For the Quarterly Period Ended March 31, 2004


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               (I.R.S. Employer
of incorporation or organization)          Identification No.)

237 Main Street, Box 880, Niverville, Manitoba R0A1E0
(Address of principal executive offices) (Zip Code)

(888) 550-2333
Registrant's telephone number, including area code

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 issued and outstanding shares of the registrant's common stock as of May 21, 2004 was 23,205,317.

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



Item 1       Financial Statements

                     Consolidated Balance Sheets                                                   3

                     Consolidated Statements of Operations                                         4

                     Consolidated Statements of Cash Flows                                         5

                     Notes to Consolidated Financial Statements                                    6

Item 2               Management Discussion and Analysis or Plan of Operation                      10

                     Plan of Operation                                                            11

                     Results of Operations                                                        12

                     Plan of Operation - Background                                               12

                     Plan of Operation Assuming Adequate Capital Raised                           12

                     Plan of Operation Assuming Establishment of Facility Feasibility             14

Item 3       Controls and Procedures                                                              16


Item 2               Changes in Securities                                                        16

Item 6               Exhibits and Reports on Form 8K                                              16

                     Signatures                                                                   16


PART 1 - Financial Information

ITEM 1. Financial Statements

Hybrid Fuels, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(expressed in U.S dollars)

                                                                                     March 31,       June 30,
                                                                                      2004            2003
                                                                                    (audited)      (unaudited)
                                                                                        $               $

Current Assets

  Cash                                                                                  4,748          1,247
  Prepaid expenses                                                                     40,948              -
                                                                                     --------        -------

Total Assets                                                                           45,696          1,247
                                                                                     ========        =======


Current Liabilities

  Accounts payable                                                                     46,591         35,695
  Accrued liabilities                                                                   3,500         12,500
  Note payable (Note 3)                                                                38,240         37,106
  Shareholder loans payable (Note 4(a))                                               203,561        201,305
  Amounts owing to a Director (Note 4(b))                                             326,701        290,701
                                                                                     --------        -------
                                                                                      618,593        577,307
                                                                                     --------        -------
Redeemable and Restricted Common Shares (Note 5(c))                                   223,000        223,000
                                                                                     --------        -------
Stockholders' Deficit

Common Stock: $0.001 par value; 50,000,000 shares authorized
23,071,984 shares issued and outstanding (June 30, 2003 - 21,950,600 shares)           23,071         21,950

Additional Paid-in Capital                                                            572,569        414,385

Common Stock Subscription (Note 6)                                                   (18,958)              -

Donated Capital - Imputed Interest (Note 4)                                           302,241        243,602

Deficit Accumulated During the Development Stage                                   (1,674,820)    (1,478,997)
                                                                                  -----------    -----------
Total Stockholders' Deficit                                                          (795,897)      (799,060)
                                                                                  -----------    -----------
Total Liabilities and Stockholders' Deficit                                            45,696          1,247
                                                                                  ===========    ===========

Nature of Operations and Continuance of Business (Note 1) Other Contingencies (Note 5)

(See Accompanying Notes to the Consolidated Financial Statements)


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

                                        Accumulated from
                                       February 16, 1960
                                            (Date of           Three months ended            Nine months ended
                                           Inception)              March 31,                    March 31,
                                       to March 31, 2004       2004          2003             2004        2003
                                               $                $             $                $          $
Revenue                                               -               -             -             -             -
                                       ----------------      ----------     ---------      --------     ---------

Consulting fees                                 147,517          49,247        10,000        52,997        88,000
Deposit & Advances written-off                  255,512               -             -             -             -
Disputed compensation (Note 5(b))               243,463               -             -             -             -
Executive compensation (Note 4(b))              330,003           6,003        18,000        42,003        54,000
Filing and regulatory fees                       21,351           2,547             -         2,707           697
General and administration                       67,077           3,686           131         3,737           172
Interest                                         13,019             866         1,500         3,079         3,618
Imputed interest (Note 4)                       302,241          19,812        17,394        58,639        50,666
Investor relations                               32,503          15,805             -        15,805             -
Professional fees                               188,391           7,714           680         8,248        11,152
Rent and telephone                               44,875           1,466            67         1,733           420
Research and development                          9,216           1,216             -         1,216             -
Travel and promotion                             19,652           5,659             -         5,659             5
                                       ----------------      ----------     ---------      --------     ---------

