**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**




**Form
      10-KSB**




x  ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      fiscal year ended December 31, 2006




o  TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      transition period from __________ to ____________.




Commission
      File Number 0-50520









**Biomass
      Processing Technology, Inc.**


(Name
      of
      Small Business Issuer as Specified in Its Charter)




**Delaware**
            **65-0638890**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S. Employer
              Identification
                No.)**3222
                Commerce Place, Suite A, West Palm Beach,
                Florida**
            **33407**Address
                of Principal Executive Offices)
            (Zip
                Code)




**(561)
      684-6611**


(Issuer’s
      Telephone Number, Including Area Code)




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




Securities
      registered under Section 12(g) of the Exchange Act: Common Stock, $.02 par
      value




Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o




Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days.




Yes o No x









Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o
      No x




The
      issuer’s revenues for the fiscal year ended December 31, 2006 were $
      -0-.




As
      of
      September 20, 2007, the aggregate market value of the registrant’s voting and
      non-voting common equity held by non-affiliates, computed by reference to the
      $0.52 price at which the common equity was sold as of September 20, 2007, was
      $
      41,273,694.




As
      of
      September 20, 2007, there were 79,372,489 shares of Common Stock issued and
      outstanding.




The
      following documents are incorporated by reference: None.




Transitional
      Small Business Disclosure Format: Yes x No o




2




**TABLE
      OF CONTENTS**




**PART
                I**
            **4****ITEM****1.DESCRIPTION
                OF BUSINESS**
            **4****ITEM****2.
                DESCRIPTION OF PROPERTY**
            **22****ITEM****3.
                DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT
                EMPLOYEES**
            **23****ITEM****4.
                REMUNERATION OF DIRECTORS AND OFFICERS**
            **25****ITEM****5.
                SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY
                HOLDERS**
            **25****ITEM****6.
                INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN
                TRANSACTIONS**
            **26****PART
                II**
            **28****ITEM****1.MARKET
                PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND OTHER
                SHAREHOLDER MATTERS**
            **28****ITEM****2.
                DESCRIPTION OF EXHIBITS**
            **28****ITEM****3.CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS**
            **28****ITEM****4.SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS**
            **28****ITEM****5.COMPLIANCE
                WITH SECTION 16(A) OF THE EXCHANGE ACT**
            **28****PART
                F/S**
            **F-1****PART
                III****ITEM****1.
                INDEX TO EXHIBITS****ITEM****2.
                DESCRIPTION OF EXHIBITS**




3




**Caution
      Regarding Forward-Looking Information**





All
      statements contained in this Form 10-KSB, other than statements of historical
      facts, that address future activities, events or developments are
      forward-looking statements, including, but not limited to, statements containing
      the words "believe," "anticipate," "expect" and words of similar import. These
      statements are based on certain assumptions and analyses made by the Company
      in
      light of the Company's experience and the Company's assessment of historical
      trends, current conditions and expected future developments as well as other
      factors the Company believes are appropriate under the circumstances. Whether
      actual results will conform to the expectations and predictions of management,
      however, is subject to a number of risks and uncertainties that may cause actual
      results to differ materially. Such risks include, among others, the risks
      described below under "Description of Business - Risk Factors".




Consequently,
      all of the forward-looking statements made in this Form 10-KSB are qualified
      by
      these cautionary statements and there can be no assurance that the actual
      results anticipated by management will be realized or, even if substantially
      realized, that they will have the expected consequences to or effects on the
      Company's business operations. Furthermore, forward-looking statements that
      were
      true at the time made may ultimately prove to be incorrect or false. Readers
      are
      cautioned to not place undue reliance on forward-looking statements, which
      reflect our management’s view only as of the date of this report.




Forward-looking
      statements are made in reliance upon the safe harbor provisions of Section
      27A
      of the Securities Act of 1933, as amended (the "Exchange Act"), and Section
      21E
      of the Securities Exchange Act of 1934, as amended, and the Company undertakes
      no obligation to update forward-looking statements to reflect further
      developments or information obtained after the date of filing of this Annual
      Report and disclaims any obligation to do so.




**PART
      I**




**Item
      1.****Description
      of Business.**




Biomass
      Processing Technology, Inc. (the "Company") was incorporated in Delaware on
      January 30, 1996. The authorized capital stock of the Company consists of
      100,000,000 shares of common stock, $0.02 par value ("Common Stock"), of which,
      as of December 31, 2006, 77,649,954 shares were issued and outstanding. Although
      the Company’s planned principal operations commenced in December 2004, with the
      Company’s initial operation of the CAV facility on a test basis, the Company has
      been a development stage company from inception through December 31, 2006,
      as it
      had not conducted significant operations or generated significant operating
      revenues since its inception. The Company spent $4,529,163 on research and
      development activities during 2006 and $4,822,954 on such activities during
      2005. The Company has incurred a net operating loss each year since its
      inception. The Company's management team devotes most of their activities to
      establishing the Company's business, the development of a detailed business
      plan
      and marketing strategy and raising the funds required to develop and operate
      the
      business successfully. The Company conducts its business activities directly
      and
      through its wholly owned subsidiaries Omni Environmental Corp., BPT CAV1
      Corporation and BPT Intellectual Property Corporation. References to "the
      Company" below generally refer to the Company and its wholly-owned subsidiaries,
      collectively. As of December 31, 2006, the Company had 17 employees, 15 of
      whom
      were full-time employees.




4




The
      following description of the business of the Company is intended to provide
      an
      understanding of the proposed products of the Company and the direction of
      the
      Company's business strategy. As the Company is in the developmental stage,
      any
      focus described below may change and different initiatives may be pursued,
      although none are presently contemplated.




*Summary
      of Operations*




The
      principal business of the Company is the development and commercialization
      of
      its proprietary technology, through the application of which biomass material
      may be converted into its constituent components using a hydrolysis and
      fermentation-based process, and basic feedstocks and other products may be
      produced for the animal feed, food, chemical and energy markets. The “biomass
      material” susceptible of being converted through the Company’s process consists
      of all living or recently living animal and vegetative life forms and the
      materials exuded by those life forms. This biomass material does not include
      fossil deposits of animal or vegetative life forms, such as coal and oil. The
      types of biomass material to be processed by the Company include animal waste,
      cane stalks, corn stalks, trees, limbs, grass, the bagasse byproduct of sugar
      cane processing and other vegetative life forms.




The
      Company intends to sell the nutrient products of the biomass material it
      processes as animal feed and feed supplements, and to use those products as
      raw
      material to produce higher value products. The Company also seeks to develop
      additional commercial applications of its technology and may consider licensing
      its technology to third parties. The Company currently expects to derive
      revenues from its technology and related assets through the processing of
      biomass material acquired from third parties at the Company's combined animal
      and vegetative processing (CAV) facility, the sale of certain byproducts of
      that
      processing and the use of certain of those byproducts as raw material to produce
      and sell higher value products. The Company may also derive revenues from
      licensing its technology to third parties for additional commercial applications
      it may develop.




*Processing
      of Biomass Material*




Overview




The
      nature of the Company's processing operations in any given context will depend
      upon the following factors:




●
            the
                type of biomass source material being
                used;




●
            the
                type of production facility being used;




●
            the
                hydrolysis and fermentation process;




●
            the
                types of byproducts of the process;
                and




●
            the
                type of end product the Company intends to market (which will in
                some
                cases be identical to a byproduct of the
                process).




5




Types
      of Biomass Source Material




The
      Company uses two principal types of biomass material in its process:
      animal-based material and vegetative material. These materials may be utilized
      in varying combinations based upon an ongoing evaluation of optimum price and
      quality factors. Animal-based biomass materials used by the Company
      include:




·
            manure;
                and




·
            organic
                material used in animal operations for bedding or other
                purposes.




Animal-based
      biomass material is available from animal-based farming operations, including
      dairy farms and livestock producers. The Company has an agreement with an
      Okeechobee, Florida dairy farm that provides it with animal-based biomass
      material at no cost to the Company. See “Dairy Animal Waste Processing,
      Okeechobee, Florida” below. The Company has installed underground piping over
      the dairy farm’s land through which the farm’s animal waste materials are pumped
      in liquefied form directly to the Company’s Combined Animal/ Vegetative Waste
      One facility (the “CAV1” facility) in Okeechobee, Florida for processing.
      Accordingly, there is effectively no cost for the raw material and negligible
      cost for transportation of the materials to the plant. The Company expects
      to
      seek to enter into similar arrangements with other area dairy farmers as the
      CAV1 facility expands operations.




Vegetative
      biomass materials which the Company may use include:




·
            crop
                residue, such as straw and bagasse (which is the residue from the
                processing of sugar cane);




·
            yard
                waste residue, such as lawn clippings and palm fronds stored at landfills;
                and




·
            commercially
                available feedstock, such as molasses, phosphates and
                ammonia.




During
      the year ended December 31, 2004, vegetative biomass material was available
      to
      the Company from the St. Lucie County, Florida landfill operation described
      below under “Discontinued Operations - Activities at St. Lucie County Landfill.”
The Company processed vegetative waste for St. Lucie County, Florida, under
      a
      contract that provided for the Company to be paid a fee per ton of waste
      processed. The Company terminated the contract on January 13, 2005, to focus
      its
      resources on its core business. During the term of the contract, the Company’s
      cost of receiving and processing vegetative waste under this contract, including
      the transportation of the processed waste to the Company’s CAV1 facility, was
      slightly less than the revenues received, therefore the net cost of this form
      of
      biomass to the Company was less than zero. Florida law requires counties to
      collect vegetative waste separately from other refuse and most counties engage
      private companies to dispose of the vegetative waste. As a result, the Company
      may in the future be able to use the experience gained from the research
      activities under the contract to negotiate favorable terms to obtain vegetative
      material at low cost.




6




Because
      the principal source materials for the Company's process constitute refuse,
      these materials are generally available to the Company at little or no cost
      from
      landfills or directly from the suppliers whose operations generate these biomass
      materials. The Company expects that in many cases the supplier will pay the
      Company for the removal of the refuse. Thus the Company's principal cost in
      obtaining biomass source material is expected to be the cost of collection,
      transportation and storage of that material.




Types
      of Production Facilities




A
      description of the Company's production facilities is provided below under
      "Item
      2 - Description of Property."




Description
      of the Process and Types of Byproducts of the Process




The
      Company's process for animal-based biomass material converts such material
      into
      three products: high quality live yeast suitable for use in animal feed
      products; water that is sufficiently clean for irrigation purposes; and solids
      that may be used as fertilizer. The Company's process for animal-based biomass
      material extracts phosphorus and nitrogen from animal biomass, thus providing
      the Company with a free supply of these materials. The Company intends to use
      these materials to convert other intermediate byproducts of the Company's
      process into marketable products.




The
      Company’s process requires considerable use of both electrical and thermal
      energy. Unanticipated increases in the cost of energy or the unavailability
      of
      energy at the Company’s facilities will adversely affect the business of the
      Company. The Company plans to mitigate its dependence on thermal energy by
      obtaining lignin-burning equipment. Lignin, which can be used as an alternative
      to diesel fuel, is a byproduct of the Company’s process and its use as a fuel
      would significantly reduce the Company’s energy costs.




The
      Company's process, as applied to vegetative biomass material, produces the
      following three byproducts:




●
            five
                carbon sugars, such as xylose;




●
            six
                carbon sugars, such as glucose; and




●
            lignin,
                a natural polymer.




To
      the
      extent these byproducts are not directly marketable, the Company intends to
      subject them to additional processing to produce marketable products. The
      Company has completed research to convert these byproducts to marketable
      commodity products.




The
      general process design of the Company is to exploit the sugar elements of each
      byproduct by fermenting the sugars with various yeast species, and then to
      produce the yeast species as products. Production of these yeast products
      requires significant phosphorus and nitrogen as raw material. As described
      above, this phosphorus and nitrogen is available to the Company as a byproduct
      of the processing of animal-based biomass material. Yeast products are widely
      used in livestock, pet food and human nutrition as a source of highly digestible
      protein, vitamins, and minerals.




7




The
      Company is not aware of any biomass process that is equivalent to the process
      it
      has developed. There are many large, well-capitalized companies, however, such
      as Cargill, A. E. Staley and Archer Daniels Midland, which process biomass
      materials and may compete with the Company in the future. There are also
      companies that currently produce feed products containing yeast for sale to
      the
      livestock and pet food industry. These companies may develop alternative
      technologies that lower their cost of production. Any such development could
      adversely affect the ability of the Company to compete in the sale of these
      products.




Types
      of End Products to be Marketed by the Company




The
      end
      products of the Company's process which the Company expects to market and sell
      can be grouped into three different categories based on product
      grade:




●
            food
                grade, including pharmaceutical
                grade;




●
            feed
                grade suitable for animal feed; and




●
            chemical
                or industrial grade.




Food
      grade products can result from the processing of agricultural crop biomass,
      such
      as straw or bagasse, and feed or chemical grade products result from the
      processing of yard waste or animal waste.




Upon
      completion of the development and commercialization of its technology and
      production facilities, the Company would expect to market the following
      products:




●
            feed
                yeast, to be marketed to animal and dairy farming operations and
                manufacturers of pet food;




●
            feed
                grade five carbon products, to be marketed to animal and dairy farming
                operations and manufacturers of pet
                food;




●
            food
                grade five carbon products, to be marketed to manufacturers of human
                food,
                health and hygiene products;




●
            lignin
                polymer, to be marketed to manufacturers of pelletized feed products
                and
                manufacturers of concrete and plastic polymers; and




●
            other
                products as commercialized by the research and development efforts
                of the
                Company.




The
      summary below provides a more detailed description of each of these products
      and
      the means by which these products will be marketed.




8




*Feed
      Yeast* .
      Yeast
      is currently produced as a byproduct of the brewing industry and the fuel grade
      ethanol industry. Manufacturers typically use corn and molasses products to
      manufacture yeast. The current purchasers of yeast are producers of livestock
      and animal products, including beef cattle, poultry products, swine products
      and
      dairy products. Yeast is also used as a supplement in pet food. The expense
      of
      production, shipping and distribution yields net production costs that generally
      limit the use of yeast to use as a supplement, although yeast is generally
      considered to contain high value protein and nutrients such as vitamins. Use
      of
      yeast as a general protein source competes with the less expensive combinations
      of soybean meal as a balance to the included protein in energy foods such as
      corn. Dairy, beef, poultry and swine producers use the lowest cost raw material,
      determined on the basis of pounds of product produced per pound of protein
      fed.
      The Company intends to produce high quality yeast which it will seek to sell
      at
      prices that are competitive with those of soy protein. The Company's success
      in
      this regard will depend in part upon the availability of low cost raw material
      internally generated by its process. The Company intends to market its output
      of
      feed yeast to feed manufacturers for use as an ingredient in mixed feed rations.
      The Company has also identified large livestock operators that want to purchase
      the feed yeast directly and incorporate it into their feeding rations. Finally,
      pet food manufacturers are currently incorporating high value yeast into their
      cat and dog food mixes as a source of nutritional protein replacing animal
      byproducts. The Company may also market its feed yeast to these
      businesses.




*Feed
      Grade Five-Carbon Products* .
      The
      Company intends to supply feed grade five-carbon products as a solid or high
      concentration liquid to compete as an energy and palatability supplement for
      livestock producers and producers of pet foods. The product is intended to
      compete with commodity molasses from sugar production. The Company expects
      to
      market these products primarily to feed manufacturers.




*Food
      Grade Five-Carbon Products* .
      Food
      grade five-carbon products such as xylitol and arabitol are presently marketed
      as a non-carieogenic (does not promote tooth decay) sweetener in products such
      as chewing gum. Scandinavian countries are the principal producers of this
      product. Food grade xylitol is a five-carbon polyol or "sugar alcohol". Other
      such polyols include sorbitol, manitol and maltitol. Although there is a
      significant body of literature indicating that xylitol is the preferred sugar
      alcohol, producers currently use sorbitol to a far greater extent than xylitol.
      Based on current market price quotations obtained by the Company, management
      believes that xylitol costs approximately five times as much as sorbitol on
      a
      unit-equivalent basis, which limits its use. The Company believes that xylitol
      is sweeter and more effectively non-carieogenic than sorbitol. According to
      numerous independent sources, xylitol is as sweet as sugar, while sorbitol
      is
      only 60% as sweet. The Company will seek to produce and sell food grade xylitol
      at price and quality levels that are competitive with sorbitol. The Company
      expects to market its food grade five-carbon products directly to food
      manufacturers for incorporation into their products. Also, health and hygiene
      product manufacturers may purchase xylitol directly from the Company for use
      in
      products where sweetness, sugar level or tooth decay are marketing
      considerations.




9




*Lignin
      Polymers* .
      The
      commercial uses of lignin include:




●
            fuel;




●
            pellet
                products for use as a binder in animal
                feed;




●
            dust
                control in roads;




●
            binder
                and lubricants in oil well drilling
                "muds";




●
            soil
                amendments to improve marginal soil;




●
            pesticide
                dispersants;




●
            plastic
                additives;




●
            gypsum
                wallboards;




●
            dyes;
                and




●
            concrete
                formulations.




Although
      lignin is a byproduct of the papermaking industry and is used by that industry
      for fuel, additional markets for the other uses above have emerged and lignin,
      in the form of lignosulfonates, is sold for all of the above uses. The Company
      believes that the U.S. currently imports lignin for many of the uses described
      above. The Company intends to market its lignin production directly to
      appropriate large commodity users of lignin and may also market its lignin
      as a
      coal substitute (fuel) to large wood and coal fired power plants.




*CAV1
      Facility*




The
      Company’s CAV1 facility is a processing facility located in Okeechobee, Florida.
      Construction of the CAV1 facility in its basic design is complete. The Company's
      plans call for it to continue construction to expand the CAV1 facility's
      production capabilities, subject to the availability of additional capital
      to
      fund such activities, as discussed elsewhere in this report. The Company plans
      to add a hydrolysis processing capability that will enable the CAV1 facility
      to
      produce a wider range of products with greater efficiency. The CAV1 facility
      has
      four fermenter “lines,” each of which includes a tower holding 200,000 gallons
      of product. The Company began operating the plant on a test basis in December
      2004 with two lines. Upon commencing operations the Company plans to gradually
      increase production until the Company is using all four lines. The CAV1 facility
      is permitted for up to six lines and the Company plans to begin constructing
      the
      fifth and sixth lines upon commencement of operations. The Company expects
      its
      commercial processing operations at the CAV1 facility to initially consist
      of
      processing yeast in a sterile environment utilizing phosphorus, nitrogen,
      carbohydrate and other nutrients contained in barn waste from adjacent farming
      operations. The Company expects to market and sell the products of its CAV1
      facility as described above.




