)
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
Common Stock issued                                   11,782
Advances payable                                        -               77,343
Amounts owing to a Director                           53,410            55,894
Shareholder loans payable                              3,380            32,003
Proceeds fro note payable                               -               33,638
Net Cash Provided By Financing Activities             68,572           198,878
Net Increase (Decrease) in Cash                        4,114              (470)
Cash - Beginning of Period                                 2               455
Cash - End of Period                                   4,114                15
Non-Cash Financing Activities
Value of common stock issued for settlement of debt    10,000
Value of common stock issued for services               5,000             -
Supplemental Disclosures

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

(See Accompanying Notes to the Consolidated Financial Statements)


Notes to 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 after the Calgary, Alberta, Canada office was shut down on May 3, 2001.

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

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

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


Notes to Financial Statements (con't)

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 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.


Notes to Financial Statements (con't)

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 $4,173 has been accrued at March 31, 2002 and is included in accounts payable.

5. Advances Payable

A non-related company coordinated investor relations services for the Company and paid expenses of $69,248 on behalf of the Company and loaned the Company Cnd$78,000 ($50,220) for a total amount owing of $119,468. This debt was settled in June 2001 by the issuance of 1,000,000 restricted common shares of the Company. These advances were non-interest bearing and unsecured until the settlement date. Imputed interest of $Nil (2001 - $13,326) 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 totaling $64,276 on behalf of the Company. The balance of $197,745 is currently owing without interest or specific repayment terms. Imputed interest of $22,245 (2001 - $29,041) was charged to operations and treated as donated capital. During the three months ended March 31, 2002, $1,890 was advanced by another shareholder. This loan does not bear interest and has no fixed terms of repayment.

(b) The President who is also a Director of the Company, has paid office and related expenses from personal funds in the amount of 16,214 of which $8,693 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 $198,000 at March 31, 2002. These amounts are unsecured, non-interest bearing and due on demand. Imputed interest of $21,000 (2001 - $16,835) was charged to operations and treated as donated capital.

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

(d) Pursuant to a directors' consent, dated June 11, 2001, a total of 200,000 shares was issued on September 19, 2001 to a director/officer of the Company to settle a $10,000 debt. 100,000 shares were issued for services on October 18, 2001.

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 (continued)

(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, totaling 550,000 shares, have been endorsed and returned to the Company for cancellation. The contingencies regarding the cancelled shares relate to anyone who may have subsequent holder rights, and possibly the individuals who were issued those shares who may claim that they were issued for due consideration. The Company has determined that there is no amount to be accrued for future liabilities associated with claims by subsequent shareholders. To date when these shares 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. When funds become available the Company intends to sue the investors for the balance due on the notes, however the Company believes the balance is uncollectible.

(d) Between October 1998 and June 1999, the previous administration sold a total of 351,053 common shares of the Company to 34 subscribers on the basis of an Offering Memorandum that contained a significant number of inaccuracies. A total of $223,000 was raised pursuant to this Offering. The current administration has concerns regarding possible misstatements, omissions and misleading statements. On the advice of legal counsel, the Company offered these 34 subscribers the option of receiving restricted stock as the Company did not and does not have the funds to repay these subscribers. Those who opted to receive restricted stock were also given an undertaking that they would receive a rescission offer when the Company was in a position to repay their money plus appropriate interest, in return for a return of the restricted stock, or they could elect to retain the stock. To date, 23 subscribers, have, pursuant to this offer received 237,753 shares, representing $158,000. These shares are issued but not considered outstanding. The remaining 11 subscribers, who paid $65,000 for 113,300 shares, have not responded to the offer. These subscriptions are recorded as temporary equity until rescission rights have been revoked.


7. Stockholders' Equity (continued)

(e) See Note 5 for 1,000,000 restricted common shares issued to a non-related company to settle debt of $119,468.
(f) A total of 100,000 restricted common shares, valued at $5,000, were issued to the plant manager of Blue Mountain Packers Ltd. for plant refurbishing work to March 15, 2001.
(g) On September 19, 2001, 200,000 shares were issued to settle debt referred to in Note 6(d).
(h) On October 18, 2001, 130,000 shares where issued for cash of $6,300.
(i) On October 18, 2001, 100,000 shares where issued for services referred to in Note 6(d).
(j) On March 27, 2002, 68,700 shares were issued for cash of $5,481.