                                              1,674,820         114,021        47,772       195,823       208,730
                                       ----------------      ----------     ---------      --------     ---------

Net Loss                                     (1,674,820)       (114,021)      (47,772)     (195,823)     (208,730)
                                       ================      ==========     =========      ========     =========
Net Loss Per Share-(Basic and Diluted)                            (0.01)        (0.00)        (0.01)        (0.01)
                                       ================      ==========     =========      ========     =========
Weighted Average Shares Outstanding                          22,041,000    21,625,000    22,011,000    21,625,000
                                       ================      ==========     =========      ========     =========

(See Accompanying Notes to the Consolidated Financial Statements)


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

                                                                        Nine months ended
                                                                            March 31,
                                                                     2004              2003
                                                                       $                 $

  Net loss for the period                                           (195,823)         (208,730)
  Adjustments to reconcile net loss to net cash
     used in operating activities:
  Services paid by issue of common stock                              86,670                 -
  Imputed interest                                                    58,639            50,666
  Increase in prepaid expenses                                       (40,948)                -
  Increase in accounts payable                                        15,687            19,340
  Increase in due to related parties                                  38,256            53,382
                                                                 -----------       -----------
                                                                     (37,519)          (85,342)
                                                                 -----------       -----------
  Increase in note payable                                             1,134                 -
  Proceeds of sale of common stock                                    39,886            83,673
                                                                 -----------       -----------
                                                                      41,020            83,673
                                                                 -----------       -----------

NET CASH INFLOW (OUTFLOW)                                              3,501           (1,669)

CASH, BEGINNING OF PERIOD                                              1,247             1,796
                                                                 -----------       -----------

CASH, END OF PERIOD                                                    4,748               127
                                                                 ===========       ===========

  Value of common stock issued for debt                               13,791                 -
  Value of common stock issued for services                           86,670                 -

(See Accompanying Notes to the Consolidated Financial Statements)


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

1. Nature of Operations and Continuance of Business

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

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

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

On May 29, 1998 the Company changed its name to Hybrid Fuels, Inc., herein "the Company". 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". The Company was re-listed on the OTC Bulletin Board in March 2003 and received "active" status in April 2003.

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

The Company is a development stage company with management devoting most of its activities in investigating business opportunities and further advancing its technologies. The ability of the Company to emerge from the development stage with respect to any planned principal business activity is dependent upon its successful efforts to raise additional equity financing and/or attain profitable operations. There is no guarantee that the Company will be able to complete any of the above objectives. At March 31, 2004, the Company had a working capital deficit of $572,897 and an accumulated deficit of $1,674,820.


2. Summary of Significant Accounting Policies

(a) Consolidated Financial Statements

These consolidated financial statements represent the consolidation of the Company and its wholly owned subsidiary, Hybrid Fuels (Canada) Inc. The Company's subsidiary is currently inactive and has no material assets, liabilities or operations other than the verbal agreement as disclosed in note 5 (d).

(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 statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods. Actual results could differ from those estimates.

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

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

(e) Foreign Currency Translation

The Company's functional and reporting currency is the United States dollar. Foreign currency transactions are primarily undertaken in Canadian dollars and are translated into United States dollars using exchange rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are re-measured at each balance sheet date at the exchange rate prevailing at the balance sheet date. Foreign currency exchange gains and losses are charged to operations. The Company has not, to the date of these financials statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

(f) Comprehensive Loss

SFAS No. 130, "Reporting Comprehensive Income," establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at March 31, 2004, the Company has no items that represent a comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.

(g) Financial Instruments

The fair values of cash and equivalents, accounts payable and accrued liabilities, note payable, and amounts due to related parties approximate their carrying values due to the immediate or short-term maturity of these financial instruments.