During
      several years of production testing, the Company had used molasses as a primary
      raw material and intended to enter the lower quality/lower valued yeast market
      utilizing molasses. In early 2006, as the Company attempted to become
      operational, it determined that the molasses crop of 2005/2006 from local sugar
      cane farming operations was unusable as the Company’s raw material due to
      harvesting techniques used on sugar cane affected by the hurricanes that passed
      over Florida in mid-2005. Harvesting methods pulled up significant amounts
      of
      dirt that was incorporated into the molasses and could not be removed
      effectively. After learning about the contamination of the molasses supply,
      the
      Company determined that its CAV1 facility could use a higher cost raw material
      to produce a higher quality yeast, which the Company could sell at a higher
      price and thereby offset the additional costs associated with the higher quality
      raw material. In order to produce the higher quality product, management decided
      to accelerate implementation of plans to construct special processing equipment.
      Construction of the equipment occurred throughout most of 2006. In early 2007,
      the Company completed the construction and testing of the equipment.




10




In
      February 2007, management determined that in order to become operational, the
      Company would need to raise a significant amount of working capital and
      commenced seeking an investment banking group that could assist in finding
      sources of funding. On August 16, 2007, the Company executed an agreement with
      Jesteda Partners, LLC (“Jesteda”), an investment banking group with offices in
      Irvine, California and New York City. Under the ninety-day exclusive agreement,
      Jesteda will act as a finder to seek for the Company financing up to $10
      million. Jesteda received 75,000 shares of common stock of the Company upon
      execution of the agreement. The agreement provides for Jesteda to receive fees
      of 8% of the gross proceeds received by the Company and warrants for the
      Company’s common stock valued at 4% of gross proceeds with a strike price of
      $1.00 per share exercisable within two years of closing. There is no assurance
      that Jesteda and the Company will be successful in raising the additional
      capital that the Company requires to become operational.





*Regulatory
      Matters*




The
      CAV1
      facility (as described below under "Item 2 - Description of Property") is
      permitted by the Florida Department of Environmental Protection (“FDEP”) as a
      wastewater treatment facility. The CAV1 facility has the capacity to process
      the
      waste from several Okeechobee, Florida area dairy farming operations. The
      Company has installed operating solid/liquid separation equipment at one of
      these dairy farms and, using fully-automated equipment, currently pumps the
      separated liquid portion of the animal-based biomass material to the CAV1
      facility for processing. The Company plans to install such equipment at other
      dairy farms as production expands. The Company expects to receive a fee from
      these operations based on the quantity of phosphorus and nitrogen removed from
      their waste streams.




Animal
      feeding operations of dairy farms result in the presence of phosphorus and
      nitrogen in the related wastewater. These chemicals present a source of
      potential environmental liability for the farming operations. In April 2003,
      the
      U.S. Environmental Protection Agency (the “EPA”) issued regulations requiring
      commercial farmers to manage their nutrients and wastewater in order to reduce
      or eliminate the discharge of those chemicals into the nation’s waterways. Based
      upon its discussions with various farming operations, the Company expects that
      it will be cost prohibitive for most farms to effect this reduction by
      increasing the total acreage used for land spreading of animal waste or by
      reducing the number of livestock per acre, and that the Company's waste
      processing methods will present an attractive alternative to the dairy farms
      for
      achieving compliance with the regulatory requirements. As the Company develops
      and constructs facilities similar to the CAV1 facility, the Company expects
      that
      it will eventually be able to generate similar economic benefits from those
      facilities.




11




The
      CAV1
      facility has also been issued an Environmental Resource Permit by FDEP and
      the
      appropriate FDEP air permits for its steam-generating boilers. The Company
      has
      also obtained all necessary land use and construction permits for the facility
      from local authorities. The CAV1 facility is also a registered feed manufacturer
      under the rules of the Florida Department of Agriculture and Consumer Services,
      allowing it to sell animal feed to distributors and feed mills.




A
      significant portion of the Company's intended operations at its CAV1 facility
      will be subject to state and federal environmental laws and regulations of
      regulatory agencies such as the FDEP, the Florida Water Management Districts
      and
      the EPA, and will in some cases be subject to the jurisdiction of county
      agencies such as the Okeechobee County Health Department. The Company believes
      that it has complied with all applicable laws and regulations regarding its
      activities. The Company does not foresee or expect significant changes in the
      regulatory requirements for its business, and does not anticipate additional
      capital expenditures dedicated to meeting existing or foreseen environmental
      regulations. The Company believes that its ongoing costs of compliance with
      regulatory requirements related to the CAV1 facility will be minimal, as the
      facility has been designed and constructed to comply with all known
      requirements.




The
      Company’s projected food grade products business will be subject to the rules
      and regulations of the U.S. Food and Drug Administration (the “FDA”). The
      Company’s process, facilities and products will be required to meet existing and
      future regulations regarding the production of food and pharmaceutical products.
      If the required federal approvals are not received, or if the regulations change
      and compliance requires the Company to incur additional expense, the Company's
      ability to market any food grade products it may become able to produce may
      be
      adversely affected. The Company is unable to predict at this time the cost
      of
      compliance with FDA requirements.





*Proprietary
      Technology*





The
      Company has expended substantial funds on research and development and has
      developed proprietary technology for the processing of biomass. The value of
      the
      Company's proprietary technology is substantially dependent upon the Company's
      ability to obtain patent protection for those elements of its technology that
      may be patentable, and to maintain the confidentiality of its trade secrets.
      The
      Company has required all of its employees who are exposed to or working with
      the
      Company's technology to sign written agreements prohibiting the disclosure
      or
      use of the Company's confidential information and trade secrets. The Company
      takes other steps to protect its technology, including the compartmentalization
      of most employee functions, so that few employees understand the full scope
      of
      the Company's technology, and the maintenance of security at the Company's
      production facilities.




On
      May
      18, 2004, the Company filed seven provisional patent applications with the
      United States Patent and Trademark Office with respect to its proprietary
      technology for the processing of biomass materials. A provisional application
      is
      a patent filing allowing the Company one year to complete the final application.
      On May 16, 2005, the Company filed seven Patent Cooperation Treaty (“PCT”)
      applications, claiming priority to the provisional patent applications it
      previously filed. The filing of the PCT applications extended the time allowed
      to the Company to complete filing formal U.S. applications, and gave the Company
      the ability to extend the time for filing applications with foreign governments
      that are PCT participants. In November 2006, the Company filed final patent
      applications in the United States and 18 other countries based on the seven
      PCT
      applications previously filed on a provisional basis. Upon the granting of
      any
      patents, the associated costs will be amortized over the life of the patents.
      There is no assurance that any patents will be issued to the Company or that
      any
      patents that may be issued will prove to be enforceable.




12




The
      Company’s patent applications are related to its EcoGoldTM biomass processing
      technology. EcoGoldTM is the name of the Company’s ecologically beneficial
      process and equipment as well as the name of the product produced through the
      process, which is a golden colored, high value nutrient. The EcoGoldTM process is
      designed to reduce phosphorus and nitrogen pollution from waste streams, by
      creating a valuable product (protein) at farms and industrial
      sites.





The
      technology covered by the Company’s patent applications involves pre-treatment,
      core fermentation, and post treatment aspects. The Company believes each of
      these aspects has unique elements, and its patent applications seek coverage
      in
      each of these general areas. Both equipment and process innovations are covered
      for many diverse waste streams. Treatment of all the waste streams utilizes
      the
      central inventive aspects of the process (“core technology”). The waste streams
      explored are:





·
            Ruminant
                cattle manure;


·
            Swine
                and other animal manure;


·
            Municipal
                cellulosistic solid waste;


·
            Other
                cellulosistic solid waste;


·
            Whey
                broth from cheese production;


·
            Fermentation
                broth remediation from alcohol and yeast production;
                and


·
            Other
                undefined dilute waste streams.





Ruminant
      cattle and swine manure treatment and remediation are dealt with more
      extensively in the presentation as specific instances of application of the
      core
      technology.





The
      Company believes that the discoveries presented in its patent applications
      constitute a novel means of fermentation. In general, the core technology
      presented, taken as a whole, addresses the major problems of waste stream
      treatment—sub optimal, very dilute, poor and variable concentration nutrient
      supply. The Company believes that its technology can address remediation of
      waste streams as dilute as certain river water, or as concentrated as manure,
      potentially with recovery of valuable product that may more than offset the
      cost
      of the processing.





Other
      innovations presented in the patent applications may be separated into (1)
      proper preparation of the waste stream and (2) the core technology—equipment
      design, fermentation organism selection, sensor and control selection and
      process definition.





The
      Company’s technology includes elements relating to the proper preparation of
      waste streams for fermentation that are both necessary to optimize utilization
      of waste streams for use in the core technology and are otherwise generally
      useful, innovative tools. These elements relate to:




13




·
            Recovery
                of organic material suitable for fermentation;
                and


·
            Limiting
                presence of substances that interfere with, or make less optimal,
                proper
                recovery.





The
      Company refers to these processes as its EcoGoldTM technology. The processes
      involve the recovery of nutrient value from dilute, variable waste streams
      by
      fermentation processing. The technology encompasses several variations that
      include cheese whey, ethanol fermentation waste and recovery of nutrient
      specific to manure waste of various animal species such as hogs, poultry and
      cattle.





*Dairy
      Animal Waste Processing, Okeechobee, Florida*





The
      Company is a party to a Dairy Animal Waste Processing Operating Agreement,
      dated
      June 23, 1999, with Larson Dairy, Inc. in Okeechobee, Florida. This agreement
      requires the Company to process animal waste materials resulting from the dairy
      farming operations of Larson Dairy into useful feed, chemical and fuel
      commodities. In consideration for its handling of the animal waste materials
      generated by Larson Dairy, the Company acquires ownership of all output
      generated by the Company’s process. The term of the agreement is twenty years,
      subject to termination by either party in the event of an uncured breach by
      the
      other party. The agreement is also terminable by Larson Dairy if it ceases
      dairy
      operations and by the Company if it determines that it is not obtaining the
      benefits it intended to obtain through the agreement.




The
      Company's CAV1 facility is located on land leased from Larson Dairy. The initial
      operations of the CAV1 facility consist of processing animal waste materials
      generated by Larson Dairy. The Company plans to continue construction of
      modifications that will expand the capacity of the CAV1 facility and to
      construct a hydrolysis processing capability at the CAV1 facility. The Company
      has completed the installation of piping over Larson Dairy's land which
      currently transfers the Dairy's animal waste materials directly to the CAV1
      facility for processing. The Company intends to negotiate construction of
      additional pipe lines to more barns at Larson Dairy and barns at other nearby
      dairies.




*Discontinued
      Operations - Activities at St. Lucie County Landfill*




The
      Company was a party to an agreement with St. Lucie County, Florida, under which
      the Company processed and removed the yard waste deposited at the County’s
      landfill and received a fee of $17.48 per ton of yard waste processed. The
      term
      of the agreement was to expire February 1, 2009, subject to earlier termination
      by either party at any time upon the provision of ninety days’ written notice to
      the other party. In order to enable the Company to focus its resources on its
      core business, the Company exercised the early termination provision and the
      contract was terminated as of January 13, 2005. Management believes experience
      acquired during the term of the St. Lucie agreement was a valuable contribution
      to the Company’s research and development and allowed collection of objective
      data on processing costs related to this type of biomass material.




14




*Plan
      of Operations*




As
      further detailed in the financial statements under "Note 12 - Subsequent
      Events," during the months subsequent to December 31, 2006, the Company
      allocated its capital resources to the completion of its fully-expanded
      production facilities and its endeavor to secure significant funding sufficient
      to support commencing operations. During the coming twelve months (the second
      half of 2007 and first half of 2008), through a combination of expected
      securities offering proceeds and cash flows, the Company plans to begin
      operating the CAV1 facility with lines 1 and 2, add production lines 3 and
      4,
      complete construction of its hydrolysis system (a pre-process applied to
      vegetative biomass that reduces the cost of raw materials and fuel costs),
      and
      construct two additional permitted fermentation lines 5 and 6, at the CAV1
      facility.





In
      their
      report on the Company’s consolidated financial statements for the fiscal years
      ended December 31, 2006 and 2005, the Company’s independent auditors included an
      explanatory paragraph describing conditions which raise substantial doubt about
      the Company’s ability to continue as a going concern. Until the Company begins
      to generate cash revenues from its planned principal business operations, its
      expenses will substantially exceed its revenues and a substantial portion of
      the
      Company’s limited cash resources will be required to be used to pay operating
      expenses. The Company believes that its current capital resources will be
      insufficient to fund the Company's intended operations beyond the third quarter
      of 2007, and that unless the Company commences generating significant cash
      flow
      from operations, it will be required to raise additional capital through the
      offering of equity securities, the incurrence of indebtedness or a combination
      of the foregoing. The Company currently intends to seek to raise substantial
      additional capital through one or more private offerings of debt securities,
      common stock or convertible securities, or a combination of the foregoing.
      There
      is no assurance that the Company will be able to raise any additional funds
      which may be necessary to enable it to continue its planned business
      operations.





***Risk
      Factors***




Among
      the
      significant risks and uncertainties which could cause actual results to differ
      from those anticipated in the Company's forward-looking statements or could
      otherwise adversely affect the Company's business or financial condition are
      those described below.





***The
      continuation of the Company’s business will require significant amounts of
      additional capital that may not be available to the Company, and there is
      substantial doubt regarding the Company’s ability to continue as a going
      concern*** .





The
      Company’s independent auditors have added an explanatory paragraph to their
      audit opinion (included elsewhere in this Annual Report on Form 10-KSB) issued
      in connection with their audit of our financial statements for the years ended
      December 31, 2006 and 2005, which states that there are matters related to
      the
      Company that raise substantial doubt as to the Company’s ability to continue as
      a going concern. The Company is dependent upon the proceeds from the sale of
      shares of its Common Stock to continue its operations. The existing assets
      of
      the Company may not be sufficient to meet the ultimate capital or financial
      needs of the Company and may not be sufficient in relationship to the operations
      in which the Company intends to engage. Should the Company fail to raise
      sufficient capital to meet its current financial needs, or should the Company
      fail to commence business operations that generate material amounts of revenue,
      it will be necessary for the Company to seek to raise additional funds in order
      to continue its business operations. This may involve offering additional shares
      of Common Stock. There can be no assurance that the Company will successfully
      implement its business plan or that it will be able to raise any additional
      capital which may be required.




15




***The
      Company may not be able to attract and train appropriate personnel for its
      business expansion plans on a timely basis.***





To
      implement the Company’s expansion plans during its planned process of becoming
      fully operational and rapidly expanding production, the Company will need to
      hire qualified personnel in marketing, engineering, accounting, production
      and
      other areas and to adequately train the new staff members. The Company is
      currently operating with fewer employees than in prior years and several key
      positions are unfilled. There is no assurance that the Company will have the
      funds to hire qualified personnel or will be able to successfully identify,
      recruit and train qualified personnel on a timely basis to achieve the Company’s
      goals.





***The
      Company has a history of operating losses and negative cash flow and such losses
      may continue and the Company may not become profitable in the
      future.***





The
      Company has incurred losses from continuing operations in each fiscal year
      since
      its inception. The Company may continue to experience losses in the foreseeable
      future, if it is unable to commence profitable production operations. Future
      net
      losses could be greater than those the Company has experienced in the
      past.





The
      Company’s cash flow from operations has been insufficient to cover the Company’s
      operating expenses and other cash commitments in each year since the Company’s
      inception, including each of the years ended December 31, 2006 and 2005, and
      through the date of this report. The Company has financed its operating cash
      requirements, as well as its capital needs, during these periods with proceeds
      from the issuance of Common Stock. There can be no assurance, however, that
      the
      Company will be able to continue to finance its operating and capital needs
      through the issuance of Common Stock.





***Because
      the Company has no significant operating history, any evaluation of or
      projection regarding the Company’s prospects is subject to a material risk of
      inaccuracy.***





The
      Company has not sold any products and accordingly has no operating history
      which
      can be used to evaluate its business and prospects. The Company is subject
      to
      the risks, expenses and difficulties frequently encountered by early and
      development stage companies in new and rapidly evolving markets. The likelihood
      of the Company’s success must be considered in light of the expenses, problems
      and delays frequently encountered by businesses in the early stage of
      development, the competitive environment in which the Company will operate
      and
      the frequent failure rate of other development stage businesses. In light of
      these risks and uncertainties, there can be no assurance that the Company will
      be able to make the transition from a development stage company to successful
      operations.




16




***The
      Company may never complete the commercialization of its
      technology.***





Although
      the Company has conducted a substantial amount of testing of its technology
      and
      has developed prototypes of equipment that implements the Company’s technology
      in production operations, the Company has yet to place its CAV1 facility or
      any
      other processing equipment in service in conducting day to day commercial
      operations. Further, the Company has not entered into any license agreements
      for
      its technology or received any fees in respect thereof, nor has it sold any
      actual products produced using its technology. If the Company is not successful
      in completing the development of its technology and licensing its technology
      or
      selling products produced using its technology, the Company will not be able
      to
      make the transition from a development stage company to successful
      operations.





***The
      Company may not achieve market acceptance for any of its
      products.***





Although
      the Company’s proposed initial products are commodity products for which
      management believes there is an established market, the Company has not entered
      into any agreements with potential purchasers of its proposed products for
      the
      Company to supply such products, nor have any potential purchasers of the
      Company’s products evaluated the Company’s products or production facilities or
      indicated to the Company their intention to purchase the Company’s products at
      such time as the products become available for purchase. The Company may be
      required to expend significant resources on marketing and sales to achieve
      market acceptance of its products, and even if the Company expends such
      resources there is no assurance that the Company’s marketing and sales efforts
      will succeed or that its products will attain market acceptance.





