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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549
 Form 10-KSB þ     ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 2004 o     
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Commission File Number 0-50520 (BP TECHNOLOGY LOGO) Biomass Processing Technology, Inc. 
  Delaware
    
    65-0638890(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)3222 Commerce Place, Suite A, West Palm Beach, Florida
    
    33407(Address of Principal Executive Offices)
    
    (Zip Code)
  (561) 684-6611
 
  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: (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 þ No o 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 The issuers revenues for the fiscal year ended December 31, 2004 were $1,152,641. As of March 31, 2005, the aggregate market value of the registrants voting and non-voting common
equity held by non-affiliates, computed by reference to the price at which the common equity was
sold as of March 31, 2005, was $208,254,680. As of March 31, 2005, there were 70,359,393 shares of Common Stock issued and outstanding. The following documents are incorporated by reference: None. Transitional Small Business Disclosure Format: Yes þ No o




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TABLE OF CONTENTS PART I
    
    
    4Item 1. Description of Business
    
    
    4Item 2. Description of Property
    
    
    20Item 3. Directors, Executive Officers and Significant Employees
    
    
    21Item 4. Remuneration of Directors and Officers
    
    
    23Item 5. Security Ownership of Management and Certain Security Holders
    
    
    24Item 6. Interests of Management and Others in Certain Transactions
    
    
    24PART II
    
    
    25Item 1. Market Price of and Dividends on the Registrants Common Equity and Other Shareholder Matters
    
    
    25Item 2. Legal Proceedings
    
    
    26Item 3. Changes in and Disagreements with Accountants
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Compliance with Section 16(a) of the Exchange Act
    
    
    27PART III
    
    
    28Item 1. Index to Exhibits
    
    
    28Item 2. Description of exhibits
    
    
    29List of SubsidiariesSection 906 CEO CertificationSection 906 CFO Certification
  2




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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. Forward-looking statements are
made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, 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, 2004, 69,931,413 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, the Company was a development stage
company from inception through December 31, 2004, as it had not conducted significant operations or
generated significant operating revenues since its inception. The Company spent $2,651,722 on
research and development activities during 2003 and $3,110,916 on such activities during 2004. 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, 2004, the Company had 18 employees, 17
of whom were full-time employees. 3




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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 (the 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)
facilities, 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). 4




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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 that transfers the farms animal waste materials in liquefied
form pumped by automated equipment directly to the Companys CAV1 facility 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 may be used by the Company 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 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. 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 5




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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 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. 6




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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. 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 7




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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 is presently commissioning studies at
two universities to verify the superiority of these feed ingredients relative to commodity
molasses. 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 5-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. Lignin Polymers. The commercial uses of lignin include:  
    fuel;
    pellet products for use as a binder in animal feed; 8




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
    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 Processing Facility The Company has a processing facility located in Okeechobee, Florida, which the Company refers
to as Combined Animal/Vegetative Waste One or CAV1. Construction of CAV1 in its basic design
is complete. The Company is continuing construction to expand production capabilities. The
Company plans to add a hydrolysis processing capability that will enable CAV1 to produce a wider
range of products with greater efficiency. The 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 and is gradually increasing production during 2005
until the Company is using all four lines. The facility is permitted for up to six lines and the
Company plans to construct the fifth and sixth lines during 2005. The Company began
initial operation at year end by testing the facilitys product for consistency and making
adjustments to processing techniques and equipment based on the results of initial operations. The
Company expects to commence sales in 2005. The Company expects its commercial processing
operations at CAV1 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 processing
operation as described above. 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 9




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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 CAV1, the Company expects that it will eventually be able to generate similar economic
benefits from those facilities. 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. 10




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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. The Company is in the process of completing seven related Patent
Cooperation Treaty (PCT) applications, which applications are expected to be completed prior to
May 18, 2005. The PCT applications will internationalize the provisional applications and further
extend by eighteen months the period of time for filing final applications in the U.S. and foreign
countries. Based on the provisional applications, the Company has been advised by its patent
counsel that the final applications may seek issuance of 50 or more U.S. and foreign patents.
Upon the granting of any patents, the associated costs will be amortized over the life of the
patents. There is no assurance that any such finalized patents will be issued to the Company or
that any patents that may be issued will prove to be enforceable. 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 County, 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 is continuing construction of modifications that will expand the capacity of
the CAV1 facility and is continuing the construction of 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 11




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lines to more barns at Larson Dairy and barns at other nearby dairies. The Company expects to
expand production at the CAV1 facility and commence sales during mid-2005. 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. Plan of Operations During the next twelve months, the Company expects to allocate its capital resources to the
expansion of its production facilities and product development and establishment of a customer
base. The Company intends to complete the expansion modifications to its CAV1 facility in
Okeechobee, Florida, and the construction of a hydrolysis processing capability at its CAV1
facility. In their report on the Companys consolidated financial statements for the fiscal years ended
December 31, 2004 and 2003, 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 second quarter of 2005, 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. 12