(h) Income Taxes

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted SFAS No. 109 as of its inception. Pursuant to SFAS No. 109 the Company is required to compute tax asset benefits for net operating losses carried forward. Potential benefit of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

(i) Stock-Based Compensation

The Company has elected to apply the intrinsic value principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for its stock options granted to employees and directors. Under APB 25, compensation expense is only recorded to the extent that the exercise price is less than the market value of the underlying stock on the measurement date, which is usually the date of grant. Stock-based compensation for employees is recognized on an accelerated basis over the vesting period of the individual options. Stock options granted to non-employees are accounted for under SFAS No. 123 "Accounting for Stock-Based Compensation" and are recognized as compensation expense based on the fair market value of the stock award or fair market value of the goods and services received, whichever is more reliably measurable.

(j) 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.

(k) Recent Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). The requirements of SFAS No. 150 apply to issuers' classification and measurement of freestanding financial instruments, including those that comprise more than one option or forward contract. SFAS No. 150 does not apply to features that are embedded in a financial instrument that is not a derivative in its entirety. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of non-public entities. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of SFAS No. 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of this standard did not have a material effect on the Company's results of operations or financial position.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure", which amends SFAS No. 123 to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 expands the disclosure requirements of SFAS No. 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions of SFAS No. 148 are effective for fiscal years ended after December 15, 2002. The disclosure provisions of SFAS No. 148 are


effective for financial statements for interim periods beginning after December 15, 2002. The transition provisions do not currently have an impact on the Company's financial position and results of operations as the Company currently has no stock-based employee compensation.

In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The adoption of this standard did not have a material effect on the Company's results of operations or financial position.

FASB has also issued SFAS No. 147 and 149 but they do not have any relationship to the operations of the Company, therefore a description of each and their respective impact on the Company's operations have not been disclosed.

3. Note Payable

On September 15, 2000, the Company issued a note for $50,000 CND (USD $38,240) payable on or before September 15, 2001 plus 8% interest. The Company extended repayment of the note until the completion of a financing arrangement. Interest expense of $866 has been accrued for the three month period ended March 31, 2004. Accrued interest, from September 15, 2000, of $10,538 is included in accounts payable as of March 31, 2004.
4. Related Party Transactions/Balances

(a) The controlling shareholder is owed $201,627 for payment of rent, office expenses and professional fees on behalf of the Company. This amount is unsecured, with no specific terms of repayment. Imputed interest of $22,561 (2003 - $22,198), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital. An amount of $1,934 is owing to another shareholder. This amount is unsecured, non-interest bearing, with no specific terms of repayment

(b) The former President, who was also a Director of the Company, was paid office and related expenses from personal funds in the amount of $16,486 of which $13,785 has been reimbursed with cash. Effective July 1, 1999 the President was entitled to a deferred salary of US$6,000 per month and was owed a total of $326,701 at March 31, 2004. These amounts are unsecured, non-interest bearing and due on demand. Imputed interest of $36,078 (2003 - $28,468), calculated at a rate of 15% per annum, was charged to operations and treated as donated capital. The Company does not have a written employment contract with the former President and no monthly fees were accrued after January 31,2004.

5. Commitments and Contingencies

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

(a) On August 4, 1998 and March 23, 1999, the Company's former Board of Directors authorized the issuance of 1,000,000 and 900,000 shares respectively to individuals without consideration. On August 21, 1999, the current Board of Directors resolved that share certificates representing ownership of these 1,900,000 shares were issued without adequate consideration being paid to the Company and were therefore not fully paid and non-assessable. The Company cancelled the share


certificates and indemnified the transfer agent, for any costs or liability that may incur arising out of the cancellation of such shares. The transfer agent removed the 1,900,000 shares from the stockholder list effectively reversing the issuance. Six of the cancelled certificates, totaling 550,000 shares, have been endorsed and returned to the Company for cancellation. The contingencies regarding the cancelled shares relate to anyone who may have subsequent holder rights, and possibly the individuals who were issued those shares who may claim that they were issued for due consideration. The Company has determined that there is no amount to be accrued for future liabilities associated with claims by subsequent shareholders. To date when these shares 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, prior to June 1999, has failed to provide addresses despite a number of requests.