***The
      Company is dependent upon its chief executive officer, Larry W. Denney, and
      other key personnel and the loss of any of them could materially and adversely
      affect the Company.***





The
      Company’s business depends upon the efforts, abilities and expertise of the
      Company’s executive officers and other key employees, including Larry W. Denney,
      the Company’s Chairman, Chief Executive Officer, President and Chief Engineer.
      There can be no assurance that the Company will be able to retain the services
      of any of the Company’s key employees. If any of these employees were to leave
      the Company, the Company’s operating results or prospects would be adversely
      affected.





***The
      Company may not be able to effectively manage any growth the Company may
      experience, and this inability to manage growth effectively could materially
      and
      adversely affect the Company’s operations.***





To
      achieve successful operations, the Company will be required to attract and
      retain additional qualified personnel. If the Company is not able to attract
      and
      retain additional qualified personnel, or is unable to effectively integrate
      such personnel into its operations, it is unlikely that the Company will be
      able
      to become fully operational or compete effectively in the markets for its
      planned products.




17




***If
      the Company is unable to adequately protect its intellectual property rights,
      it
      could be materially and adversely affected.***





The
      protection of the Company’s intellectual property rights is important to its
      future success. The Company intends to rely on a combination of patents, trade
      secret laws and contractual restrictions to establish and protect its
      proprietary rights. The Company has entered, and will enter, into
      confidentiality and invention assignment agreements with its employees and
      contractors and nondisclosure agreements with parties with whom it does business
      in order to limit access to and disclosure of its proprietary information.
      There
      can be no assurance that these contractual arrangements or other steps that
      the
      Company takes will be sufficient to protect its intellectual property rights
      from infringement or misappropriation. The Company may be unable to detect
      the
      unauthorized use of, or take appropriate steps to enforce, the Company’s
      intellectual property rights. Furthermore, third parties may claim that the
      Company’s activities infringe upon their proprietary rights. Such claims,
      whether meritorious or not, could have a material adverse effect upon the
      Company’s business, results of operations and financial condition. Further,
      defending the Company’s intellectual property rights could result in the
      expenditure of significant financial and managerial resources, which could
      materially adversely affect the Company’s business, results of operations and
      financial condition.





***The
      Company’s inability to obtain or maintain patent protection on its proprietary
      technology could have a material adverse effect upon the
      Company.***





The
      Company’s success will depend in part on its ability to obtain and maintain
      patent protection for its proprietary technology. The Company has filed seven
      patent applications with the United States Patent and Trademark Office and
      the
      patent authorities of 18 other countries with respect to its proprietary
      technology for the processing of biomass materials.





The
      patent positions of companies such as the Company are generally uncertain and
      involve complex legal and factual questions. There is no assurance that any
      of
      the Company’s technology is in fact patentable, that the Company’s pending or
      future patent applications will be allowed, that any patents will actually
      be
      issued to the Company, or that any patents, if issued, will provide adequate
      protection of the Company’s rights in its proprietary technology. There can be
      no assurance that any patents that may be issued to the Company will provide
      a
      basis for commercially viable products or will provide the Company with any
      competitive advantages or will not be successfully challenged by third parties,
      or that the patents of others will not have an adverse effect on the Company’s
      business. The degree of future protection for the Company’s proprietary rights,
      therefore, is uncertain. Furthermore, there can be no assurance that others
      will
      not independently develop similar or alternative technology to the Company’s
      technology, or, if patents are issued to the Company, that others will not
      design around the Company’s patents.





The
      Company’s commercial success will also depend upon avoiding the infringement of
      patents and other rights of other persons. Costly litigation may be necessary
      to
      enforce the Company’s patent rights or to determine the scope and validity of
      proprietary rights of third parties. If any of the Company’s technology is found
      to infringe upon patents or other rights owned by third parties, the Company
      could be required to obtain a license to continue using such technology, which
      may not be available to the Company on commercially reasonable terms. If the
      Company does not obtain such licenses, the Company could be required to cease
      using such technology, which could have a materially adverse effect on the
      Company’s business and operations. ****




18




***The
      Company expects to face competition from companies with greater financial and
      human resources and the Company may not be able to compete with these companies
      effectively.***





The
      Company intends to operate in highly competitive markets. The Company will
      face
      competition in these markets from competitors such as Cargill, A. E. Staley
      and
      Archer Daniels Midland, each of which is well capitalized and will have material
      competitive advantages with respect to the Company. Competition from large,
      nationwide competitors is likely to increase as the Company seeks to attract
      additional customers and expand its markets. There can be no assurance that
      in
      the future the Company will be able to compete favorably with all or any of
      its
      prospective competitors.





***The
      Company’s business is subject to extensive and changing regulation that could
      increase the Company’s costs, expose the Company to greater competition or
      otherwise adversely affect the ownership and operation of the Company’s assets
      or the Company’s business strategies.***





The
      Company’s operations are subject to significant regulation that may affect the
      competitive landscape in ways that could increase the competition the Company
      faces, including competition from larger companies, which may have greater
      access to capital and other resources. Management is unable to predict the
      effect that any such laws, regulations or policies may have on the Company's
      operations.





***The
      Company is subject to a number of operating risks and uncertainties that could
      materially and adversely affect its results of
      operations.***





Operation
      of the Company’s facilities involves various risks, including the potential for
      breakdown or failure of equipment, the inability to obtain adequate supplies
      of
      suitable biomass material at acceptable cost, performance of equipment below
      expected levels of output or efficiency (whether due to misuse, unexpected
      degradation or design or manufacturing defects), failure to keep on hand
      adequate supplies of spare parts or other raw materials, operator error, labor
      disputes, catastrophic events such as fires, floods, earthquakes, acts of war
      or
      terrorism and other similar events, and the inability to sell products intended
      to be produced by the Company’s facilities at acceptable prices, or at all. The
      occurrence of any of the events described above could increase the cost of
      operating the Company’s facilities, reduce the sales of the proposed output of
      the Company’s facilities or otherwise materially and adversely affect the
      financial condition of the Company.





***The
      Company’s operations subject the Company to a substantial risk of liability for
      violations of environmental, health and safety laws and
      regulations.***





The
      Company will be required to comply with a number of statutes and regulations
      relating to the health and safety of personnel and the public, including the
      identification, generation, storage, handling, transportation, disposal, record
      keeping, labeling and reporting of, and emergency response in connection with,
      materials relating to the Company’s facilities that may be hazardous or toxic,
      safety and health standards, practices and procedures applicable to operation
      of
      the Company’s facilities, and environmental protection requirements including
      standards and limitations relating to the discharge of air and water pollutants
      and the discharge of solid waste. Failure to comply with any of such statutes
      and regulations could have a material adverse effect on the Company, including
      the imposition of criminal or civil liability either by regulatory agencies
      or
      as a result of litigation by private parties, imposition of clean-up fines
      or
      liens, the posting of reclamation bonds or the mandatory expenditure of funds
      to
      bring the Company’s facilities into compliance.




19




The
      Company conducts its operations based upon environmental and other regulatory
      standards currently in effect. There can be no assurance that existing laws
      and
      regulations will not be revised, that new laws and regulations will not be
      adopted or become applicable to the Company’s operations, or that the business
      and financial condition of the Company will not be materially and adversely
      affected by any such future changes in laws and regulations. Similarly, there
      can be no assurance that existing or future environmental laws and regulations
      will not adversely affect the ability of third parties to provide the Company
      with necessary services and materials.





Moreover,
      the Company may be held liable for operations at facilities it does not own.
      Under the federal Comprehensive Environmental Response, Compensation and
      Liability Act and similar state laws, for example, the Company could face
      cleanup liability that applies to operators of sites “for contamination existing
      at those sites, including contamination that may have been present before the
      commencement of such operations”. In addition, there can be no assurance that if
      a site owner faces such liability, the Company would not also be liable under
      certain “control” theories of environmental responsibility.





***If
      the Company is unable to obtain and maintain all of the permits necessary to
      operate its facilities, its operations could be materially and adversely
      affected.***





The
      Company is responsible for maintaining various permits and other regulatory
      approvals required for the operation of its facilities. Failure to satisfy
      certain of the permits’ conditions could prevent the Company from operating its
      facilities or result in fines or other additional costs. While the Company’s
      facilities have been designed and constructed in order to substantially comply,
      insofar as can be reasonably controlled, with the conditions in the Company’s
      permits and approvals, there can be no assurance that its facilities will
      operate within the limits established by the permits or other approvals. The
      Company’s facilities could be adversely affected if regulatory changes or new
      permit conditions are implemented that impose more comprehensive or stringent
      compliance requirements, resulting in increased compliance costs or
      restrictions. Similarly, there can be no assurance that existing or future
      permitting requirements will not adversely affect the ability of third parties,
      such as suppliers of biomass or purchasers of the Company’s products, to provide
      the Company with necessary services and materials or to purchase or use the
      Company’s products.




20




***The
      Company will continue to be controlled by its present management for the
      foreseeable future, and other stockholders may not be able to replace management
      should that become necessary to improve the Company’s
      operations.***





Larry
      W.
      Denney, the Chairman, President and Chief Executive Officer of the Company,
      owns
      approximately 40% of the Company’s issued and outstanding shares of Common
      Stock, and the directors and officers of the Company as a group own
      approximately 43% of the Company’s issued and outstanding shares of Common
      Stock. Jack B. Simpson, a co-founder and former director of the Company, owns
      approximately 18% of the outstanding shares of Common stock. As a result,
      management of the Company will be able to exert a substantial and controlling
      influence over all matters submitted for a vote of the Company’s stockholders,
      including the election of directors. Non-management stockholders are unlikely
      to
      be able to replace management should those stockholders determine that the
      Company’s operations could be conducted more effectively by other
      management.





***The
      Company does not intend to pay dividends on its shares of common
      stock.***





The
      Company has never declared or paid any cash dividends on its Common Stock.
      The
      Company currently intends to retain any future earnings to fund growth and,
      therefore, does not expect to pay any dividends in the foreseeable
      future.





***The
      indemnification provisions of the Company’s bylaws substantially limit the
      potential liability of directors and provide for indemnification of directors
      by
      the Company in most circumstances*** .





The
      Company’s bylaws provide that the members of the board of directors may be
      indemnified against any loss or liability incurred in connection with the
      affairs of the Company (including breaches of fiduciary obligations) so long
      as
      such loss or liability arises from acts performed in good faith and which do
      not
      involve fraud or gross negligence on the part of the members of the board of
      directors. Therefore, a stockholder suing on behalf of the Company may have
      a
      more limited right of action against the board of directors than he would have
      in the absence of this indemnification provision. Similarly, the bylaws contain
      exculpatory provisions limiting the liability of directors except in
      extraordinary circumstances.





***The
      execution by county tax authorities on liens placed on equipment included in
      the
      CAV1 facility relating to significant amounts of past due personal property
      taxes could have a material adverse effect on the Company's ability to operate
      the CAV1 facility.***





The
      tax
      authorities of Okeechobee County, Florida have assessed the Company for personal
      property taxes on the manufacturing and production equipment included in the
      CAV1 facility. The amount of these taxes for the 2004 calendar year was
      $179,355. The Company did not pay this amount when it was asserted to be due,
      and in June 2006, the County filed a lien on the Company's equipment in the
      amount of the back taxes. In May 2007 the County filed an additional lien in
      the
      amount of $328,259 for 2005 personal property taxes. The Company has been billed
      for an additional $328,574 for 2006 personal property taxes. The amounts accrued
      include estimated penalties and interest. The County may enforce the lien by
      seizing the Company's equipment and offering it for sale to third parties.
      The
      Company has been in discussions with County officials regarding the tax
      liability, has indicated its intention to satisfy the liability after the
      Company becomes operational and has the financial capacity to do so, and has
      made good-faith payments to the County of approximately $82,200 towards the
      Company's tax liability. There can be no assurance that the Okeechobee County
      tax authorities will not seek to execute on the liens placed on the Company's
      assets, which could result in the seizure and sale of such assets without any
      assurance that the proceeds would be sufficient to satisfy the Company's
      asserted tax liability. The occurrence of such events could have a material
      adverse effect on the Company.




21




**Item
      2.**  **Description
      of Property.**




*Company
      Headquarters, West Palm Beach, Florida*




The
      Company is a party to a Lease, dated November 12, 2001, under which the Company
      leases its principal offices located in West Palm Beach, Florida from 45th
      Street Partnership, Ltd. The lease term as extended expires in December 2007,
      and the current base rent under the lease is $8,071 per month. The Company
      is
      also required to pay its proportionate share of the lessor’s operating expenses
      attributable to the office building in which the leased premises are located,
      and related real estate taxes. The facilities are adequate for the Company’s
      present and anticipated future needs. The Company intends to negotiate an
      additional extension, execute a new lease or relocate in the area.





*CAV1
      Production Facility, Okeechobee, Florida*




The
      CAV1
      facility is a Company facility sited on a six acre parcel leased by the Company
      from Larson Dairy, Inc. in Okeechobee, Florida and designed and implemented
      as a
      four-line production facility. The fermentation capacity of the CAV1 facility
      is
      4,000,000 liters, implemented in four 1,000,000 liter "lines". Although the
      optimal economic design of the CAV1 facility includes internal generation of
      carbohydrate feed stock from the Company's hydrolysis process, the CAV1 facility
      can operate using carbohydrate purchased from outside sources. Construction
      of
      the basic design of the CAV1 facility is complete. The Company plans to commence
      commercial processing operations at the CAV1 facility utilizing the two
      completed fermentation lines. Subject to raising sufficient additional capital,
      the Company plans to continue construction to expand production capacity and
      add
      a hydrolysis processing capability that will enable the CAV1 facility to produce
      a wider range of products with greater efficiency. The Company expects its
      commercial processing operations at the CAV1 facility to initially consist
      of
      the processing of barn waste from adjacent dairy farming operations. The Company
      expects to market and sell the products of its CAV1 facility processing
      operation as described above.




The
      Company leases the six acre site on which its CAV1 facility is located from
      Larson Dairy, Inc., pursuant to a lease agreement, dated June 23, 1999, between
      the Company and Larson Dairy, which has a five year term, with four additional
      five year renewal terms exercisable by the Company in its sole option. The
      rent
      under the lease is $5,000 per year (subject to increase based on annual changes
      in the CPI). The lease grants a right of first refusal in favor of the Company
      with respect to any proposed sale of the leased premises by Larson Dairy to a
      third party.





22





**Item
      3.**  **Directors,
      Executive Officers, and Significant Employees.**





The
      following table sets forth the names, ages and positions of the executive
      officers and directors of the Company. The Board of Directors currently consists
      of three directors. Directors are elected at the annual meeting of stockholders
      of the Company and serve for one year or until their successors are elected
      and
      qualify. Officers are elected by the Board and serve at the discretion of the
      Board.




Name
            Age
            Positions
                HeldLarry
                W. Denney
            69
            Chairman
                of the Board, President and Chief Executive OfficerSandra
                McDonald
            58
            DirectorP.E.
                MacAllister
            89
            DirectorRobert
                F. Kendall
            58
            Chief
                Financial Officer





*Larry
      W. Denney* has been
      Chairman of the Board, President and Chief Executive Officer of the Company
      since the inception of the Company in 1996. Mr. Denney founded Omni Technologies
      International, Ltd. (now a wholly-owned subsidiary of the Company under the
      name
      Omni Environmental Corporation) in 1991 for the purpose of conducting research
      and development of process control automation equipment and technology which
      improve the efficiency and lower the operating costs of manufacturing processes.
      Mr. Denney is married to Peggy Denney, the Company's controller.




*Sandra
      McDonald* has been
      a director of the Company since June 2005. Ms. McDonald is the world-wide sales
      and marketing manager for Pro Med Instruments, a leader in cranial stabilization
      and brain retraction, headquartered in Freiburg, Germany. She is the cofounder
      of PJ McDonald Corp., a construction company located in Cape Coral, Florida,
      where she served as Chief Financial Officer from 2004 through 2006. Ms. McDonald
      was Executive Director of Professional Services-Medical Systems Group of Olympus
      America, Inc., a medical instruments company, from 2000 through 2003 and was
      Director of Marketing-Olympus Diagnostic Systems Group from 1997 through 2000.
      Ms. McDonald was Vice President - Marketing & Chief Operations Officer of
      the Company in 1997. She worked with Beckman-Coulter Corporation in Miami,
      Florida from 1985 through 1997 serving as Worldwide Marketing Manager, Worldwide
      Group Product Manager-Hematology and Worldwide Product Manager-Chemistry. From
      1975 through 1983 she worked in Bonn, Germany as Sales and Marketing
      Manager-Europe for American Monitor Corporation, a medical instruments company
      with which Mr. Denney, the Company’s Chairman and Chief Executive Officer, was
      previously associated.




*P.E.
      MacAllister* has been
      a director of the Company since June 2005. Since 1952, he has been the Chairman
      of the Board of MacAllister Machinery Co., Inc., a dealer for Caterpillar.
      He
      has served on boards of numerous civic organizations in Indianapolis, Indiana
      including 17 years on the Capital Improvements Board of the Convention Center
      & RCA Dome (a $100 million facility), the Marion County Convention &
Recreational Facilities Authority, the Community Hospital Foundation, the
      Indianapolis Opera Company, Indiana State Symphony Society, Board of Public
      Safety and the Marion County Hospital Authority Board.




23




*Robert
      F. Kendall* has been
      Chief Financial Officer of the Company since June 2004. Mr. Kendall has been
      a
      certified public accountant in West Palm Beach, Florida for 24 years, ten of
      which were in public accounting including working with the international firm
      of
      Laventhol and Horwath. From 2003 through 2004, he was an auditor with Michaelson
      & Company, a CPA firm where he specialized in requirements of clients with
      SEC and Sarbanes-Oxley Act reporting obligations. From 2002 through 2003, he
      served as Chief Financial Officer in America’s Senior Financial Services, Inc.,
      an SEC reporting mortgage brokerage company. From 2000 through 2002, he was
      chief financial officer of Infinite Space Systems, Inc., a development stage
      Internet company, and controller of Mercedes Benz of Palm Beach, an auto
      dealership. From 1998 through 2000, he served as Controller of Pueblo Xtra
      International, Inc., an SEC reporting grocery store chain with annual sales
      of
      nearly $1 billion where he supervised a staff of 70 in the accounting, human
      resources, and IT departments.