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. Restatements The Company has restated its financial statements for the period ended March 31, 2001. The nature of the restatements and the effect on net income and earnings per share are as follows:

                                          Three Months Ended   Nine Months Ended
                                               March 31,           March 31,
                                                   2001                2001
                                                   $                   $
Net loss for the year as previously reported   (257,529)           (332,306)
   Corrections effecting net income:
(a)    Inclusion of imputed interest at a rate of 15% per annum on non-interest
bearing loans                                   (16,307)             (42,082)
(b)    Deposit on plant written-off in a prior period
                                                 170,561              170,561
(c)    Advances to Blue Mountain Packers written off
                                                  32,608              (24,344)
(d)    Recognition of a liability owing to a non-related company for
       expenses paid on behalf of the Company     (2,429)             (34,020)
   Net loss for the year as restated             (73,096)             (262,191)
   Loss per share as previously reported            (.02)                 (.01)
   Loss per share on restatements                   (.01)                 (.01)
   Loss per share as restated                       (.01)                 (.02)

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


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. Actual results could differ materially from the results discussed in the forward-looking statements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this report to conform such statements to actual results or to changes in our expectations.

The following discussion and analysis should be read in conjunction with the various disclosures made by us in this Report and in our other reports filed with the SEC, including our Annual Report on Securities and Exchange Commission ("SEC") Form 10-KSB for the year ended June 30, 2001, as amended.

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


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

1. Our cash reserves may not be adequate to cover our costs of operations. To date, we have covered our operating losses by loans from shareholders or privately placing securities. We expect to fund our general operations and marketing activities for 2002 with our current cash, which was obtained from the sale of securities. However, our cost estimates do not include provisions for any contingency, unexpected expenses or increases in costs that may arise.

2. We may not be able to raise the capital we need. It is likely that we will need to raise additional capital at some point in the future. If additional funds are raised through the issuance of equity, our shareholders' ownership will be diluted. There can be no assurance that additional financing will be available on terms favorable to us or at all. If funds are not available or are not available on terms acceptable to us, we may not be able to continue our business.


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

4. We have a history of operating losses and an accumulated deficit, as of March 31, 2002, of $1,172,974.

5. Our ability to begin operations and to generate revenues and profits is subject to the risks and uncertainties encountered by development stage companies. Our future revenues and profitability are unpredictable. We currently have no operating activities that will produce revenue and have not been able to raise the capital necessary to build our first facility and commence operating activities and as such, we do not know when we may be able to begin operations. Furthermore, we cannot provide assurance that we will be successful in raising the money necessary to begin or expand operations.

6. The production of ethanol is being strongly encouraged by governments and private parties as a way to reduce water and air pollution which could lead to rapidly changing technology. If we are unable to adapt to rapidly changing technologies, our intended business could be adversely affected.

7. We have no operating history which makes an evaluation of our future prospects very difficult. There can be no assurance that we can raise the money to build the first plant and if we succeed in building the first operating plant, there can be no assurances that we will be able to develop operations that are profitable or will operate as intended. If the market for our plants fails to develop, or develops more slowly than anticipated, we may not be able to meet our expenses and may not achieve profitable results.

8. Our common stock is not widely traded, and, as a result, the prices quoted for our stock may not reflect its fair market value. Because of the low volume of trading in our common stock, our stockholders may find it difficult to sell their shares.

9. Our Common Stock is traded on the "Pink Sheets" and there is no assurance that it will ever be listed on any major stock exchange. While our stock is on the "Pink Sheets", it has an effect on the perception of us amongst potential investors which makes it very difficult to raise capital. It can also impact the dilution associated with any financing.

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

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


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

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

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


The loss for the present quarter is $49,190 compared to $73,096 for the comparable quarter last year. The loss for the same quarter last year was higher largely due to advances of $27,999 written off, which is not likely to reoccur. The higher imputed interest this quarter of $28,255 compared to $16,307 for the same period last year results from increased amounts owing to the President as a result of the increase in deferred salary over the same quarter last year. The loss for this quarter includes amounts of $18,000, which is deferred salary for the President and $28,255 imputed interest, which do not represent a cash outlay. These non-cash items total $46,255. Working capital was obtained from cash received from the sale of shares.