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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, 2004 and 2003, 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. 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. We cannot assure you
that the Company will have the funds to expand 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, 13




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including each of the years ended December 31, 2004 and 2003. 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. 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. 14




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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. 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 the Companys ability to obtain and maintain
patent protection for the Companys proprietary technology. 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 15




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materials. A provisional application is a patent filing allowing the Company one year to
complete the final application. The Company is in the process of completing seven related Patent
Cooperation Treaty (PCT) applications, which applications are expected to be completed prior to
May 18, 2005. The PCT applications will internationalize the provisional applications and further
extend by eighteen months the period of time for filing final applications in the U.S. and foreign
countries. Based on the provisional applications, the Company has been advised by its patent
counsel that the final applications may seek issuance of 50 or more U.S. and foreign patents. The patent positions of companies such as the Company are generally uncertain and
involve complex legal and factual questions. While the Company is preparing U.S. or foreign
applications for the issuance of patents, there is no assurance that any of the Companys
technology is in fact patentable, that any future patent applications by the Company 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 competitors. 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.
Licenses to such patent rights 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. 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 16




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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 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. 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 17




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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 operation of the Companys 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. 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 48% of the Companys issued and outstanding shares of Common Stock, and the directors
and officers of the Company as a group own approximately 70% of the Companys issued and
outstanding shares of Common Stock. As a result, management will be able to elect all directors
and otherwise control the Company for the foreseeable future. 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 the Companys 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. 18




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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. 
 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 expires in November 2006, and the current base rent under the lease is $10,551 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 is located, and related real
estate taxes. CAV1 Production Facility, Okeechobee, Florida Combined Animal/Vegetative Waste One (CAV1) 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 CAV1 is 4,000,000 liters,
implemented in four 1,000,000 liter lines. The economic design of CAV1 is substantially
dependent upon internal generation of carbohydrate feed stock from the Companys hydrolysis
process. Construction of the basic design of CAV1 is complete. The Company is continuing
construction to expand production capacity and is adding hydrolysis processing capability that will
enable CAV1 to produce a wider range of products with greater efficiency. The Company expects that
upon completion of these construction activities and the successful completion of further testing,
it will be able to commence commercial processing operations at CAV1. The Company expects its
commercial processing operations at CAV1 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
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. 19




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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 five directors. Directors
will be 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 of directors and
their terms of office are, except to the extent governed by employment contract, at the discretion
of the board of directors. Name
    
    Age
    
    Positions HeldLarry W. Denney
    
    
    66
    
    
    Chairman of the Board, President, and Chief Executive OfficerJack B. Simpson
    
    
    67
    
    
    DirectorDonald E. Henderson
    
    
    71
    
    
    DirectorDonald E. Orr, Jr., Ph. D.
    
    
    60
    
    
    DirectorStanley E. Poe, Ph. D.
    
    
    69
    
    
    DirectorRobert F. Kendall, CPA
    
    
    56
    
    
    Chief Financial Officer
 Larry W. Denney, 66, 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. Jack B. Simpson, 67, has been a Director of the Company since its inception in 1996. Mr.
Simpson also served as the Companys Senior Vice President, Corporate Finance and Treasurer from
inception until November 2003, and served as the Chief Financial Officer of the Company from 1996
to September 2002 and from November 2002 to July 2003, and as the Secretary of the Company from
1996 to June 2003. Mr. Simpson is currently a private investor. Donald E. Henderson, 71, has been a Director of the Company since June 2003. Mr. Henderson
has been the President of the Town Council of Pendleton, Indiana since 1999. Mr. Henderson served
as the Chief Executive Officer of Farm Bureau Insurance Companies, a group of affiliated life and
casualty insurance companies, from 1995 to 1998. From 1987 to 1995 Mr. Henderson served as the
Vice President of the Board of Directors, and as the Director of Legislative Affairs, of the
Indiana Farm Bureau and its affiliated companies. Donald E. Orr, Jr., Ph. D., 60, has been a Director of the Company since June 2003. Dr. Orr
has been the President and a Director of United Feeds, Inc. a livestock feed manufacturing firm,
since 1997. Dr. Orrs experience at United Feeds has involved the development of animal feed
products and of national and international markets for United Feeds products. Dr. Orr has served
on the Advisory Committee of the Company since 2000. Stanley E. Poe, Ph.D., 69, has been a Director of the Company since June 2003. Dr. Poe has
been an independent agricultural producer and livestock consultant since 2000. Dr. Poe 20