*Committees
      of the Board of Directors*




The
      Board
      of Directors has established the following committees of the Board: an Audit
      Committee, a Compensation Committee, and a Technical Review
      Committee.




The
      full
      Board of Directors is presently acting as the Audit Committee in meetings
      designated for that purpose. Ms. McDonald and Mr. MacAllister are "independent"
      within the meaning of that term in Section 10A of the Securities Exchange Act
      of
      1934, as amended. The Audit Committee was created by the Board of Directors
      in
      October 2003. The Audit Committee's responsibilities are principally concerned
      with the accuracy and effectiveness of the audits of the Company's financial
      statements by its independent auditors. The Audit Committee is responsible
      for
      selecting, retaining, overseeing and evaluating the Company's independent
      auditors, meeting with the auditors to review the scope and results of the
      audit, approving any non-audit services which may be provided to the Company
      by
      the independent auditors, and considering various accounting and auditing
      matters related to the Company's system of internal controls, financial
      management practices and other matters. The Audit Committee did not meet
      separately from the Board of Directors during 2006; its activities were
      conducted as part of the meetings of the full Board.




The
      Compensation Committee consists of Mr. MacAllister, an independent director.
      The
      Compensation Committee's responsibilities are to make recommendations to the
      Board of Directors regarding the compensation of the Company's officers and
      directors and to review and make recommendations with respect to existing and
      proposed compensation plans and programs. The Committee was created by the
      Board
      of Directors in October 2003. The Compensation Committee did not meet separately
      from the Board during 2006. During 2006, there were no changes to compensation
      or compensation plans.




The
      Technical Review Committee consists of Ms. McDonald, who is the chairman, and
      Mr. Denney. The Technical Review Committee is composed of persons having a
      sufficient technical background, gained through education and experience, to
      perform an informed evaluation of the Company's technology. The purpose of
      the
      Committee is to advise the Board of Directors and Company management as to
      the
      strategic direction of the Company with respect to matters involving the
      Company's technology. The Committee was created by the Board of Directors in
      October 2003. During 2006, the Committee addressed technical review issues
      during general Board of Directors meetings instead of holding separate Technical
      Review Committee meetings.




24





**Item
      4.**  **Remuneration
      of Directors and Officers.**




The
      following table sets forth the aggregate remuneration paid to the three highest
      paid officers of the Company during the year ended December 31, 2006.




Name
            Capacity
            AggregateRemunerationLarry
                W. Denney
            Chairman
                of the Board, President and Chief Executive Officer
            $170,833*Robert
                F. Kendall, CPA
            Chief
                Financial Officer/Secretary
            $
                80,000Peggy
                J. Denney
            Controller/Assistant
                Secretary
            $111,042*




*
      During
      the year 2004, in light of the Company's cash position certain officers elected
      to defer a portion of their salaries to be paid at a later date. In 2004, Mr.
      Denney deferred $70,833 and Mrs. Denney deferred $46,042; these balances were
      paid during 2006 and are included above. Annual salary rates in 2006 and 2005
      were: Mr. Denney, $100,000, Mr. Kendall, $80,000 and Mrs. Denney, $65,000.




Commencing
      in November 2003, directors who are not employees of, or consultants to, the
      Company receive a fee of $200 for each meeting of the Board of Directors and
      each meeting of any committee of the Board that is conducted by telephone
      conference call and which the director attends, and a fee of $1,000 for each
      meeting of the Board of Directors and each meeting of any committee of the
      Board
      that requires the personal presence of the director and which the director
      attends. Directors who are also employees of or consultants to the Company
      are
      specifically excluded from payment of these fees; accordingly Mr. Denney is
      not
      paid as a director. Directors are also reimbursed for their travel expenses
      of
      attending any in person meetings of the Board or any committee of the
      Board.




**Item
      5.**  **Security
      Ownership of Management and Certain Security Holders.**




The
      following table sets forth information as to shares of Common Stock, which
      constitutes the only class of voting securities of the Company, owned of record
      on September 20, 2007, by (i) each person who is one of the three highest paid
      officers or directors of the Company, (ii) all of the directors and officers
      of
      the Company as a group, and (iii) any person who the Company knows to be the
      owner of record of more than ten percent of the Common Stock.




25




Title
                of Class
            
            Name
                and Address of Owner(1)
            
            Amount
                Owned
            
            %
                of
              Class
                (2)Common
                Stock
            
            
            Larry
                W. Denney (3)
            
            
            31,552,046
            
            
            39.7
            %Jack
                B. Simpson (4)
            
            
            14,165,814
            
            
            17.8
            %P.E.
                MacAllister
            
            
            2,109,000
            
            
            2.7
            %Sandra
                McDonald
            
            
            360,000
            
            
            0.5
            %Robert
                F. Kendall
            
            
            -
            
            
            -0-
            %Peggy
                J. Denney (5)
            
            
            638,000
            
            
            -0-
            %All
                directors and officers as a group (5 persons)
            
            
            34,011,046
            
            
            42.8
            %





(1)
            The
                business address of each owner listed is 3222 Commerce Place, Suite
                A,
                West Palm Beach, Florida 33407.




(2)
            Information
                as to the percent of class is based on 79,372,489 issued and outstanding
                shares of Common Stock as of September 20,
                2007.




(3)
            Includes
                (i) 578,000 shares held by Peggy J. Denney, wife of Larry W. Denney,
                (ii)
                168,000 shares held by Mr. Denney's adult daughter, and (iii) 60,000
                shares held by Peggy J. Denney as custodian for three adult grandchildren
                of Larry and Peggy Denney, as to all of which Mr. Denney disclaims
                beneficial ownership.




(4)
            Includes
                shares held of record by entities controlled by Mr.
                Simpson.




(5)
            Includes
                60,000 shares held by Peggy J. Denney as custodian for three adult
                grandchildren, as to which Mrs. Denney disclaims beneficial
                ownership.




The
      Company does not have any outstanding options, warrants or other convertible
      securities.




**Item
      6.**  **Interests
      of Management and Others in Certain Transactions.**




During
      2004, Larry W. Denney, the Company’s principal stockholder, Chairman of the
      Board, President and Chief Executive Officer, loaned the Company $110,000 for
      working capital under a note in a principal amount not to exceed $200,000 and
      bearing simple interest at 4%. Through December 31, 2004, Mr. Denney made
      additional advances of $59,700 to the Company under the note and the Company
      repaid $62,000 under the note. The note, as amended, was payable on or before
      January 1, 2007 and could be prepaid without penalty. Accrued interest, which
      is
      presented as a component of accrued expenses, totaled $1,140 as of December
      31,
      2005. During the year ended December 31, 2005, the Company made payments of
      $68,375 in principal and $5,240 in interest and $2,062 in interest was accrued.
      The balance of the loan as of December 31, 2005 was $39,325. During 2006 the
      Company paid off the note in its entirety with payments of $39,325 in principal
      and $2,561 in interest.




During
      the year ended December 31, 2005, Mr. Denney directly transferred 610,000 shares
      of Common Stock he owned to the Company as a capital contribution and Jack
      B.
      Simpson, a cofounder of the Company and a former director, transferred 482,500
      shares of Common Stock he owned to the Company as a capital contribution in
      connection with the sale of those shares by the Company to other investors
      in
      private transactions. The transfers were accounted for as capital contributions
      to the Company in the amount of the par value of $.02 per share. Additionally,
      the Company acquired 127,600 shares from Mr. Simpson for $43,500.




26




On
      various dates between January 25, 2006, and June 30, 2006, in private placement
      offerings to existing shareholders only, the Company sold an aggregate of
      1,536,236 shares of Common Stock at prices between $1.00 and $1.50 per share
      to
      30 investors, all of whom the Company believes to be accredited investors,
      for
      aggregate proceeds of $1,643,854. All of the shares sold were contributed to
      the
      Company without payment by Mr. Denney and Mr. Simpson, each of whom contributed
      half of the shares. The
      share
      contributions were accounted for as capital contributions to the Company,
      recorded as a decrease to common stock in the amount of the $.02 per share
      par
      value of the contributed shares and an increase to additional paid in capital
      in
      the same amount. The shares were contributed to avoid the dilution to existing
      stockholders that would have resulted had the Company sold newly issued shares
      at lower prices than those paid by previous investors. Mr. Denney and Mr.
      Simpson, as the largest stockholders, stood to benefit from an increase in
      the
      Company’s value resulting from raising the additional capital. On June 30, 2006,
      the offering in which Mr. Denney and Mr. Simpson contributed their personal
      shares was closed; after the transactions, Mr. Denney owned 31,552,045.5 shares
      and Mr. Simpson owned 14,165,813.5 shares.





Included
      in the sales of the contributed Common Stock noted above were the following:
      on
      January 25, 2006, of 250,000 shares for $250,000 and on May 2, 2006, of 200,000
      shares for $200,000 to P. E. MacAllister, a director of the Company. On June
      30,
      2006, the Company sold 750,000 shares of Common Stock for $750,000 to Philip
      H.
      Good, a director of the Company at the time. The Company sold to Mr. MacAllister
      100,000 shares for $100,000 on August 31, 2006, 200,000 shares for $100,000
      on
      September 27, 2006, and 400,000 shares for $200,000 on October 24, 2006. The
      Company sold to Mr. Good 600,000 shares for $300,000 on September 27, 2006.





On
      September 12, 2006 the Board approved a new offering available to existing
      shareholders at $0.52 per share or $0.50 per share for purchases of $50,000
      or
      more. This offering price has been used as the “fair value” of a share of Common
      Stock since September 12, 2006 for purposes of potential non-cash related party
      calculations (see “Note 4 - Related Party Transactions”).





In
      conjunction with an offering commencing on September 12, 2006, available only
      to
      existing stockholders, the Company distributed 2,621,236 “matching” shares of
      Common Stock to stockholders who had purchased shares between October 19, 2005
      (the date Hurricane Wilma crossed Florida with an impact causing an adjustment
      to the Company’s business plan as detailed in “Note 12 - Subsequent Events” of
      the financial statements) and the commencement of the new offering. For each
      share purchased by any shareholder during the period October 19, 2005 through
      September 12, 2006, that shareholder was issued another share for no additional
      consideration. The Board approved the distribution of the additional shares
      of
      Common Stock as an adjustment of the purchase price paid by such stockholders,
      in light of the unanticipated effects of the Florida hurricanes, which
      significantly delayed the Company’s timeline for becoming operational, and the
      fact that the Company was offering shares at a lower price per share in the
      September 12, 2006 offering than the price previously paid by such stockholders.
      Included in the “matching” shares issued as a purchase price adjustment were
      550,000 shares issued to Mr. MacAllister and 1,715,000 shares issued to Mr.
      Good.




27




**PART
      II**





**Item
      1.**  **Market
      Price of and Dividends on the Registrant’s Common Equity and Other Shareholder
      Matters.**




There
      is
      currently no trading market for the Common Stock. As of December 31, 2006,
      there
      were 77,649,954 shares of Common Stock outstanding and approximately 1,056
      holders of record of the Common Stock. The Company has never declared or paid
      dividends on the Common Stock and does not anticipate doing so in the
      foreseeable future. The Company does not have any compensation plans under
      which
      Common Stock may be issued.




**Item
      2.**  **Description
      of Exhibits.**




The
      information required under this item is contained in Part III, Item 1, Index
      to
      Exhibits.





**Item
      3.**  **Changes
      in and Disagreements with Accountants.**




There
      have been no changes in or disagreements with the Company’s principal
      independent accountants that have not been disclosed previously.





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders.**




On
      June
      16, 2007, the Company held its Annual Meeting of Stockholders at its corporate
      offices in West Palm Beach, Florida. At the meeting Larry W. Denney, Sandra
      McDonald and P. E. MacAllister were elected to the Board of Directors by
      unanimous vote of those stockholders in attendance, who represented over 61%
      of
      the outstanding shares of Common Stock. Directors were elected for a term
      expiring at the next Annual Meeting of Stockholders. No matters were submitted
      to the security holders of the Company for a vote during the fourth quarter
      of
      the fiscal year covered by this report.




**Item
      5.**  **Compliance
      with Section 16(a) of the Exchange Act.**




Section
      16(a) of the Exchange Act requires the Company's directors and executive
      officers, and persons who beneficially own more than ten percent of a registered
      class of the Company's equity securities, to file with the SEC initial reports
      of beneficial ownership and reports of changes in beneficial ownership of the
      Company's Common Stock. The rules promulgated by the SEC under Section 16(a)
      require those persons to furnish the Company with copies of all reports filed
      with the SEC pursuant to Section 16(a).




Based
      on
      the Company's inquiries and copies of reports of beneficial ownership on Form
      5
      as of December 31, 2006 provided to the Company, Mr. Denney, Mr. Simpson, Ms.
      McDonald and Mr. MacAllister filed reports of beneficial ownership on Form
      5 on
      a timely basis as required by the SEC. Based on the Company's inquiries and
      copies of reports of ownership changes on Form 4, each of Mr. Denney, Mr.
      Simpson, Mr. MacAllister and Mr. Good filed a report of changes in beneficial
      ownership on Form 4 that was one day late. On May 2, 2006, Mr. Denney and Mr.
      Simpson each transferred 225,000 shares to the Company for no consideration,
      which transactions were not reported until May 5, 2006. On May 2, 2006, Mr.
      MacAllister purchased 200,000 shares, which transaction was not reported until
      May 5, 2006. On September 14, 2006, Mr. Good acquired 750,000 additional shares
      that he owns directly, and 965,000 additional shares that he owns indirectly,
      each issued as a result of an adjustment of the purchase price per share of
      previous investments, which transactions were not reported until September
      19,
      2006. There were no initial statements of beneficial ownership on Form 3 filed
      during 2006.




28




**Controls
      and Procedures.**





As
      required by Rule 13a-15 under the Exchange Act, as of December 31, 2006, the
      Company's management carried out an evaluation of the effectiveness of the
      design and operation of the Company's disclosure controls and procedures. This
      evaluation was carried out by Larry W. Denney, the Company's Chief Executive
      Officer, and Robert F. Kendall, the Company’s Chief Financial Officer. Based
      upon that evaluation, the Company's Chief Executive Officer and Chief Financial
      Officer concluded that as of December 31, 2006, the Company's disclosure
      controls and procedures were not effective in timely alerting them to material
      information required to be included in the Company's periodic SEC reports.





The
      Company's disclosure controls and procedures are subject to a material weakness
      resulting from inadequate segregation of duties related to accounting controls
      caused by the limited number of personnel available for accounting duties.
      The
      accounting department consists of the Chief Financial Officer, who is a CPA,
      one
      accountant, and the controller, who is married to the Chief Executive Officer
      of
      the Company. Additionally, the Chief Executive Officer of the Company is active
      in review of all aspects of financial reporting. As a mitigating control, the
      Chief Executive Officer, Chief Financial Officer, controller, and the accountant
      do extensive review of all of the accounting records and financial reporting.
      The Company is a research and development company in the development stage.
      Since inception in 1996, the Company has been entirely funded by investment
      and
      has had no revenues to date in its intended business. Management believes that
      remediation of the cited lack of segregation of duties can be accomplished
      through the hiring of additional accounting personnel or by adding or modifying
      certain existing internal control procedures. As for hiring additional
      personnel, it has not been reasonable or cost beneficial for the Company to
      hire
      extra accounting personnel who have no other purpose, duties or workload than
      to
      provide formal segregation of duties under internal control principles. In
      the
      future, the Company may hire additional accounting personnel as soon as it
      has
      sufficient financial resources and additional workload to justify such hiring.





It
      should be noted that the design of any system of controls is based in part
      upon
      certain assumptions about the likelihood of future events and there can be
      no
      assurance that any design will succeed in achieving its stated goals under
      all
      potential future conditions, regardless of how remote. Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in the Company's reports filed
      or submitted under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed in
      the
      Company's reports filed under the Exchange Act is accumulated and communicated
      to management, including the Company's Chief Executive Officer and Chief
      Financial Officer, to allow timely decisions regarding required disclosure.





There
      were no changes in the Company's internal control over financial reporting
      identified in connection with the evaluation required by paragraph (d) of Rule
      13a-15 under the Exchange Act with respect to the fiscal quarter ended December
      31, 2006 that have materially affected, or are reasonably likely to materially
      affect, the Company's internal control over financial reporting.





29




**PART
      F/S**




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**




REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            F-2FINANCIAL
                STATEMENTS:CONSOLIDATED
                BALANCE SHEET -December 31 2006
            F-3CONSOLIDATED
                STATEMENTS OF OPERATIONS
              -
                Years Ended December 31, 2006 and 2005
            F-4CONSOLIDATED
                STATEMENTS OF STOCKHOLDERS’ EQUITY
              -
                Years Ended December 31, 2006 and 2005
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS
              -
                Years Ended December 31, 2006 and 2005
            F-8NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-10




F-1




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the Board of Directors of


Biomass
      Processing Technology, Inc.





We
      have audited the accompanying consolidated balance sheet of Biomass Processing
      Technology, Inc. and its subsidiaries (the "Company"), a development stage
      company, as of December 31, 2006 and
      the related consolidated statements of operations, stockholders’ equity and cash
      flows for the years ended December 31, 2006 and 2005 .
      These consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our opinion, the consolidated financial statements referred to above present
      fairly, in all material respects, the financial position of Biomass Processing
      Technology, Inc. and its subsidiaries as of December 31, 2006, and the results
      of their operations and their cash flows for the years ended December 31, 2006
      and 2005, in conformity with accounting principles generally accepted in the
      United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. The Company is a development stage
      company that has had limited revenues, has incurred cumulative losses since
      inception, and has been dependent on investor capital to sustain its activities.
      These matters raise substantial doubt about the Company’s ability to continue as
      a going concern. Management’s plans in regards to these matters are also
      described in Notes 1 and 12. The consolidated financial statements do not
      include any adjustments that might result from the outcome of this uncertainty.