(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 President of the Company during that time. All amounts that were unauthorized by the Board of Directors or amounts that are not properly documented with invoices and receipts have been accounted for as disputed executive compensation. At such time as Company resources permit, the Company will seek legal advice to determine whether or not it is possible to recover all such disputed and unauthorized amounts from the previous administration.

(c) Between October 1998 and June 1999, previous administration sold a total of 361,120 common shares of the Company to 34 subscribers on the basis of an Offering Memorandum ("Offering") that contained a significant number of inaccuracies. A total of $223,000 was raised pursuant to this Offering. 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 232,753 shares, representing $158,000. These shares are issued but not considered outstanding. The remaining 11 subscribers, who paid $65,000 for 128,367 shares, have not responded to the offer. These subscriptions are recorded as redeemable and restricted common shares until rescission rights have been revoked.

(d) The Company's subsidiary, Hybrid Fuels (Canada) Inc., has entered into a verbal agreement with an independent third party that will construct a fully operational facility at Oyama, B.C. Part of the agreement will make the facility available to the Company for training and demonstration purposes, through a lease or an operating agreement. The terms under which this facility will be operated are to be finalized when the construction is complete and all of the construction and start-up costs are known.

6. Stock Subscription

On March 29, 2004, the Company issued 138,887 shares of common stock at $0.1365 (CDN$0.18) per share pursuant to stock subscription agreements.


ITEM 2. Management's Discussion and Analysis of Operations and Financial Condition

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, 2003. Actual results could differ materially from the results discussed in the forward-looking statements. The Company assumes no responsibility to correct or update the forward looking statements as circumstances change and therefore, the forward looking statements should be assumed to speak only as at the date of the filing of this report.

Plan of Operation

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, 2004.

Although the Company is in the developmental stages, the process behind Hybrid's intended business has been researched and developed over more than a decade. A facility that integrated the process described below was constructed and operated near Dalum, Alberta from 1994 to 1996. That facility was designed to prove the concepts and included all of the ethanol-making and cattle-feeding features of a full-scale commercial operation. That operation is the source of the actual operating results that are referred to later in this report.

After the Dalum facility was closed in 1996, further research, development and construction enabled us to modify construction materials and layout to improve the buildings and equipment and refine the process, which is now ready for market.

The Company's intended business is to sell and build farm-scale facilities that integrate beef operations with the production of ethanol. In these facilities, grain, corn or other feedstock is fermented and then distilled to make the ethanol. The ethanol production process also generates a high protein mash, called "distillers grain" and water, called "stillage water". These contain nutrients and are used as feed and water for livestock. By using the distillers grain and stillage water on site the animals receive the benefit of the nutrients in these byproducts. In addition, the facilities do not incur the costs of drying the distillers grain and transporting it as would be necessary if it was to be used at another site. A further benefit is that no costs are incurred to dispose of the stillage water. Rather than it being something that is costly to be disposed of, it becomes a valuable feed product.

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. From discussions with the gasifier manufacturer, management believes that sufficient heat will be left over to enable the operation of a greenhouse, if the operator so desires.

The ethanol is intended to be mixed with a proprietary emulsifier and diesel. When this emulsion was tested at The British Columbia Institute of Technology in June, 1996, 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.

For a more detailed description of the entire process, plus sources of information and references, the reader is referred to the Company's Form 10-KSB for the year ended June 30, 2003, as amended and filed with the SEC.

Although there are no operating facilities at the moment, the Company is expecting to have the first facility operating in 2004, as described below.


The Company intends to sell these facilities (except the column and spinner which we intend to lease) to farm operators, preferably those who grow or have access to sufficient grain to supply the facility. Management believes this would be approximately 40,000 bushels of barley (or other suitable grain) per year for a facility that would feed 200 head of cattle on a continuous rotating basis.