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served as Manager of International Animal Science Field Research, Elanco Animal Health, a
division of Eli Lilly and Co., from 1988 to 2000. In that capacity, Dr. Poe developed new
products, conducted animal science research and introduced new feed and pharmaceutical products
into the animal feed market. Dr. Poe has served on the Advisory Committee of the Company since
2000. Robert F. Kendall, CPA, 56, has been Chief Financial Officer since June 2004. Mr. Kendall has
been a certified public accountant in West Palm Beach, Florida for 22 years, 10 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 concerns. 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
CFO 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 an Audit Committee, a Compensation Committee and a
Technical Review Committee of the Board. The Audit Committee consists of Mr. Henderson, who is the chairman, Dr. Orr and Dr. Poe. Each
member of the Audit Committee is independent within the meaning of that term in Section 10A of
the Securities Exchange Act of 1934, as amended. 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 was created by the Board of Directors in October
2003. The Committee met four times during 2004 and conducted a two day conference meeting
including a tour of the CAV facility in January 2005. The Compensation Committee consists of Dr. Poe, who is the chairman, Mr. Denney, and Mr.
Henderson. 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. During 2004, the Compensation
Committee addressed compensation issues during general Board of Directors meetings instead of
holding separate Compensation Committee meetings. The Technical Review Committee consists of Dr. Orr, who is the chairman, Mr. Denney, and Dr.
Poe. The Technical Review Committee was constituted with members having a sufficient technical
background, gained through education and experience, to perform an 21




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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 2004, the Committee addressed technical review issues during
general Board of Directors meetings instead of holding separate Technical Review Committee
meetings. Other Significant Employees Ying Zhou, Ph.D., 35, has been Director of Research of the Company since 1999. Prior to
employment with the Company Dr. Zhou was engaged in graduate studies at Purdue University. Dr.
Zhou specializes in microbiology and mechanical engineering. Dr. Zhou is the wife of Dr. Jianxin
Du. Jianxin Du, Ph.D., 36, has been Chief Engineer of the Company since 1999. Prior to joining
the Company, Dr. Du was engaged in post-graduate research at Purdue University. Dr. Du received
his doctorate from Tsinghua University in China, and specializes in chemical engineering and the
design of reactor vessels and heat exchange systems. Dr. Du is the husband of Dr. Ying Zhou. Advisory Committee The Company has an advisory committee consisting of three members, each of whom is a
stockholder, which committee advises the Board of Directors with respect to material strategic and
operational matters. The Advisory Committee provides input on markets, strategic opportunities and
management decisions regarding the Companys development. 
 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, 2004. AggregateName
    
    Capacity
    
    RemunerationLarry W. Denney
    
    Chairman of the Board, President, and Chief Executive Officer
    
    $
    29,167
    *Robert F. Kendall, CPA
    
    Chief Financial Officer
    
    
    47,190
    *Richard M. Schroeder
    
    Vice President, Field Operations
    
    
    105,000
    *
   *     

During the year officers elected to defer a portion of their salaries to be paid at a later
date. Annual salary rates were: Mr. Denney, $100,000, Mr. Kendall, $80,000, and Mr. Schroeder,
$120,000. Mr. Kendalls employment commenced in April, 2004. Mr. Schroeder resigned from the
Company in February 2005. 22




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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 are also reimbursed for their travel expenses of attending any in person
meetings of the Board or any committee of the Board. For the year ended December 31, 2004, the Board of Directors approved the payment by the
Company of $67,110 in consulting fees for shareholder relations services rendered by a company
wholly-owned by Jack B. Simpson, who is a director and principal shareholder. As of December 31,
2004, $25,000 of this amount had been paid. The balance of $42,110 is included in accrued
expenses. 
 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 March 31, 2005, by (i) each
person who is one of the three highest paid officers or directors of the Company, (ii) all of the
directors and executive officers of the Company as a group, and (iii) any person who the Company
knows to be the owner of record of more than five percent of the Common Stock. % ofTitle of Class
    
    Name and Address of Owner(1)
    
    Amount Owned
    
    
    Class (2)Common Stock
    
    Larry W. Denney
    
    
    33,532,893.5
    
    
    48%Jack B. Simpson
    
    
    15,896,031.5
    
    
    23%All directors and executive officers as a group (6 persons)
    
    
    49,533,925.0
    
    
    70%
   (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 70,359,393 issued and outstanding shares
of Common Stock as of March 31, 2005. 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 Chairman of the Board, President and Chief
Executive Officer and its principal stockholder, 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%. Mr.
Denney made additional advances of $59,700 to the Company under the note and the 23