/s/
            Sherb
              & Company LLPCertified Public
              Accountants





Boca
      Raton, Florida


September
      20, 2007





F-2




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2006**







**ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            119,717Prepaid
                expenses and other current assets
            
            
            106,624Total
                Current Assets
            
            
            226,341Property
                and equipment, net
            
            
            23,266,494Other
                assetsEquipment
                system
            
            
            289,918Spare
                parts
            
            
            1,212,865Patent
                application costs
            
            
            477,955Deposits
                and other assets
            
            
            94,635Total
                Other Assets
            
            
            2,075,373Total
                Assets
            
            $
            25,568,208**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            762,802Accrued
                liabilities
            
            
            994,137Total
                Current Liabilities
            
            
            1,756,939Commitments
                and Contingencies
            
            
            -Stockholders’
                equityCommon
                stock, $.02 par value; 100,000,000 sharesauthorized;
                issued and outstanding, 77,649,954
            
            
            1,553,000Additional
                paid in capital
            
            
            54,577,005Deficit
                accumulated during the development stage
            
            
            (32,318,736
            )Total
                Stockholders’ Equity
            
            
            23,811,269Total
                Liabilities and Stockholders’ Equity
            
            $
            25,568,208




**See
      accompanying notes to the consolidated financial
      statements**


F-3




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**







CumulativeDuringDevelopment
            
            Years
                Ended December 31,Stage
                (Unaudited)
            
            2006
            
            2005Revenues
                (Note 9)
            
            $
            -
            
            $
            -
            
            $
            -Operating
                expenses:Research
                and development
            
            
            24,248,685
            
            
            4,529,163
            
            
            4,822,954Depreciation
            
            
            4,755,682
            
            
            1,109,917
            
            
            2,043,377Valuation
                adjustment -Equipment
                system
            
            
            1,793,681
            
            
            -
            
            
            1,793,681Loss
                on disposal of assets
            
            
            785,756
            
            
            100
            
            
            590,350Total
                operating expenses
            
            
            31,583,804
            
            
            5,639,180
            
            
            9,250,362Interest
                expense
            
            
            (409,704
            )
            
            (6,085
            )
            
            (30,438
            )Loss
                from continuing operations
            
            
            (31,993,508
            )
            
            (5,645,265
            )
            
            (9,280,800
            )Discontinued
                operations (Note 9):Net
                income (loss) fromdiscontinued
                landfillcontract
                activities
            
            
            (325,228
            )
            
            8,659
            
            
            108,993**Net
                loss**
            
            $
            (32,318,736
            )
            $
            (5,636,606
            )
            $
            (9,171,807
            )LOSS
                PER COMMON SHARELoss
                from continuing operations
            $
            (0.08
            )
            $
            (0.13
            )(Loss)
                gain from discontinued operations
            
            0.00
            
            
            0.00Net
                loss per share
            $
            (0.08
            )
            $
            (0.13
            )Weighted
                average number ofcommon
                shares outstanding
            
            
            
            
            
            72,683,950
            
            
            70,695,167




**See
      accompanying notes to the consolidated financial
      statements**


F-4


**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FROM
      JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2004**


**(Unaudited)**







DeficitAccumulatedNumber
                of
            
            Common
            
            
            
            
            
            During
                theCommon
            
            Stock,
            
            Subscription
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Receivable
            
            Capital
            
            Stage
            
            Total**January
                30, 1996 (Date of Inception)**Initial
                capitalization
            
            
            36,266,624
            
            $
            725,332
            
            $
            -
            
            $
            (705,332
            )
            $
            -
            
            $
            20,000Contribution
                of common shares
            
            
            (1,075,200
            )
            
            (21,504
            )
            
            -
            
            
            21,504
            
            
            -
            
            
            -Issuance
                of common shares asCompensation
            
            
            192,000
            
            
            3,840
            
            
            -
            
            
            26,160
            
            
            
            
            
            30,000Issuance
                of common shares
            
            
            22,426,560
            
            
            448,532
            
            
            -
            
            
            202,165
            
            
            -
            
            
            650,6971996
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (
                464,277
            )
            
            (464,277
            )**Balances
                as of December 31, 1996**
            
            
            57,809,984
            
            
            1,156,200
            
            
            -
            
            
            (455,503
            )
            
            (464,277
            )
            
            236,420Contribution
                of common shares
            
            
            (646,400
            )
            
            (12,928
            )
            
            -
            
            
            12,928
            
            
            -
            
            
            -Issuance
                of common shares asCompensation
            
            
            384,000
            
            
            7,679
            
            
            -
            
            
            112,321
            
            
            
            
            
            120,000Issuance
                of common shares
            
            
            3,817,088
            
            
            76,342
            
            
            -
            
            
            1,126,158
            
            
            -
            
            
            1,202,5001997
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (999,872
            )
            
            (999,872
            )**Balances
                as of December 31, 1997**
            
            
            61,364,672
            
            
            1,227,293
            
            
            -
            
            
            795,904
            
            
            (1,464,149
            )
            
            559,048Contribution
                of common shares
            
            
            (80,000
            )
            
            (1,600
            )
            
            -
            
            
            1,600
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            2,087,200
            
            
            41,744
            
            
            -
            
            
            1,795,256
            
            
            -
            
            
            1,837,0001998
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (673,625
            )
            
            (673,625
            )**Balances
                as of December 31, 1998**
            
            
            63,371,872
            
            
            1,267,437
            
            
            -
            
            
            2,592,760
            
            
            (2,137,774
            )
            
            1,722,423Contribution
                of common shares
            
            
            (131,680
            )
            
            (2,634
            )
            
            -
            
            
            2,634
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            1,454,608
            
            
            29,093
            
            
            -
            
            
            2,854,827
            
            
            -
            
            
            2,883,9201999
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,722,762
            )
            
            (1,722,762
            )**Balances
                as of December 31, 1999**
            
            
            64,694,800
            
            
            1,293,896
            
            
            -
            
            
            5,450,221
            
            
            (3,860,536
            )
            
            2,883,581Contribution
                of common shares
            
            
            (31,680
            )
            
            (634
            )
            
            -
            
            
            634
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            2,740,556
            
            
            54,812
            
            
            (19,850
            )
            
            10,003,468
            
            
            -
            
            
            10,038,4302000
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,845,650
            )
            
            (1,845,650
            )**Balances
                as of December 31, 2000**
            
            
            67,403,676
            
            
            1,348,074
            
            
            (19,850
            )
            
            15,454,323
            
            
            (5,706,186
            )
            
            11,076,361Contribution
                of common shares
            
            
            (6,000
            )
            
            (120
            )
            
            -
            
            
            120
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            876,716
            
            
            17,534
            
            
            
            
            
            10,529,426
            
            
            -
            
            
            10,546,960Settlement
                of subscription receivable
            
            
            
            
            
            
            
            
            6,150
            
            
            
            
            
            
            
            
            6,1502001
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,986,557
            )
            
            (1,986,557
            )**Balances
                as of December 31, 2001**
            
            
            68,274,392
            
            $
            1,365,488
            
            $
            (13,700
            )
            $
            25,983,869
            
            $
            (7,692,743
            )
            $
            19,642,914




*(continued
      on next page)*




**See
      accompanying notes to the consolidated financial
      statements**


F-5




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FROM
      JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2004**


**(Unaudited)**







*(continued)*
            
            
            
            
            
            
            
            
            
            Deficit
                AccumulatedNumber
                of
            
            Common
            
            
            
            
            
            During
                theCommon
            
            Stock,
            
            Subscription
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Receivable
            
            Capital
            
            Stage
            
            Total**Balances
                as of December 31, 2001**
            
            
            68,274,392
            
            $
            1,365,488
            
            $
            (13,700
            )
            $
            25,983,869
            
            $
            (7,692,743
            )
            $
            19,642,914Contribution
                of common shares
            
            
            (123,575
            )
            
            (2,472
            )
            
            -
            
            
            2,472
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            403,966
            
            
            8,080
            
            
            -
            
            
            5,599,740
            
            
            -
            
            
            5,607,820Settlement
                of subscription receivable
            
            
            -
            
            
            -
            
            
            13,700
            
            
            -
            
            
            -
            
            
            13,7002002
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,953,004
            )
            
            (3,953,004
            )**Balances
                as of December 31, 2002**
            
            
            68,554,783
            
            
            1,371,096
            
            
            -
            
            
            31,586,081
            
            
            (11,645,747
            )
            
            21,311,430Contribution
                of common shares
            
            
            (265,530
            )
            
            (5,311
            )
            
            -
            
            
            5,311
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            1,142,535
            
            
            22,851
            
            
            -
            
            
            5,514,849
            
            
            -
            
            
            5,537,7002003
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,589,086
            )
            
            (2,589,086
            )**Balances
                as of December 31, 2003**
            
            
            69,431,788
            
            
            1,388,636
            
            
            -
            
            
            37,106,241
            
            
            (14,234,833
            )
            
            24,260,044Contribution
                of common shares
            
            
            (239,325
            )
            
            (4,787
            )
            
            -
            
            
            4,787
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            736,450
            
            
            14,729
            
            
            -
            
            
            3,839,021
            
            
            -
            
            
            3,853,750Conversion
                of Promissory Note
            
            
            2,500
            
            
            50
            
            
            -
            
            
            9,950
            
            
            -
            
            
            10,0002004
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,275,490
            )
            
            (3,275,490
            )**Balances
                as of December 31, 2004**
            
            
            69,931,413
            
            $
            1,398,628
            
            $
            -
            
            $
            40,959,999
            
            $
            (17,510,323
            )
            $
            24,848,304




**See
      accompanying notes to the consolidated financial
      statements**


F-6


**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FROM
      JANUARY 1, 2005 THROUGH DECEMBER 31, 2006**







Deficit
              AccumulatedNumber
                of
            
            Common
            
            Additional
            
            During
                theCommon
            
            Stock,
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Capital
            
            Stage
            
            Total**Balances
                as of January 1, 2005**
            
            
            69,931,413
            
            $
            1,398,628
            
            $
            40,959,999
            
            $
            (17,510,323
            )
            $
            24,848,304Issuance
                of common shares
            
            
            1,179,444
            
            
            23,589
            
            
            4,624,346
            
            
            -
            
            
            4,647,935Issuance
                of common shares toRelated
                Party (Note 4 ):Contribution
                of common shares
            
            
            (1,092,600
            )
            
            (21,852
            )
            
            21,852
            
            
            -
            
            
            -Acquisition
                of common stock
            
            
            (
                127,600
            )
            
            (
                2,552
            )
            
            (40,948
            )
            
            -
            
            
            (43,500
            )Issuance
                to related party
            
            
            1,255,000
            
            
            25,100
            
            
            3,112,400
            
            
            -
            
            
            3,137,5002005
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,171,807
            )
            
            (9,171,807
            )**Balances
                as of December 31, 2005**
            
            
            71,145,657
            
            
            1,422,913
            
            
            48,677,649
            
            
            (26,682,130
            )
            
            23,418,432Issuance
                of common shares
            
            
            3,275,533
            
            
            65,512
            
            
            1,831,431
            
            
            -
            
            
            1,896,943Contribution
                of common shares
            
            
            (1,536,236
            )
            
            (30,725
            )
            
            30,725
            
            
            
            
            
            -Issuance
                to related parties
            
            
            4,765,000
            
            
            95,300
            
            
            4,037,200
            
            
            
            
            
            4,132,5002006
                net loss
            
            
            -
            
            
            
            
            
            
            
            
            (5,636,606
            )
            
            (5,636,606
            )**Balances
                as of December 31, 2006**
            
            
            77,649,954
            
            $
            1,553,000
            
            $
            54,577,005
            
            $
            (32,318,736
            )
            $
            23,811,269





**See
      accompanying notes to the consolidated financial
      statements**


F-7




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**







Cumulative
                DuringDevelopment
            
            Years
                Ended December 31,Stage
                (Unaudited)
            
            2006
            
            2005**Operating
                Activities**Net
                Loss from continuing operations
            
            $
            (31,993,508
            )
            $
            (5,645,265
            )
            $
            (9,280,800
            )Adjustments
                to reconcile net loss to net cash used in continuing
                operations:Depreciation
            
            
            4,755,682
            
            
            1,109,917
            
            
            2,043,377Valuation
                adjustment - equipment system
            
            
            1,793,681
            
            
            -
            
            
            1,793,681Loss
                on disposal of assets
            
            
            785,756
            
            
            100
            
            
            590,350Stock-based
                compensation
            
            
            163,700
            
            
            -
            
            
            -Non-cash
                expense -
              common
                stock transaction
            
            
            3,970,000
            
            
            2,232,500
            
            
            1,737,500Changes
                in certain assets and liabilities:Prepaid
                expenses and other current assets
            
            
            (155,590
            )
            
            75,901
            
            
            52,936Deposits,
                spare parts, and other assets
            
            
            (523,405
            )
            
            (84,318
            )
            
            (337,307
            )Accounts
                payable and accrued liabilities
            
            
            1,813,088
            
            
            47,889
            
            
            (395,197
            )Net
                Cash Used in Continuing Operations
            
            
            (19,390,596
            )
            
            (2,263,276
            )
            
            (3,795,460
            )Net
                income (loss) from
              discontinued
                operations
            
            
            (325,228
            )
            
            8,659
            
            
            108,993Adjustments
                to reconcile net cash used in discontinued operations:Reserve
                (adjustment) for casualty loss
            
            
            366,623
            
            
            (8,659
            )
            
            (109,718
            )Changes
                in certain assets and liabilities:Accounts
                Receivable
            
            
            -
            
            
            -
            
            
            79,963Liabilities
                of discontinued operations
            
            
            (415,100
            )
            
            (184,290
            )
            
            (336,477
            )Net
                Cash Used in
              Discontinued
                Operations
            
            
            (373,705
            )
            
            (184,290
            )
            
            (257,239
            )Net
                Cash Used in Operating Activities
            
            
            (19,764,301
            )
            
            (2,447,566
            )
            
            (4,052,699
            )**Investing
                Activities**Proceeds
                from sale of assets
            
            
            137,230
            
            
            -
            
            
            -****Patent
                application costs
            
            
            (477,955
            )
            
            (140,366
            )
            
            (91,100
            )Construction
                of equipment system
            
            
            (2,331,504
            )
            
            -
            
            
            (193,721
            )Purchases
                of property and equipment
            
            
            (28,245,330
            )
            
            (1,143,853
            )
            
            (1,378,944
            )Net
                Cash Used in Investing Activities
            
            
            (30,917,559
            )
            
            (1,284,219
            )
            
            (1,663,765
            )




*(Continued)*





**See
      accompanying notes to the consolidated financial
      statements**


F-8




**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**


*(Continued)*
              
              Cumulative
                  DuringDevelopment
              
              Years
                  Ended December 31,Stage
                  (Unaudited)
              
              2006
              
              2005**Financing
                  Activities**Proceeds
                  from long-term debt issuances
              
              
              219,596
              
              
              -
              
              
              -Repayment
                  of debt and capital leases
              
              
              (1,404,324
              )
              
              (44,787
              )
              
              (125,484
              )Repayment
                  of Note payable - officer
              
              
              -
              
              
              (39,325
              )
              
              (68,375
              )Re-acquisition
                  of common stock
              
              
              (43,500
              )
              
              -
              
              
              (43,500
              )Proceeds
                  from common stock issuance
              
              
              52,029,805
              
              
              3,796,943
              
              
              6,047,935Net
                  Cash Provided by Financing Activities
              
              
              50,801,577
              
              
              3,712,831
              
              
              5,810,576Net
                  increase (decrease) in cash and cash equivalents
              
              
              119,717
              
              
              (18,954
              )
              
              94,112Cash
                  and cash equivalentsat
                  the beginning of the year
              
              
              -
              
              
              138,671
              
              
              44,559Cash
                  and cash equivalentsat
                  the end of the year
              
              $
              119,717
              
              $
              119,717
              
              $
              138,671CASH
                  PAID DURING THE PERIOD FOR:Interest
              
              $
              409,704
              
              $
              7,225
              
              $
              33,616Income
                  taxes
              
              $
              -
              
              $
              -
              
              $
              -




**Supplemental
      Disclosure of Noncash Investing and Financing Activities:**





**Equipment
      Financing.** Since
      inception, the Company acquired equipment and vehicles by entering into capital
      leases totaling $1,330,277 (Unaudited).





**See
      accompanying notes to the consolidated financial
      statements**


F-9




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      1 - ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION**





Organization
      and Basis of Consolidation :
      Biomass
      Processing Technology, Inc. was incorporated on January 30, 1996. Its principal
      offices and laboratory are located in West Palm Beach, Florida. In Okeechobee,
      Florida, the Company owns a Combined Animal and Vegetative (“CAV”) biomass
      conversion and fermentation facility and equipment to process biomass residue
      into animal feed protein supplements. The Company is also engaged in research
      and development activities, which include the development of products produced
      from biomass materials and production equipment that performs the Company’s
      processes.





The
      accompanying consolidated financial statements include
      the accounts of Biomass Processing Technology, Inc. (incorporated on January
      30,
      1996) and its wholly-owned subsidiaries, Omni Environmental Corporation
      (“Omni”), BPT CAV1 Corporation (“CAV1”), and BPT Intellectual Property
      Corporation (“IP”) (collectively, “the Company”). All significant inter-company
      transactions have been eliminated in consolidation. Omni was incorporated in
      Delaware on June 23, 1989 to develop processing software, CAV1 was incorporated
      in the State of Florida on October 24, 2003, to operate the CAV1 facility when
      operational and IP was incorporated in the State of Delaware on October 24,
      2003, to manage certain intellectual property assets. The consolidated financial
      statements have been prepared in accordance with accounting principles generally
      accepted in the United States of America (“GAAP”).