At the end of the quarter, the Company had cash reserves of $4114, which was the balance of cash received from the sale of 68,700 shares for $5,481. The shares were sold when the shares were trading at 8 cents. This cash should be sufficient to pay all operating costs for the next three to six months. In the absence of operating activities, the Company's general and administrative expenses for the next 12 months that require a cash outlay are expected to be less than $1500 per month, exclusive of executive compensation, which is deferred.

At the beginning of the quarter, the Company had an agreement in principle for the sale of a license to use the technology within the Province of Quebec, Canada. At that time, the parties were negotiating, but no definitive agreement had been signed and no money had changed hands. By the end of the quarter, negotiations had failed to make any progress and management concluded that it was unlikely we would be able to conclude a satisfactory agreement with the prospective licensee and we therefore broke off negotiations on March 28th, 2002.



We are a development stage company that has not yet proved the feasibility of its planned principal operations. In their opinion on our June 30, 2001 financial statements, our independent auditors raised a substantial doubt about our ability to continue as a going concern because we have not generated any revenues and have conducted operations at a loss since inception. To date we do not have any operations that generate revenue and have been unable to raise money to begin operations. Until such time as we prove the feasibility of our planned principal operations, we are likely to continue to experience a cash shortage. Because we are a developmental stage company, we are unlikely to be able to borrow money from banks and other traditional financial institutions. We


do not anticipate making any commitments to borrow money within the next 12 months, unless we can secure construction loans to build our first plant. The lack of long term, adequate financing continues to be of great concern to management.

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

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

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

Strategy to Raise Capital

Although we do not have any cash reserves, related parties have indicated a willingness for the time being to continue to pay operating expenses and advance funds to pay legal and accounting fees. The Company therefore believes that it can continue as a going concern in the near term. These related parties are not obligated to pay Company operating costs, and therefore, no assurances can be given that they will continue to do so. If these related parties cease to advance money to pay these operating costs, the Company may have to cease operations and liquidate.

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

Because of our low stock price, and the fact that we are on the "pink sheets", we do not intend to sell additional shares of our common stock in the immediate future unless we have no other source of money to pay expenses. Once our stock is trading on the OTC Bulletin Board, we plan to contact prospective investors


to raise the approximately $1 million in capital discussed above. This planned offering and sale of our common stock will not be registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement. This disclosure is not an offer of securities or a solicitation of an offer to buy securities. Placements will be made only to investors with preexisting contacts with Hybrid Fuels and its authorized representatives. If we encounter unforeseen delays or difficulties in getting our stock to trade on the OTC Bulletin Board and we must continue to trade on the pink sheets, we may reevaluate the price at which we will sell our equity securities to raise capital.

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

Plan of Operation Assuming Adequate Capital Raised

The discussion in this section assumes that we will succeed in raising the approximately $1 million that will be used to place our first plant in service. The major goal of placing the first plant in service is to demonstrate the economic feasibility of the system. Once this first plant is operating, we expect to use it as a demonstration and training facility and to earn revenue from its operation. Assuming that it will be necessary to pay market price for grain, bedding and other supplies and that we will receive no more than market price for the finished animals, our projections indicate that the plant should generate sufficient revenue to pay all of our operating costs, plus a small surplus which may be used toward development of operating activities. The financial institutions that have expressed interest in financing subsequent plants want to see this first plant generate sufficient cash flow to pay all operating costs and debt service. We anticipate that the plant will show sufficient cash flow to make it possible for us to get approval for financing subsequent plants.

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

An operating facility includes the barn, the ethanol making equipment, the bio-furnace or gasifier, "Greener Pastures" grass growing system, and the right to use the proprietary information and technology, as more fully described under "Proposed Facilities" on page 6 above. The cost of building this plant is


anticipated to be approximately $350,000. Approximately $220,000 of this cost is for foundations and flooring, buildings, the gasifier, the ethanol making equipment, tanks and machinery. Soft costs, for such items as permits, engineering and other professional fees, survey and layout, site preparation, delivery of buildings and materials, rentals, small tools and miscellaneous, are estimated at $60,000. We estimate we will spend approximately $70,000 for construction labor and supervision.