Results of Operations

The loss for the present quarter is $114,021 compared to $47,772 for the comparable quarter last year. This difference is mainly attributable to consulting fees and investor relations expenses that were claimed this quarter. The loss for this quarter includes amounts of $6,000, which is deferred salary for a former President, and $19,812 imputed interest, which do not represent a cash outlay. These non-cash items total $25,812. At the end of the quarter, the Company had cash of $4,748 up from $365 at the end of the previous quarter. The Company issued 458,884 shares this quarter for operating capital as described in Part 2, Item 2 of this report.

Plan of Operation - Background

We are a development stage company that has not yet proved the economic feasibility of its planned principal operations. In their opinion on our June 30, 2003 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. Until such time as we prove the economic 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. The lack of long term, adequate financing continues to be of concern to management.

Our ability to continue to operate in the future depends on our being able to raise money to commence operations, and we therefore continue to concentrate our efforts on raising money to complete the first facility and commence operations. In the quarter ending September 30, 2003, Hybrid Fuels (Canada) Inc., a wholly owned subsidiary, entered into a verbal agreement with an independent group of the Company's shareholders to finance the construction of the first facility. The verbal understanding that has been reached is that when the facility is operational and the construction and start-up costs are known, the group that built it will enter into an agreement with Hybrid Fuels (Canada) Inc., by which the facility will be operated. Part of the agreement will make the facility available to the Company for training and demonstration purposes, through a lease or an operating agreement. We anticipate this first facility will be operational in 2004.

Management recognizes that to generate long-term cash flow, we need to develop operating activities. Once the first facility is operating, we plan to use it 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 facilities want to see a facility in operation before they commit themselves. We do not have any commitments for financing at this time.

Although we do not have significant 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.

Plan of Operation Assuming Adequate Capital Raised

The discussion in this section assumes that we will succeed in arranging the necessary financing that will be used to build the second facility and develop operating activities. The major goal of placing the first facility in service is to demonstrate the economic feasibility of the system. Once this first facility


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 facility should generate sufficient revenue to pay all operating costs, plus a small surplus. The financial institutions that have expressed interest in financing subsequent facilities want to see this first facility generate sufficient cash flow to pay all operating costs and debt service. We anticipate that the facility will show sufficient cash flow to make it possible for us to get approval for financing subsequent facilities.

After the end of the quarter, the foundation, concrete slabs and the ethanol facility's exterior had been completed at Oyama, BC, Canada on approximately six acres of farmland. This location was chosen because it provides the company with good site control and supervisory ability that is important to the completion of the first facility.

An operating facility includes the barn and a second building housing the ethanol making equipment, plus the bio-furnace or gasifier, "Greener Pastures" grass growing system, and the right to use the proprietary information and technology. The cost of building a facility 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.

Each facility is expected to accommodate 200 head of cattle. As we near the end of testing the first facility, we plan to begin the finishing operation for the cattle with an initial group of 20 to 25 head. 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 facility, 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 facility 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. As a result of using this staggered acquisition scheme, we will not run the facility at full capacity until approximately four months have passed from the facility 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 facility for purposes of demonstrating cash flows to prospective financiers and prospective purchasers of future facilities.

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). One of our fundamental assumptions is that the facility will have the potential to break even if we 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 it 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 facility's operating costs, including debt service. At this time we do not have financial data to support the breakeven pricing spread for the facility. Developing this relationship between the facility's cost structure and tolerable price differentials will provide critical information for prospective financiers of future facilities.

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

We do not plan to sell the ethanol produced by the first facility 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 him the ethanol for this two-to-three-month period, with a view toward charging him in the future once he has determined that he can use the ethanol economically without harm to his equipment. Once the facility is at full capacity, we project that the facility will produce approximately 240 US gallons of ethanol per day, which could be sold at market prices slightly below the price of the diesel fuel with which it will be blended. The price of ethanol will vary, usually in tandem with the price of diesel. Assuming a price of $0.70 per gallon for ethanol, monthly sales of ethanol would be approximately $5,000.