Going
      Concern Considerations :
      In
      December 2004, the Company commenced operating the CAV1 facility on a test
      basis
      by initiating test production of product. The Company continues to be a
      development stage enterprise as defined under accounting principles generally
      accepted in the United States of America because it has not yet generated
      significant revenues in its intended business. During initial stages of
      operating the CAV1 facility the Company will concentrate its efforts on testing
      for quality and consistency of product, production technique refinements, and
      building of inventory. Historically, the Company has relied upon outside
      investor funds to maintain its operations and develop its business. The Company
      anticipates it will continue to require funding from investors for working
      capital and expansion during its initial stages of operations. The Company
      cannot provide assurances that additional investor funds will be available
      on
      terms acceptable to the Company. The Company is a development stage company
      with
      a working capital deficit of $1,530,598, has incurred cumulative losses since
      inception and has been dependent on investor capital to sustain its activities.
      The Company also reflected a net loss of $5,636,606 and net cash used in
      operations of $2,447,566 for the year ended December 31, 2006. These conditions
      raise substantial doubt about the Company’s ability to continue as a going
      concern.  The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the settlement
      of liabilities in the normal course of business.




F-10




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      1 - ORGANIZATION, GOING CONCERN, AND BASIS OF PRESENTATION** **(continued)**




As
      further detailed in Note 12 - Subsequent Events, during the period since January
      1, 2007 through the filing date of this report, the Company allocated its
      capital resources to the completion of its production facilities and its efforts
      to secure significant additional funding sufficient to support commencing
      operations. During the second half of 2007 and first half of 2008 subject to
      raising the additional capital the Company requires in order to commence
      operations, through a combination of additional capital investment and cash
      flows from operations, the Company plans to begin operating its CAV1 facility
      with lines 1 and 2, add production lines 3 and 4, complete construction of
      its
      hydrolysis system (a pre-processing of biomass that reduces the cost of raw
      materials and fuel costs), and construct two additional permitted fermentation
      lines (5 and 6).




The
      Company believes that its current capital resources will be insufficient to
      fund
      the Company's intended operations and expansion beyond the third quarter of
      2007
      and that it will be required to raise additional capital through the offering
      of
      equity securities, the incurrence of indebtedness or a combination of both.
      There is no assurance that the Company will be able to raise any additional
      funds which may be necessary to enable it to continue its planned business
      operations. Should any of management’s planned events not occur, the
      accompanying consolidated financial statements may be materially
      affected.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





Use
      of
      Estimates :
      The
      preparation of financial statements in accordance 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
      reporting periods. Actual results may differ from these estimates.





Revenue
      Recognition, Accounts Receivable and Credit Risk :
      The
      Company follows the criteria of the SEC's Staff Accounting Bulletin ("SAB")
      104
      for revenue recognition. The Company recognizes revenue when persuasive evidence
      of an arrangement exists, delivery of product or service has occurred, the
      sales
      price is fixed or determinable and collectibility is reasonably assured. The
      Company recognizes revenue upon acceptance of delivery of its product or service
      by its customers at agreed prices.





All
      of
      the Company’s accounts receivable and revenues were from one customer using
      credit terms customary in the industry pursuant to a contract that ended January
      13, 2005 (See Note 9 - Discontinued Operations).




F-11




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





No
      allowance for bad debts has been recorded at December 31, 2006 or 2005 based
      upon management estimates, historic loss experience and current economic
      conditions. The Company incurred no bad debt expenses for the years ended
      December 31, 2006 and 2005.




Property
      and Equipment :
      Property and equipment is recorded at cost and depreciated using the
      straight-line method over the estimated useful lives of the assets. Capital
      leases are recorded as property and equipment in accordance with Statement
      of
      Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases.”
The amortization of capital leases is included with depreciation. Expenditures
      for maintenance, repairs and minor renewals are charged to expense in the period
      incurred. Betterments and additions are capitalized.





Construction
      in Process :
      The
      Company has constructed equipment for internal use. Depreciation on much of
      the
      equipment began in December 2004, when the assets were placed in service.
      Interest totaling $294,801 (none during the years ended December 31, 2006 and
      2005) was capitalized into this self-constructed asset from inception of
      construction through the date the assets were placed in service pursuant to
      applicable accounting principles. (See Note 3 - Property and Equipment for
      detail of Construction in Process amounts.)





Equipment
      System :
      The
      Company has constructed an equipment system (referred to as the “EcoGoldTM
Processor”) which produces animal feed protein supplement while simultaneously
      removing polluting phosphorus and nitrogen from watersheds at remote Confined
      Animal Feed Operations (referred to in the agricultural industry as “CAFOs”).
      This equipment system utilizes the Company’s new proprietary technology, a
      portion of which is the subject of the patent applications discussed below.
      The
      Company intends to market its EcoGoldTM Processor to the over 17,000 large CAFOs
      in the United States, subject to the requirements of the U.S. Environmental
      Protection Agency (EPA) on the basis that it will enable CAFOs to achieve
      certain pollution management compliance levels.




The
      asset
      comprises three separate, but coordinated, systems to:




·
            Separate
                sand and foreign heavy materials.
                This consists of dual large (several thousand gallon) stainless steel
                vessels with appropriate material-handling sensors and controls to
                separate, on a continuous basis without operator interaction, the
                tons of
                sand daily that is mixed with the manure flow, with sufficient cleanliness
                that the sand can be reused as bedding
                material.




F-12




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**




·
            Separate
                liquid and dissolved solids from fibrous solid manure.
                This is composed of dual 4,000 gallon stainless steel tanks with
                appropriate sensors and controls to effect separation and extraction
                of
                the fiber and sand-free liquid (containing most of the nutrients
                and
                pollutants), at the rate of 144,000 gallons per
                day.




·
            Fermentation
                and flocculation.
                This component of the system sterilizes the liquid stream, on a continuous
                basis, and subjects the flow to oxidative, dual fermentation and
                then
                flocculation to remove nutrients (pollutants) not removed by fermentation
                and pumps the cleaned water to a land distribution system. This is
                the
                most complex segment of the processing, and consists of dual,
                multi-thousand gallon, proprietary, stainless steel fermentation
                units, a
                steam boiler, cooling tower, Freon chiller, heat exchangers and sanitary
                piping, sensors and controls for working in a sterile
                environment.




Dual
      computer control rooms are part of the system and are provided for computer
      control by reacting to the hundreds of sensors and control devices
      employed.




The
      equipment system represents the construction of a single unit partially
      installed at a large dairy operation. The system is the embodiment of equipment
      and processing design that is the subject of the seven U.S. and corresponding
      foreign patent applications filed on behalf of the Company. No other units
      are
      currently under construction. The Company plans to enter into licensing
      arrangements with manufacturers to build additional units of the equipment
      system in the future. The Company does not plan to sell the existing unit and
      does not plan to sell any units that might be constructed in the future. The
      existing unit is not ready for lease as installation is not complete; additional
      testing is needed to make the existing unit operational. The Company plans
      to
      enter into lease/rental agreements with Confined Animal Feed Operations whereby
      the Company maintains title to the equipment and provides service and license
      rights within the scope of the rental agreement. The reason the Company intends
      to lease rather than sell the units is to ensure quality service and maintenance
      of the equipment such that it will continue to perform well at all
      installations. Upon completion of installation, additional testing will be
      required to bring the unit to operational status. The Company intends to
      complete this work after the CAV1 facility becomes operational.




The
      equipment is reflected at $289,918 as of December 31, 2006. During 2005, the
      Company reclassified “Equipment in process, held for sale” from current assets
      to “Other Assets - Equipment system” consistent with the Company’s current
      intention to offer the equipment for rental, with servicing and licensing
      included.




F-13




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





As
      further detailed in Note 12 - Subsequent Events, due to the effects of the
      Florida hurricanes in 2005, during 2006 and 2007 the Company made an adjustment
      to its business plan which affected the timing of completing installation and
      testing of the EcoGoldTM Processor. Management determined that the Company did
      not have the personnel resources to allocate toward completion of the
      installation of the equipment system prior to completion and testing of
      additional construction at the CAV1 facility. The Company has expended
      approximately $2.3 million on development of the equipment system. Management
      believes that when installation and testing of the system is complete there
      will
      be a significant market for the system among the approximately 17,000 CAFO’s in
      the United States; however, currently there is no equivalent equipment or
      comparable technology on the market as one method to validate total cost as
      representing a recoverable value. Accordingly, during 2005 the Company wrote
      off
      $1,793,681 as a valuation adjustment to reflect the capitalized portion of
      the
      equipment system at the cost basis of components of the equipment that are
      interchangeable and available for alternative use in the Company’s CAV1
      facility. The Company has also reclassified some components of the system as
      spare parts inventory to reflect the Company’s utilization or potential
      utilization of those parts common to both projects for development of the CAV1
      facility.




Accounting
      for the Impairment of Long-Lived Assets :
      The
      Company accounts for the impairment of long-lived assets in accordance with
      SFAS
      No. 144 - Accounting for the Impairment or Disposal of Long-lived Assets, which
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the book value of the asset may not
      be
      recoverable. Recoverability of the asset is measured by comparison of its
      carrying amount to the undiscounted cash flow that the asset or asset group
      is
      expected to generate. If such assets or asset groups are considered to be
      impaired, the loss recognized is the amount by which the carrying amount of
      the
      property if any exceeds its fair market value. During 2005 the Company
      recognized an adjustment on the EcoGoldTM Processor equipment system as detailed
      above.





Spare
      Parts :
      The
      Company’s CAV1 facility is designed to operate on a continuous basis, requiring
      an extensive inventory of spare parts. During 2005, the Company enhanced its
      system of spare parts inventory reporting and system of physical counts of
      spare
      parts inventory. Those spare parts which had previously been recorded in
      construction in process accounts but had not been affixed to a construction
      project were adjusted to the “Spare Parts” account (see Note 3). Spare parts are
      reflected at a cost of $1,212,865 as of December 31, 2006, classified in “other
      assets.”




F-14




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Patents :
      The
      Company capitalizes costs incurred to apply for patents. On
      May
      16, 2005, the Company filed seven Patent Cooperation Treaty (“PCT”)
      applications, claiming priority to seven provisional patent applications the
      Company previously filed with the United States Patent and Trademark Office
      with
      respect to its proprietary technology for the processing of biomass materials.
      The filing of the PCT applications extended the time allowed to the Company
      to
      complete filing formal U.S. applications, and gave the Company the ability
      to
      extend the time for filing applications with foreign governments that are PCT
      participants. In November 2006, the Company filed final patent applications
      in
      the United States and 18 other countries based on the seven PCT applications
      previously filed. Upon the granting of any patents, the associated costs will
      be
      amortized over the life of the patents.





The
      technology covered by the Company’s patent applications involves pre-treatment,
      core fermentation and post treatment a spects.
      The Company believes each of these aspects has unique elements, and the patent
      applications seek coverage in each of these general areas. Both equipment and
      process innovations are covered for many diverse waste streams. Treatment of
      all
      the waste streams utilizes the central inventive aspects of the process (“core
      technology”).





The
      waste
      streams explored are:





·
            Ruminant
                cattle manure;


·
            Swine
                and other animal manure;


·
            Municipal
                cellulosistic solid waste;


·
            Other
                cellulosistic solid waste;


·
            Whey
                broth from cheese production;


·
            Fermentation
                broth remediation from alcohol and yeast production;
                and


·
            Other
                undefined dilute waste streams.





Ruminant
      cattle and swine manure treatment and remediation are dealt with more
      extensively in the presentation as specific instances of application of the
      core
      technology.





The
      Company believes that the discoveries presented in its patent applications
      constitute a novel means of fermentation. In general, the core technology
      presented, taken as a whole, addresses the major problems of waste stream
      treatment—suboptimal, very dilute, poor and variable concentration nutrient
      supply. The Company believes that its technology can address remediation of
      waste streams as dilute as certain river water, or as concentrated as manure,
      potentially with recovery of valuable product that may more than offset the
      cost
      of the processing.




F-15




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Other
      innovations presented in the patent applications may be separated into (1)
      proper preparation of the waste stream and (2) the core technology—equipment
      design, fermentation organism selection, sensor and control selection and
      process definition.





The
      Company’s technology includes elements relating to the proper preparation of
      waste streams for fermentation that are both necessary to optimize utilization
      of waste streams for use in the core technology and are otherwise generally
      useful, innovative tools. These elements relate to:




·
            Recovery
                of organic material suitable for fermentation;
                and


·
            Limiting
                presence of substances that interfere with, or make less optimal,
                proper
                recovery.





The
      Company refers to these processes as its EcoGoldTM technology. The processes
      involve the recovery of nutrient value from dilute, variable waste streams
      by
      fermentation processing. The technology encompasses several variations that
      include cheese whey, ethanol fermentation waste and recovery of nutrient
      specific to manure waste of various animal species such as hogs, poultry and
      cattle.




Although
      the Company believes that patent costs expended and capitalized through December
      31, 2006 represent a fully-recoverable asset, the Company can give no assurance
      that its patent applications will result in the issuance of any specific
      patents, or that any patents that may be issued will withstand challenge,
      provide any specific protection or ultimately be of commercial value to the
      Company.





Fair
      Value of Financial Instruments :
      Cash
      and cash equivalents, accounts receivable, accounts payable and accrued expenses
      are reflected in the financial statements at cost, which approximates fair
      value
      because of the short-term maturity of those instruments. The recorded amounts
      of
      the Company’s debt obligations approximate fair value, as the terms and interest
      rates are at levels that approximate current market conditions. Amounts due
      from
      or due to stockholders are not subject to reasonable fair value estimation
      because of their unique nature.





Share-based
      Payments :
      In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      No.
      123(R), “Share-Based Payment,” which replaces SFAS No. 123 and supersedes APB
      Opinion No. 25. Under SFAS No. 123(R), companies are required to measure the
      compensation costs of share-based compensation arrangements based on the
      grant-date fair value and recognize the costs in the financial statements over
      the period during which employees are required to provide services. Share-based
      compensation arrangements include stock options, restricted share plans,
      performance-based awards, share appreciation rights and employee share purchase
      plans. In March 2005, the SEC issued SAB 107, which expresses views of the
      staff
      regarding the interaction between SFAS No. 123(R) and certain SEC rules and
      regulations and




F-16




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





provides
      the staff's views regarding the valuation of share-based payment arrangements
      for public companies.





SFAS
      No.
      123(R) permits public companies to adopt its requirements using one of two
      methods. On April 14, 2005, the SEC adopted a new rule amending the compliance
      dates for SFAS 123(R). Companies may elect to apply this statement either
      prospectively, or on a modified version of retrospective application under
      which
      financial statements for prior periods are adjusted on a basis consistent with
      the pro forma disclosures required for those periods under SFAS No. 123.
      Effective January 1, 2005, the Company has fully adopted the provisions of
      SFAS
      No. 123(R) and related interpretations as provided by SAB 107. As such,
      compensation cost is measured on the date of grant as the fair value of the
      share-based payments. Such compensation amounts, if any, are amortized over
      the
      respective vesting periods of the option grant. The Company applies this
      statement prospectively.





Stock-Based
      Compensation :
      Effective January 1, 2005, the Company adopted the provisions of SFAS No. 123(R)
      under the modified prospective method. SFAS No. 123(R) eliminates accounting
      for
      share-based compensation transactions using the intrinsic value method
      prescribed under APB Opinion No. 25 “Accounting for Stock Issued to Employees,”
and requires instead that such transactions be accounted for using a
      fair-value-based method. Under the modified prospective method, the Company
      is
      required to recognize compensation cost for share-based payment to employees
      based on their grant date fair value from the beginning of the fiscal period
      in
      which the recognition provisions are first applied. For periods prior to
      adoption, the financial statements are unchanged, and the pro forma disclosures
      previously required by SFAS No. 123, as amended by SFAS No. 148, will continue
      to be required under SFAS No. 123(R) to the extent those amounts differ from
      those in the Statement of Operations. During 2006 and 2005, the Company did
      not
      grant any stock options.





Income
      Taxes :
      The
      Company accounts for income taxes in accordance with SFAS No. 109, “Accounting
      for Income Taxes.” Deferred taxes are provided on a liability method whereby
      deferred tax assets are recognized for deductible temporary differences,
      operating loss carryforwards and tax credit carryforwards, and deferred tax
      liabilities are recognized for taxable temporary differences. Temporary
      differences are the differences between the reported amounts of assets and
      liabilities and their tax bases. Deferred tax assets are reduced by a valuation
      allowance when, in the opinion of management, it is more likely than not that
      all or some portion of the deferred tax assets will not be realized. Deferred
      tax assets and liabilities are adjusted for the effects of changes in tax laws
      and rates on the date of enactment. State minimum taxes, if any, are expensed
      as
      paid.




F-17




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**





Earnings
      per Common Share :
      The
      Company follows the provisions of SFAS No. 128, “Earnings per Share,” which
      requires companies with complex capital structures or common stock equivalents
      to present both basic and diluted earnings per share (“EPS”) on the face of the
      statement of operations. Basic EPS is calculated as income available to common
      stockholders divided by the weighted average number of common shares outstanding
      during the period. No diluted EPS are presented because the Company did not
      have
      any financial instruments convertible into shares of the Company’s stock
      outstanding as of December 31, 2006 and 2005.





Research
      and Development :
      All
      research and development costs are expensed as incurred. The Company’s research
      and development activities are described in Note 1 and costs for such activities
      totaled $4,529,163 and $4,822,954 for the years ended December 31, 2006 and
      2005, respectively.





Cash
      and Cash Equivalents :
      The
      Company maintains its cash and cash equivalent accounts in financial
      institutions. Accounts at these institutions are insured by the Federal Deposit
      Insurance Corporation (“FDIC”) up to $100,000. During 2006 and 2005, the Company
      reached bank balances exceeding the FDIC insurance limit. To reduce its risk
      associated with the failure of such financial institutions, the Company
      evaluates at least annually the rating of the financial institutions in which
      it
      holds deposits.





Comprehensive
      Income :
      A
      statement of comprehensive income (loss) has not been included, per SFAS No.
      130, “Reporting Comprehensive Income,” as the Company has no items of other
      comprehensive income (loss). Comprehensive loss is the same as net loss for
      all
      periods presented.





Recent
      Accounting Pronouncements :
       In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain
      Hybrid Instruments: An Amendment of FASB Statements No. 133 and 140.” Management
      does not believe that this statement will have a significant effect as the
      Company does not use such instruments.





In
      August
      2006, the SEC announced that the compliance date for non-accelerated filers
      pursuant to Section 404 of the Sarbanes-Oxley Act had been extended. Under
      the
      latest extension, a company that is not required to file its annual and
      quarterly reports on an accelerated basis must begin to comply with the internal
      control over financial reporting requirements for its first fiscal year ending
      on or after December 15, 2006, which, for the Company, is effective for fiscal
      2007 beginning January 1, 2007. This is a six-month extension from the
      previously established compliance date established in May 2006.