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

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

The cattle will begin the finishing operation in quieting pens where they spend approximately two weeks being transitioned from their prior diet to the wet distillers grains diet. After completing the diet transition, the cattle are moved into the barn, where, on average, they will spend approximately 100 days being fed the finishing diet. At the end of the finishing operation, our plans for this demonstration plant call for the cattle to be sold at auction. As one group of cattle is sold, another takes its place, as both the finishing operation and our staggered acquisition scheme are scheduled to take approximately three to four months, depending on how long the finishing takes. As a result of using this staggered acquisition scheme, we will not run the plant at full capacity until approximately four months have passed from the plant becoming operational. As a result the cattle we begin selling during the fourth month, which will generate our initial revenues, will bear a disproportionate amount of fixed costs compared to cattle sold beginning in the eighth month. We believe, however, that at the end of the fourth month, when we sell the first group of finished cattle, we will be able to prepare pro forma information that will demonstrate the financial fundamentals of the plant for purposes of demonstrating cash flows to prospective financiers of future plants.

We plan to add, on average, between 400 and 500 pounds per head during the finishing operation. The weight per head when we acquire the cattle will vary, principally due to the time of year when the cattle are acquired (most calves are born in the spring and are ready to begin being sold as feeder cattle seven months to a year later). Generally speaking, the older they are, the more they weigh. One of our fundamental assumptions is that the plant will have the potential to break even if we can sell finished cattle at prices per pound that are less than the prices per pound at which we purchase them. Generally in the cattle industry feeder cattle sell at a higher price per pound than finished cattle. The increase in weight during the finishing operation provides the potential for generating a profit or at least breaking even when selling finished cattle at a lower price per pound. For example, assume we purchase a 600 pound animal for $0.90 per pound, or $540, that we finish to 1000 pounds and sell at $0.85 per pound, or $850. The $310 difference between our purchase


price and the sale price would have to cover the consumables purchased to prepare wet distillers grains for the animal and a pro rata share of the plant's operating costs, including debt service. At this time we do not have financial data to support the breakeven pricing spread for the plant. Developing this relationship between the plant's cost structure and tolerable price differentials will provide critical information for prospective financiers of future plants.

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

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

Once we have operated the plant for four months, we believe that the actual financial results for the finishing operation and ethanol sales will provide us with a basis to prepare pro forma financial information establishing the economic feasibility of the plant. By establishing the economic feasibility of the plant, we will then be able to implement our business plan, which is based on identifying third parties who will work with us to construct and operate their own plants. If our assumptions prove wrong or we encounter unforeseen obstacles, our ability to demonstrate the plant's economic feasibility may be delayed, or, in the worst case, we may not be able to establish the economic feasibility of the plant and may have to abandon the business and liquidate the company.

Plan of Operation Assuming Establishment of Facility Feasibility

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

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

Once we have established the economic feasibility of our demonstration plant, we intend to operate it and earn revenue from the sale of cattle and ethanol.


We intend to license our technology and provide our expertise to third parties that want to construct plants. We expect to earn a profit and recognize revenue on the sale of each plant. We plan to charge fees in connection with the sale of each plant, based on the value to the operator of having us organize and supervise the construction of the plant and train the operator. We expect the fees from the sale of the plants to be sufficient to cover all of the operating costs we will incur in qualifying candidates, training operators, supervising construction and start-up, etc., until royalties are received.

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

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

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

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

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

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

We believe that ultimately the best way to obtain the best premium, is to control the processing, marketing and distribution of the finished beef. To that end we continue to search for money to purchase the packing plant known as Blue Mountain Packers, near Salmon Arm, B.C. This purchase is not likely to happen


before our next fiscal year end, but it remains part of our long term plan. No commitment will be made to purchase the packing plant until sufficient money is committed to pay the purchase price and cover operating expenses until positive cash flow is achieved.

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

PART II Other Information


Date, title and amount of securities sold

Date                         Title                                    Amount
----                         -----                                    ------
March 27, 2002            Common Stock                             68,700 shares

The 68,700 shares were issued for $5481 cash paid to the Company on March 22, 2002. The Company relied upon Section 4(2) of the Securities Act of 1933 to effect the issuance of the shares. All shares were issued in a private transaction at the unsolicited request of one existing shareholder of the Company, who is a sophisticated investor. There was no public solicitation or offering, no underwriters were involved, and the Company received the entire proceeds.

Item 6. Exhibits and Reports on Form 8K

(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.

Dated: May 15, 2002

HYBRID FUELS, INC.                  By:    /s/ Clay Larson
                                               Director & CEO

                                           /s/John Morrison.
                                              Director & CFO.