Once we have operated the facility 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 projecting the economic feasibility of the facility. By establishing the economic feasibility of the facility, 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 facilities. If our assumptions prove wrong or we encounter unforeseen obstacles, our ability to demonstrate the facility's economic feasibility may be delayed, or, in the worst case, we may not be able to establish the economic feasibility of the facility 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 arranging the necessary financing that will be used to place the first facility in service and in demonstrating the economic feasibility of the facility. Once these goals are achieved, we intend to enter into contracts with others who will build, own and operate additional facilities, while we earn revenues from a variety of sources related to the facilities.

We plan to earn revenue from:

1. operating the demonstration facility;
2. profit on the sale of subsequent facilities;
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 a percentage of wholesale value that will permit us to earn a profit from the sale of the ethanol to distributors or end-users;
6. an incentive from premiums from marketing the finished animals.

Once we have a proven demonstration facility, we intend that our subsidiary, Hybrid Fuels (Canada) Inc., will operate it and the Company will 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 facilities. We expect to earn a profit and recognize revenue on the sale of each facility. The sale price of each facility is expected to be sufficient to cover the costs the Company will incur to sell, plan and supervise the construction of the facility and train the operator. Our plan is that earnings from the sale of the facilities will 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 facility. We are currently developing a screening process to select suitable candidates, and we expect to assist them in obtaining financing for facility construction. Once we have demonstrated our demonstration facility's economic feasibility for purposes of obtaining financing of subsequent facilities, we expect to have selected four candidates for training as operators. After candidates have been selected and have qualified for financing, we plan to train them and assist in constructing the facility.

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 facilities, 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 facility, based on the projected benefits of the use of trade secrets to the operator, will begin when each facility 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 facilities.

We also expect to charge each operator service fees to cover the cost of ongoing training, service, technical support, and quality control. It is expected that these fees would 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 facility, we believe we will be able to generate premium prices for the beef because of its high quality and it is free of added hormones. At the Dalum facility, the purchaser of the 123 heifers agreed to pick up subsequent lots at the facility 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 financing to purchase the packing facility 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 facility until sufficient money is committed to pay the purchase price and cover operating expenses until positive cash flow is achieved.


ITEM 3. Controls and Procedures

Based on their evaluation as of a date within 90 days of the filing date of this report, the Company's Principal Executive Officer and Principal Financial Officer have concluded that the Company's disclosure

controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act 1934 (the "Exchange Act") are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

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

PART 2 - Other Information

ITEM 2. Changes in Securities

On March 29, 2004 the Company issued 600,000 shares of common stock to directors for services and 458,884 shares for operating capital. The common stock was issued at a value of $.1365 per share.

The foregoing issuances of common stock were made in reliance upon the exemption from registration set forth in Regulation S promulgated under of the Securities Act of 1933 for transactions not involving a US person. No underwriters were engaged in connection with the foregoing issuances of securities.

ITEM 6. Exhibits and Reports on Form 8-K

a. Exhibits

Exhibit 31.1 Principal Executive Officer and Acting Principal Financial

Officer Certification (section 302 of the Sarbanes-Oxley Act of 2002)

Exhibit 32.1 Principal Executive Officer and Acting Principal Financial

Officer Certification (section 906 of the Sarbanes-Oxley Act of 2002)

b. Reports on Form 8-K



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.


By: /s/ Paul Warkentin
Name:  Paul Warkentin
Title:  President/CEO/Acting CFO

Dated: May 21, 2004




I, Paul Warkentin, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of Hybrid Fuels Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

May 21, 2004        /s/ Paul Warkentin
                    Paul Warkentin
                    President/Principal Executive Officer and Acting
                    Principal Financial Officer


By signing below, the Principal Executive Officer and Acting Principal Financial Officer hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge, (i) this report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in this report fairly presents, in all material respects, the financial condition and results of operations of Hybrid Fuels Inc.

Signed this 21st day of May 2004:

By: /s/ Paul Warkentin
Paul Warkentin
President/CEO/Acting CFO
(Principal Executive Officer and Acting Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Hybrid Fuels Inc. and will be retained by Hybrid Fuels Inc. and furnished to the Securities and Exchange Commission or its staff upon request.