F-18





**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**




In
      July
      2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
      Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”), which
      provides criteria for the recognition, measurement, presentation and disclosure
      of uncertain tax positions. A tax benefit from an uncertain position may be
      recognized only if it is “more likely than not” that the position is sustainable
      based on its technical merits. The provisions of FIN 48 are effective for fiscal
      years beginning after December 15, 2006. The Company does not expect FIN 48
      will
      have a material effect on its consolidated financial condition or results of
      operations.





In
      September 2006, the FASB issued SFAS No. 157, which defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles (GAAP), and expands disclosures about fair value
      measurements. SFAS No. 157 applies under other accounting pronouncements that
      require or permit fair value measurements, the Board having previously concluded
      in those accounting pronouncements that fair value is a relevant measurement
      attribute. Accordingly, SFAS No. 157 does not require any new fair value
      measurements. However, for some entities, the application of SFAS No. 157 will
      change current practices. SFAS No. 157 is effective for financial statements
      for
      fiscal years beginning after November 15, 2007. Earlier application is permitted
      provided that the reporting entity has not yet issued financial statements
      for
      that fiscal year. Management believes SFAS No. 157 will have no effect on the
      financial statements of the Company once adopted.





In
      September 2006, the SEC issued SAB 108 which provides interpretive guidance
      on
      how the effects of the carryover or reversal of prior year misstatements should
      be considered in quantifying a current year misstatement. SAB 108 is effective
      for the first interim period following the first fiscal year ending after
      November 15, 2006, which, for the Company, is effective for fiscal 2007
      beginning January 1, 2007. Management believes that the adoption of SAB 108
      will
      not have a material effect on the Company’s results of operations, cash flows or
      financial condition.





The
      Company does not believe that any other recently issued, but not yet effective
      accounting standards will have a material effect on the Company’s consolidated
      financial position, results of operations or cash flows.





F-19




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      3 - PROPERTY AND EQUIPMENT**




As
      of
      December 31, 2006, property and equipment consisted of the
      following:





Machinery
                and equipment
            
            $
            18,541,900Furniture
                and fixtures
            
            
            142,083Transportation
            
            
            100,495Leasehold
                improvements
            
            
            557,883Buildings
            
            
            1,538,582Construction
                in process
            
            
            6,813,703Total
            
            
            27,694,646Accumulated
                depreciation
            
            
            (4,428,152
            )Property
                and equipment, net
            
            $
            23,266,494





In
      December 2004, the Company began depreciating equipment at its CAV1 facility
      using a preliminary estimated service life of five years. During 2005, the
      Company analyzed all of the CAV1 facility’s component assets and their estimated
      service lives and made the following changes within property and equipment:
      (1)
      the Company wrote off construction in process components valued at $541,384
      which were determined to be obsolete portions of the facility; (2) the Company
      reclassified as construction in process components valued at $4,340,691
      identified as parts of the facility not yet in service; (3) the Company
      identified a group of machinery components with service lives of seven years
      and
      another group of machinery and equipment with service lives of twenty years;
      (4)
      the Company identified spare
      parts which had previously been recorded in construction in process accounts
      but
      had not been affixed to specific construction projects, adjusted to the “Spare
      Parts” account, and reclassified as “Other Assets.” During 2005,
      the Company began depreciating assets based on the revised assessment of assets
      placed in service and the revised estimate of the service lives of the
      components of the equipment as described above.





Depreciation
      on assets placed in service amounted to $1,109,917 and $2,043,377 for the years
      ended December 31, 2006 and 2005, respectively.




F-20




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      4 - RELATED PARTY TRANSACTIONS**





Officer
      Loan :
      During
      2004, Larry W. Denney, the Company’s principal stockholder, Chairman of the
      Board, President and Chief Executive Officer, loaned the Company $110,000 for
      working capital under a note in a principal amount not to exceed $200,000 and
      bearing simple interest at 4%. Through December 31, 2004, Mr. Denney made
      additional advances of $59,700 to the Company under the note and the Company
      repaid $62,000 under the note. The note, as amended, was payable on or before
      October 1, 2007 and could be prepaid without penalty. Accrued interest, which
      is
      presented as a component of accrued expenses, totaled $1,140 as of December
      31,
      2005. During the year ended December 31, 2005, the Company made payments of
      $68,375 in principal and $5,240 in interest and $2,062 in interest was accrued.
      The balance of the loan as of December 31, 2005 was $39,325. During 2006, $1,421
      was accrued and the Company paid off the note in its entirety with payments
      of
      $39,325 in principal and $2,561 in interest.





Stock
      Purchases by Directors - 2005 :
      On
      September 27, 2005, Philip H. Good, a Director of the Company, acquired 290,000
      shares of the Company’s common stock pursuant to the following transactions. Mr.
      Denney transferred 127,600 shares of common stock he owned to the Company as
      a
      capital contribution; the Company purchased 127,600 shares of common stock
      from
      Mr. Simpson for $43,500; and the Company sold such shares, along with 34,800
      newly issued shares for a total of 290,000 shares, to Mr. Good for cash
      consideration of $435,000. The transactions resulted in net cash proceeds to
      the
      Company of $391,500 for a net increase of 34,800 issued and outstanding shares
      of common stock.





On
      November 14, 2005, the Company sold 965,000 shares of common stock to Mr. Good
      for $965,000 in cash. Of the shares sold, 482,500 shares were contributed to
      the
      Company by Mr. Denney and 482,500 shares were contributed to the Company by
      Mr.
      Simpson. The
      transactions resulted in net cash proceeds to the Company of $965,000 with
      no
      net increase of issued and outstanding common shares.





In
      conjunction with the two sales in 2005 to Mr. Good, Mr. Denney and Mr. Simpson,
      as the largest stockholders, stood to benefit from an increase in the Company's
      value resulting from their stock contributions and Mr. Simpson’s sale of his
      personal stock to the Company, both of which were done in conjunction with
      raising additional capital. The
      contributed shares were accounted for as capital contributions to the Company
      at
      par value of $.02 per share, as
      a
      decrease in common stock issued and outstanding and an increase in additional
      paid in capital. The stock acquisition of 127,600 shares for $43,500 was
      recorded as a reduction of common stock issued and outstanding at par value
      of
      $.02 in the total amount of $2,552 and a reduction of additional paid in capital
      of $40,948.




F-21





**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      4 - RELATED PARTY TRANSACTIONS (continued)**





Stock
      Contributed by Related Parties - 2006 :
      On various dates between January 25, 2006, and June 30, 2006, in private
      offerings limited to existing stockholders, the Company sold an aggregate of
      1,536,236 shares of common stock at prices between $1.00 and $1.50 per share
      to
      30 investors, all of whom the Company believe to be accredited investors, for
      aggregate proceeds of $1,643,854. All of the shares sold were contributed to
      the
      Company without consideration by Mr. Denney and Mr. Simpson; Mr. Denney and
      Mr.
      Simpson each contributed half of the shares. These
      contributed shares were accounted for as a capital contribution to the Company,
      recorded as a decrease to common stock at $.02 per share par value and an
      increase to additional paid in capital in the same amount. The shares were
      contributed to avoid the dilutive effect on existing stockholders that would
      have resulted had the Company sold newly issued shares at lower prices than
      those paid by previous investors. Mr. Denney and Mr. Simpson, as the Company’s
      largest stockholders, stood to benefit from an increase in the Company’s value
      resulting from raising the additional capital. On June 30, 2006, the offering
      in
      which Mr. Denney and Mr. Simpson contributed their personal shares was closed;
      after the transactions, Mr. Denney owned 31,552,045.5 shares and Mr. Simpson
      owned 14,165,813.5 shares.





Stock
      Purchases by Directors - 2006 :
      Included in the sales of the contributed common stock noted above were the
      following: on January 25, 2006, the Company sold 250,000 shares of common stock
      for $250,000 and on May 2, 2006, the Company sold 200,000 shares of common
      stock
      for $200,000 to Mr. P. E. MacAllister, a director. On June
      30,
      2006, the Company sold 750,000 shares of common stock for $750,000 to Mr. Philip
      H. Good, a former director. Mr. MacAllister purchased 100,000 shares for
      $100,000 on August 31, 2006, 200,000 shares for $100,000 on September 27, 2006,
      and 400,000 shares for $200,000 on October 24, 2006. Mr. Good purchased 600,000
      shares for $300,000 on September 27, 2006.





On
      September 12, 2006 the Board approved a new offering available to existing
      shareholders at $0.52 per share or $0.50 per share for purchases of $50,000
      or
      more. This offering price has been used as the “fair value” of a share of common
      stock since September 12, 2006 for purposes of potential non-cash related party
      calculations (see below).





Stock
      Distribution :
      In
      conjunction with the September 12, 2006 offering, the Company distributed
      2,621,236 “matching” shares of common stock to stockholders who had purchased
      shares between October 19, 2005 (the date Hurricane Wilma crossed Florida with
      an impact causing an adjustment to the Company’s business plan as detailed in
      Note 12 - Subsequent Events) and the commencement of the new offering. For
      each
      share purchased by any shareholder during the period October 19, 2005 through
      September 12, 2006, that shareholder was issued another share for no additional
      consideration.




F-22




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**








**NOTE
      4 - RELATED PARTY TRANSACTIONS (continued)**





Included
      in this issuance were 550,000 shares issued to Mr. MacAllister and 1,715,000
      shares issued to Mr. Good. The Board approved the distribution of the additional
      shares as an adjustment of the purchase price paid by such stockholders, in
      light of the unanticipated effects of the Florida hurricanes, which
      significantly delayed the Company’s timeline for becoming operational and the
      fact that the Company was offering shares at a lower price in the September
      12,
      2006 offering than the price previously paid by such stockholders.





Non-cash
      Related Party Stock Purchase Transaction Expenses :
      In
      conjunction with the stock purchases by Mr. Good and Mr. MacAllister, pursuant
      to accounting rules and principles applicable to stock sales in related party
      transactions, the Company recorded non-cash increases in its “additional paid in
      capital” account and recorded non-cash transaction expenses for the same amounts
      in total amounts of $2,232,500 in 2006 and $1,737,500 in 2005. The accounting
      rules require that in related party transactions, a non-cash expense be recorded
      for the difference between “fair value” (as defined in the rules) and the
      selling price. Further, the transaction with the related party cannot be
      considered to represent “fair value” and cannot be viewed as an “arms-length
      transaction” for purposes of the application of the rule and for the related
      computation.





There
      is
      no established trading market for the Company’s common stock. Relative to
      companies with publicly-traded stock, the Company has few sales that can be
      used
      as a method for the determination of “fair value” under the related party stock
      transaction rules. The most recent sales to existing stockholders by the Company
      prior to the two related party transactions in 2005 were during an offering
      at
      $2.50 per share which was limited to existing stockholders; this offering
      commenced June 15, 2005 and closed on August 15, 2005.





There
      were no sales of stock by the Company to existing stockholders other than the
      two related party transactions from the closing of the offering on August 15,
      2005 through December 31, 2005. Therefore, in 2005 the Company used the $2.50
      per share sales price from the most recent previous offering in the computation
      required under these rules as shown in the following table.





***Purchases
                in the Year Ended December 31, 2005***
            
            ***Purchase
                of***
              ***Sept.
                27, 2005***
            
            ***Purchase
                of***
              ***Nov.
                14, 2005***
            
            ***Total***Most
                Recent Offering Price
            
            $
            2.50
            
            $
            2.50Related
                Party Price
            
            
            (1.50
            )
            
            (1.00
            )Difference
                per Share
            
            $
            1.00
            
            $
            1.50Number
                of Shares Purchased
            
            
            290,000
            
            
            965,000Non-Cash
                Transaction Expense
            
            $
            290,000
            
            $
            1,447,500
            
            $
            1,737,500




F-23




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      4 - RELATED PARTY TRANSACTIONS (continued)**





In
      May
      and June 2006 there were purchases of approximately 215,000 shares by existing
      shareholders at $1.50 per share; this amount was used as the “fair value” of a
      share of common stock for computations of transactions with related parties
      immediately after that period. Non-cash related party stock purchase transaction
      expenses related to purchases in 2006 discussed above were computed as
      follows:





***Purchases***
            
            *MacAllister*
            
            *MacAllister*
            
            *Good*
            
            *MacAllister**Jan.
                25, 2006*
            
            *May
                2, 2006*
            
            *June
                30, 2006*
            
            *Aug.
                31, 2006*Most
                Recent Offering Price
            
            $
            2.50
            
            $
            2.50
            
            $
            1.50
            
            $
            1.50Related
                Party Price Paid
            
            
            (1.00
            )
            
            (1.00
            )
            
            (1.00
            )
            
            (1.00
            )Difference
                Per Share
            
            $
            1.50
            
            $
            1.50
            
            $
            0.50
            
            $
            0.50Number
                of Shares Purchased
            
            
            *250,000*
            
            
            *200,000*
            
            
            *750,000*
            
            
            *100,000*Non-Cash
                Transaction Expense
            
            $
            375,000
            
            $
            300,000
            
            $
            375,000
            
            $
            50,000





Non-cash
      related party stock purchase transaction expenses related to the stock
      distribution of September 12, 2006 were computed as follows:





***Price
                Adjustment Distribution***
            
            *Good*
            
            *MacAllister*
            
            *MacAllister*
            
            *Good*
            
            *MacAllister****Declared
                Sept. 12, 2006***
            
            *Nov.
                14, 2005*
            
            *Jan.25,
                2006*
            
            *May
                2,2006*
            
            *June
                30,2006*
            
            *Aug.
                31, 2006*Most
                Recent Offering Price
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50Less:
                Related Party Price Paid
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Difference
                Per Share
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50
            
            $
            0.50Number
                of Shares Issued
            
            
            965,000
            
            
            250,000
            
            
            200,000
            
            
            750,000
            
            
            100,000Non-Cash
                Related Party Transaction Expense
            
            $
            482,500
            
            $
            125,000
            
            $
            100,000
            
            $
            375,000
            
            $
            50,000





The
      2006
      non-cash charges in the two tables above total $2,232,500. Related party
      purchases after September 12, 2006 were at prices equal to prior and subsequent
      sales prices to existing shareholders so no additional non-cash charges were
      recorded for such transactions.





Because
      the non-cash related party stock purchase transaction expense accounting entries
      result in an increase to accumulated deficit and an offsetting increase to
      additional paid in capital, recording of the non-cash transaction has no effect
      on total stockholders’ equity.




F-24




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      5 - ACCRUED LIABILITIES**





Accrued
      liabilities represent estimated expenses that apply to the reported period
      and
      have not been billed by the provider or paid by the Company. At December 31,
      2006, accrued liabilities consisted of the following:





Accrued
                Property Taxes
            
            $
            844,886Accrued
                Vacation
            
            
            39,473Accrued
                Payroll and Payroll Taxes
            
            
            23,778Accrued
                Professional Fees
            
            
            86,000Total
                Accrued Liabilities
            
            $
            994,137





The
      personal property tax authorities of Okeechobee County, Florida have assessed
      the Company for personal property taxes on the manufacturing and production
      equipment included in the Company’s CAV1 facility. The amount of these taxes for
      the 2004 calendar year was $179,355. The Company did not pay this amount when
      it
      was asserted to be due, and in June 2006, the County filed a lien on the
      Company's equipment in the amount of the back taxes. In May 2007 the County
      filed an additional lien in the amount of $328,259 for 2005 personal property
      taxes. The Company has been billed for an additional $328,574 for 2006 personal
      property taxes. The amounts the Company has accrued include estimated penalties
      and interest.





The
      County may enforce the lien by seizing the Company's equipment and offering
      it
      for sale to third parties. The Company has been in discussions with County
      officials regarding the tax liability, has indicated its intention to satisfy
      the liability after the Company becomes operational and has the financial
      capacity to do so, and has made good-faith payments to the County of
      approximately $82,200 towards the Company's tax liability.




**NOTE
      6 - EQUITY CAPITAL**





Authorized
      Capital :
      The
      total number of shares of capital stock which the Company has the authority
      to
      issue is 100,000,000 shares of common stock having a par value of $0.02 per
      share. All
      shares of common stock are identical with each other in every respect, and
      the
      holders thereof are entitled to one vote for each share of common stock upon
      all
      matters upon which the stockholders have the right to vote.





Split
      of Common Stock :
      The
      Company completed six 2 for 1 splits of its common shares prior to the start
      of
      fiscal year 2002. In accordance with applicable accounting rules, these splits
      have been retroactively applied to all periods presented.




F-25




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      6 - EQUITY CAPITAL (continued)**





Private
      Placements of Common Stock :
      During
      the year ended December 31, 2006, the Company directly sold 5,388,843 shares
      of
      common stock in private offerings limited to existing stockholders that resulted
      in net proceeds to the Company of $3,644,670. Of the shares sold, 1,536,236
      shares of common stock were
      contributed by the Company’s two founders (see below).





During
      the year ended December 31, 2006, on various dates the Company directly sold
      30,454 shares of common stock in private placements to new accredited investors
      that resulted in net proceeds to the Company of $152,273.





Stock
      Contributed by Related Parties - 2006 :
      On various dates between January 25, 2006, and June 30, 2006, in private
      offerings limited to existing stockholders, the Company sold an aggregate of
      1,536,236 shares of common stock at prices between $1.00 and $1.50 per share
      to
      30 investors, all of whom the Company believes to be accredited investors,
      for
      aggregate proceeds of $1,643,854. All of the shares sold were contributed by Mr.
      Denney, who is the Chairman, President, Chief Executive Officer and a principal
      shareholder, and Mr. Simpson, who is a principal shareholder and who was a
      director from inception through June 2005 ;
      Mr. Denney and Mr. Simpson each contributed half of the shares. These
      contributed shares were accounted for as a capital contribution to the Company,
      recorded as a decrease to common stock at $.02 per share par value and an
      increase to additional paid in capital in the same amount. The shares were
      contributed to avoid the dilutive effect on existing stockholders that would
      have resulted had the Company sold newly issued shares at lower prices than
      those paid by previous investors. Mr. Denney and Mr. Simpson, as the largest
      stockholders, stood to benefit from an increase in the Company’s value resulting
      from raising the additional capital. On June 30, 2006, the offering in which
      Mr.
      Denney and Mr. Simpson contributed their personal shares was closed; after
      the
      transactions, Mr. Denney owned 31,552,045.5 shares and Mr. Simpson owned
      14,165,813.5 shares.





Stock
      Distribution - 2006 :
      As
      further discussed in Note 4 - Related Party Transactions, in conjunction with
      a
      private offering commencing on September 12, 2006, and limited to existing
      stockholders, the Company distributed 2,621,236 “matching” shares of common
      stock to stockholders who had purchased shares between October 19, 2005 (the
      date Hurricane Wilma crossed Florida with an impact causing an adjustment to
      the
      Company’s business plan as detailed in Note 12 - Subsequent Events) and the
      commencement of the new offering.





F-26




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      6 - EQUITY CAPITAL (continued)**





Stock
      Sales and Contributions - 2005 :
      During
      the year ended December 31, 2005, the Company directly sold 2,434,444 shares
      of
      common stock through private placements that resulted in net proceeds to the
      Company of $6,047,935. Mr. Denney and Mr. Simpson directly transferred 1,092,600
      shares of common stock they owned to investors who purchased common stock from
      the Company in the private placements. Additionally, the Company acquired
      127,600 shares from Mr. Simpson for $43,500. The transferred shares were
      accounted for as capital contributions to the Company and then recorded as
      shares issued to the investors in the private placements. The acquired shares
      were accounted for as reduction in common stock and additional paid in capital
      and then recorded as shares issued to the investors in the private placements.
      (See Note 4 - Related Party Transactions.)




**NOTE
      7 - NET LOSS PER COMMON SHARE**





For
      the
      years ended December 31, 2006 and 2005, basic and diluted weighted average
      common shares include only common shares outstanding, as the Company does not
      have any common share equivalents. A reconciliation of the number of common
      shares shown as outstanding in the consolidated financial statements with the
      number of shares used in the computation of weighted average common shares
      outstanding is shown below:





2006
            
            2005Common
                shares outstanding
            
            
            77,649,954
            
            
            71,145,657Effect
                of weighting
            
            
            (4,966,004
            )
            
            (450,490
            )Weighted
                average common shares outstanding
            
            
            72,683,950
            
            
            70,695,167




**NOTE
      8 - INCOME TAXES**





A
      summary of income taxes for the years ended December 31, 2006 and 2005 is as
      follows:




2006
            
            2005Currently
                payable (refundable):Federal
            
            $
            -
            
            $
            -State
            
            
            -
            
            
            -Deferred
                tax (benefit) provision
            
            
            (1,358,000
            )
            
            (2,775,000
            )Income
                tax (benefit) provision
            
            
            (1,358,000
            )
            
            (2,775,000
            )Change
                in valuation allowance
            
            
            1,358,000
            
            
            2,775,000Total
                income tax provision
            
            $
            -
            
            $
            -





F-27





**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      8 - INCOME TAXES (continued)**





Temporary
      differences between the financial statement carrying amounts and tax bases
      of
      assets and liabilities that give rise to net deferred income tax assets as
      of
      December 31, 2006 approximate the following:




Net
                operating loss carryforward
            
            $
            13,256,000Depreciation
                timing differences
            
            
            (3,558,000
            )R&D
                credit carryforward
            
            
            688,000Valuation
                Adjustment - Equipment system
            
            
            690,000Other
            
            
            50,000Valuation
                allowance
            
            
            (11,126,000
            )Net
                deferred income tax asset
            
            $
            -





The
      Company’s tax expense differs from the “expected” tax (benefit) for the years
      ended December 31, 2006 and 2005, computed by applying the statutory Federal
      tax
      rate of 35% to loss before taxes, as follows:





***2006***
            
            ***2005***Computed
                “expected” tax (benefit)
            
            $
            (1,973,000
            )
            $
            (3,210,000
            )State
                tax (benefit), net ofFederal
                tax effect
            
            
            (197,000
            )
            
            (321,000
            )Permanent
                differences
            
            
            958,000
            
            
            675,000Other
            
            
            (146,000
            )
            
            81,000Change
                in valuation allowance
            
            
            1,358,000
            
            
            2,775,000$
            -
            
            $
            -





The
      Company has tax net operating loss carryforwards totaling approximately
      $34,400,000 expiring at various times through the year 2026 to offset future
      federal taxable income.





The
      Company also has research and development credit carryforwards of approximately
      $690,000 as of December 31, 2006, which are available to offset future federal
      income tax liabilities.





F-28




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      8 - INCOME TAXES (continued)**





The
      Company has recorded a valuation allowance in accordance with the provisions
      of
      SFAS No. 109 to reflect the estimated amount of deferred tax assets that may
      not
      be realized. In assessing whether deferred tax assets may be realized,
      management considers whether it is more likely than not that some portion or
      all
      of the deferred tax assets will not be realized. The ultimate realization of
      deferred tax assets is dependent upon the generation of future taxable income
      during the periods in which temporary differences and/or carryforward losses
      and
      credits become usable.





Certain
      provisions of the tax laws may limit the tax net operating loss carryforwards
      available for use in any given year in the event of certain changes in
      ownership.





**NOTE
      9 - DISCONTINUED OPERATIONS**





Effective
      January 13, 2005, the Company terminated its contract with St. Lucie County
      for
      services in disposal of vegetative waste at the St. Lucie County landfill.
      At
      the request of St. Lucie County, the Company continued to perform the services
      through April 5, 2005 in order to maintain service until a new contractor
      commenced work.





These
      activities were never intended to be a primary business of the Company, but
      rather a means for the Company to obtain vegetative biomass to be used in the
      production of the Company’s primary product. The Company now expects to use
      animal based biomass which is less expensive than the vegetative waste from
      the
      municipal landfill.





Consistent
      with the requirements of SFAS No. 144, the above noted activities are being
      reported as discontinued operations. There are no income tax liabilities or
      benefits associated with the discontinued operations.





The
      revenue and the operating results of the discontinued activities described
      above
      for the year ended December 31, 2006 and 2005, and for the cumulative period
      during development stage were as follows:





CumulativeDuring
            
            For
                the YearsDevelopment
            
            Ended
                December 31,Stage
                (Unaudited)
            
            2006
            
            2005Revenues
            
            $
            8,448,276
            
            $
            -
            
            $
            468,772Cost
                of Services Provided
            
            
            8,773,504
            
            
            (8,659
            )
            
            359,779Net
                Income (Loss)
            
            $
            (325,228
            )
            $
            8,659
            
            $
            108,993






F-29




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      9 - DISCONTINUED OPERATIONS (continued)**





Effective
      May 2004, the Company recorded a $485,000 loss accrual related to equipment
      damaged in a fire at the St. Lucie County landfill site (see Note 10 - Casualty
      Loss). “Cost of Services Provided” in the discontinued operations shown above
      for the year ended December 31, 2005 includes an adjustment of $109,718 for
      revisions reducing the accrual. In 2006 upon settlement in full of the remaining
      liability, adjustment of $8,659 was recorded to write off the balance of the
      accrual.





There
      were no assets or liabilities related to discontinued operations as of December
      31, 2006.





**NOTE
      10 - CASUALTY LOSS**





In
      May
      2004, a fire caused extensive damage to a piece of the Company’s equipment at
      the St. Lucie County landfill site and minor damage to several other pieces
      of
      ancillary machinery. The Company's insurance carrier took the position that
      the
      Company's insurance coverage on the damaged equipment limited the insurer's
      liability to $15,000. The Company contended that the equipment was fully
      insured, and alternatively that if the Company's coverage was in fact so
      limited, this limitation was attributable to the negligence and
      misrepresentation of the insurance agent who placed the insurance policy, who
      should be held liable for the difference. The damaged equipment was pledged
      as
      security for the Company’s obligations under an equipment lease, for which the
      Company remained liable to the equipment lessor.





Pending
      resolution of the insurance coverage dispute, the Company accrued a $485,000
      loss provision, net of $15,000 received from insurance proceeds, as an estimate
      of the loss incurred. The balance of this liability was paid off in
      2006.








**NOTE
      11 - COMMITMENTS AND CONTINGENCIES**





Operating
      Leases :
      The
      Company has entered into an operating lease for the rental of office facilities.
      The terms of the lease, as extended, expire in October 2007. As of December
      31,
      2006, future minimum lease payments under the leases were $112,456.





Exclusive
      of a land lease that is part of the “Dairy Farm Waste Agreement” discussed
      below, rent expense amounted to $166,057 and $181,674 for the years ended
      December 31, 2006 and 2005, respectively.





F-30




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      11 - COMMITMENTS AND CONTINGENCIES (continued)**





Dairy
      Farm Waste Agreement :
      In June
      1999 the Company entered into an agreement with Larson Dairy, Inc., a local
      dairy farm (“Larson Dairy”) to remove animal waste, approximating 24 tons per
      day, from two barn sites and lagoons which waste the Company intends to process
      at its CAV1 facility. The agreement expires in June 2019 and may be extended
      for
      successive periods of ten years. The Company also entered into an agreement
      with
      Larson Dairy to lease approximately six acres of land on which the Company
      is
      constructing its facility to process the waste. The agreement had an initial
      term of five years which commenced in June 1999 with the option for four
      additional successive five year terms exercisable at the discretion of the
      Company. The Company pays annual rent on the land of $5,000. During 2004, the
      Company exercised its option to extend the term of the agreement for an
      additional five years.





Vegetative
      and Wood Waste Agreements :
      In May
      2001, the Company entered into an agreement with St. Lucie County, Florida
      to
      process vegetative waste for compensation of $17.48 per ton. The agreement
      also
      required the Company to, at its expense, design, construct, start-up and test
      a
      Landfill Gas Combustion System to put the county’s landfill gas to productive
      use by June 2004.




Beginning
      in June 2003, the Company began paying St. Lucie County $11,583 per month for
      the use of its landfill gas. In September 2003, the Company entered into an
      agreement to terminate, by mutual consent, the agreement to construct the
      Landfill Gas Combustion System and purchase landfill gas, but to continue
      processing vegetative waste until January 31, 2004 for compensation of $17.48
      per ton.





In
      February 2004, the Company entered into a new agreement with St. Lucie County
      to
      process vegetative waste for compensation of $17.48 per ton for a period of
      five
      years. Although the services to which these revenues relate were not within
      the
      scope of the Company’s intended principal business, management believed that
      operation of this contract was integral to research and development pursuant
      to
      the Company’s intended principal business. The contract provided valuable data
      and experience regarding cost effective acquisition and utilization of raw
      materials for the Company’s intended business. The Company provided appropriate
      notice of termination of the agreement with St. Lucie County effective January
      13, 2005. The Company terminated the agreement because of changes in its ability
      to carry on operations due to changes in the economics of the vegetative waste
      industry which occurred as a result of the several hurricanes and tropical
      storms that hit Florida in 2004.





Litigation :
      From
      time to time the Company is exposed to claims and legal actions in the normal
      course of business, some of which are initiated by the Company. Management
      believes that the settlement or resolution of these actions will not have a
      material effect on the financial position or results of operations of the
      Company.




F-31




**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      12 - SUBSEQUENT EVENTS**





Sale
      of Securities :
      During
      2007 through the filing date of this report, on various dates the Company
      directly sold 1,625,134 shares of common stock in private offerings available
      only to existing stockholders that resulted in net proceeds to the Company
      of
      $821,812. On various dates the Company directly sold 32,400 shares of common
      stock in private offerings to new accredited investors that resulted in net
      proceeds to the Company of $112,000.





On
      April 18, 2007, Larry W. Denney, Chairman of the Board, President, and Chief
      Executive Officer, committed to a contribution of 10,000 shares of his personal
      common stock to be distributed to a new shareholder as a price adjustment. These
      contributed shares were accounted for as a capital contribution to the Company,
      recorded as a decrease to common stock at $.02 per share par value and an
      increase to additional paid in capital in the same amount. Mr. Denney, as the
      largest stockholder, stood to benefit from an increase in the Company’s value
      resulting from raising additional capital. After the transaction is completed,
      Mr. Denney will own 31,542,045.5 shares.





On
      August
      16, 2007 the Company issued 75,000 shares of common stock as part of the
      agreement executed with Jesteda Partners, LLC (see “Efforts to Raise New
      Capital” below).





Notice
      of Intent to File Tax Lien :
      On an
      annual basis the tax authorities of Okeechobee County, Florida assess the
      Company for personal property taxes on the manufacturing and production
      equipment included in the Company’s CAV1 facility (see Note 4 - Accrued
      Liabilities). In October, 2007 the County notified the Company of its intention
      to file a lien on the Company's equipment in the amount of the back taxes for
      2006 of $295,403. The amounts the Company has accrued include estimated
      penalties and interest.





Adjustment
      to Business Plan Due to Contamination of Raw Material :
      During
      production testing over a period of several years, the Company had used molasses
      as a primary raw material and intended to enter the lower quality/lower valued
      yeast market utilizing molasses. In early 2006, as the Company sought to become
      operational, it determined that the molasses crop of 2005/2006 from nearby
      sugar
      cane farming operations was unusable as the Company’s raw material due to
      harvesting techniques used on sugar cane affected by the hurricanes that passed
      over Florida in mid-2005. Harvesting methods pulled up significant amounts
      of
      dirt that was incorporated into the molasses and could not be removed
      effectively.





F-32





**BIOMASS
      PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2006**




**NOTE
      12 - SUBSEQUENT EVENTS (continued)**





After
      learning about the contamination of the molasses supply, the Company determined
      its processing plant could use a higher cost raw material and sell into the
      higher quality/higher value yeast market to offset the additional costs
      associated with the higher quality raw material. In order to produce the higher
      quality product, management decided to accelerate implementation of plans to
      construct special processing equipment. Construction of the equipment occurred
      throughout most of 2006. In early 2007, the Company completed construction
      and
      testing of the equipment.




Efforts
      to Raise New Capital :
      In
      February 2007 management determined that in order to become operational, the
      Company would need to raise a significant amount of working capital and
      commenced seeking an investment banking group that could assist in finding
      sources of funding. On August 16, 2007, the Company executed an agreement with
      Jesteda Partners, LLC (“Jesteda”), an investment banking group with offices in
      Irvine, California and New York City. Under the ninety-day exclusive agreement
      Jesteda will act as a finder to seek for the Company financing up to $10
      million. Jesteda received 75,000 shares of common stock of the Company upon
      execution of the agreement. The agreement provides for Jesteda to receive fees
      of 8% of the gross proceeds received by the Company and warrants for the
      Company’s common stock valued at 4% of gross proceeds with a strike price of
      $1.00 per share exercisable within two years of closing. There is no assurance
      that Jesteda and the Company will be successful in raising the additional
      capital that the Company requires to become operational. ****




F-33




**PART
      III**




**Item
      1.**  **Index
      to Exhibits.**




(a)  The
      following exhibits are filed herewith:




Document
            Exhibit
                No.Certificate
                of Incorporation filed with the Delaware Secretary of State on January
                30,
                1996 (incorporated herein by reference to Exhibit 2.1.1 of the
                registrant's Form 10-SB, filed with the SEC on December 19,
                2003)
            2.1.1Certificate
                of Amendment to Certificate of Incorporation filed with the Delaware
                Secretary of State on September 12, 1997 (incorporated herein by
                reference
                to Exhibit 2.1.2 of the registrant's Form 10-SB, filed with the SEC
                on
                December 19, 2003)
            2.1.2Certificate
                of Amendment to Certificate of Incorporation filed with the Delaware
                Secretary of State on May 23, 2001 (incorporated herein by reference
                to
                Exhibit 2.1.3 of the registrant's Form 10-SB, filed with the SEC
                on
                December 19, 2003)
            2.1.3By-Laws
                (incorporated herein by reference to Exhibit 2.2 of the registrant's
                Form
                10-SB, filed with the SEC on December 19, 2003)
            2.2Dairy
                Animal Waste Processing Operating Agreement, dated June 23, 1999,
                between
                Larson Dairy, Inc. and the Company (incorporated herein by reference
                to
                Exhibit 6.1 of the registrant's Form 10-SB, filed with the SEC on
                December
                19, 2003)
            6.1Contract,
                dated January 13, 2004, between St. Lucie County, Florida and the
                Company
                (incorporated herein by reference to Exhibit 6.2 of the registrant's
                Amendment No. 1 to Form 10-SB, filed with the SEC on April 16,
                2004)
            6.2List
                of Subsidiaries*
            21.1Certification
                by the Chief Executive Officer of the Company pursuant to Rule 13a-14
                under the Securities Exchange Act of 1934, as amended*
            31.1Certification
                by the Chief Financial Officer of the Company pursuant to Rule 13a-14
                under the Securities Exchange Act of 1934, as amended*
            31.2Certification
                by the Chief Executive Officer of the Company pursuant to 18 U.S.C.
                Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002*
            32.1Certification
                by the Chief Financial Officer of the Company pursuant to 18 U.S.C.
                Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002*
            32.2





*Filed
      herewith




**Item
      2.**  **Description
      of Exhibits.**




The
      information required under this item is contained in Part III, Item 1, Index
      to
      Exhibits.









**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


Biomass
              Processing
              Technology, Inc.Dated:
                October 31,2007
            By:
            /s/ Larry
              W.
              DenneyLarry
              W. Denney, Chairman of the Board,President,
                and Chief Executive Officer




In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.




Dated:
                October 31, 2007
            By:
            /s/ Larry
              W.
              DenneyLarry
              W. Denney, Chairman of the Board,President
              and
              Chief Executive Officer
              (principal
                executive officer)




Dated:
                  October 31, 2007
              By:
              /s/ Robert
                F.
                KendallRobert
                F. Kendall, CPA,Chief
                Financial Officer
                (principal
                    financial and accounting
                    officer)


Dated:
                    October 31, 2007
                By:
                /s/ Sandra
                  McDonaldSandra
                  McDonald,Director


Dated:
                      October 31, 2007
                  By:
                  /s/ P.E.
                    MacAllisterP.E.
                    MacAllister,Director