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Company repaid $62,000 under the note. The note, as amended, is payable on or before January
1, 2006 and may be prepaid without penalty. The balance as of December 31, 2004 was $107,700.
Accrued interest, which is presented as a component of accrued expenses, totaled $4,318. In
December, 2004, Jack B. Simpson, a director of the Company and also a principal stockholder
advanced the Company $3,000 as a short-term, non-interest bearing loan, which loan is included in
accrued expenses at December 31, 2004. For the year ended December 31, 2004, the Board of Directors approved $67,110 in consulting
fees for shareholder relations services rendered by a company wholly-owned by Jack B. Simpson. As
of December 31, 2004, $25,000 of this amount was paid. The balance of $42,110 is included in
accrued expenses. During the year ended December 31, 2004, Mr. Denney and Mr. Simpson directly transferred an
aggregate of 239,325 of their own shares of Common Stock to the Company for no consideration to
them, in connection with the sale of those shares by the Company in private placements of the
Companys common stock. Each stockholder contributed half of the shares. The shares were
accounted for as capital contributions to the Company at par value of $.02 per share. 
 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. The number of shares of Common
Stock outstanding as of December 31, 2004 was 69,931,413, and as of that date the Company had
approximately 965 holders of record of the Common Stock. The Company is not aware of any
restrictions that limit its ability to declare dividends on the Common Stock, other than
restrictions under Delaware law. 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 of the Company may be issued, although it is likely to
seek to adopt one or more of such plans within the next twelve months. On December 19, 2003, the Company filed a Registration Statement on Form 10-SB with the SEC.
On January 23, 2004, the SEC provided a written letter to the Company regarding the SECs comments
regarding the Registration Statement on Form 10-SB. On April 16, 2004, the Company filed an
Amendment No. 1 to Registration Statement on Form 10-SB/A in response to the SECs comments. The
SEC subsequently provided an additional written letter dated May 4, 2004 to the Company containing
the SECs comments regarding the Companys Amendment No. 1 to Registration Statement on Form
10-SB/A. Although the Company intends to provide an appropriate response to each comment made by
the SEC in the SECs second 2004 comment letter, the Company has not yet submitted any response to
that letter to the SEC. 24




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Item 2. Legal Proceedings. The Company is not a party to, nor is any property of the Company subject to, any pending
legal proceedings. The Company is not aware of any governmental authority that is contemplating
any legal proceedings against the Company or its property. 
 Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. There were no changes in or disagreements with the Companys Independent Registered Public
Accounting Firm during the years ended December 31, 2004 or 2003. Effective September 4, 2003, the firm of Crowe Chizek and Company LLC (Crowe, Chizek), which
served as independent accountants for the Company since the inception of the Company and audited
the Companys fiscal year 2001 financial statements, resigned as independent accountants for the
year ended December 31, 2002. Crowe Chizeks report on the Companys consolidated financial
statements for fiscal year 2001 did not contain an adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting principle. Crowe Chizek did
not report on the Companys consolidated financial statements for fiscal year 2002. In connection with Crowe Chizeks work done on the audit of the Companys financial statements
for the 2002 fiscal year, the Company and Crowe Chizek disagreed (the 2002 Audit Disagreement)
regarding whether Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144), requires
the Companys CAV1 facility to be evaluated for impairment for purposes of the Companys 2002
financial statements. SFAS 144 requires the Company to review long-lived assets for recoverability
whenever events or changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. If the Companys recoverability analysis, based on future undiscounted cash
flows, indicates that a possible impairment exists, the Company is required to then estimate the
fair value of the asset determined either by third party appraisal or estimated discounted future
cash flows. Crowe Chizeks position with respect to CAV1 was that the Companys history of

operating losses since inception, delays in the commencement of production from CAV1, the fact that
revenue has not yet been generated from CAV1 and the need for additional capital to complete the
development of the facility and to cause CAV1 to become fully operational indicate that the value
of CAV1 as stated in the Companys balance sheet may be impaired. The Companys position with
respect to SFAS 144 and the CAV1 facility at the time of the 2002 Audit Disagreement was that the
facts regarding CAV1 and the operation of the Company, when analyzed in light of the requirements
of SFAS 144, did not require the CAV1 asset to be tested for recoverability for the period ended
December 2002, and that if recoverability were to be tested using future undiscounted cash flows,
there would be no impairment. Crowe Chizek informed the Company that it believed the CAV1 asset
was impaired, even though the Companys analysis following the provisions of SFAS 144 indicated
that there was no impairment. The Company is unable to determine the effect on its financial
statements for the fiscal year ended December 31, 2002 of analyzing CAV1 for impairment using the
guidance in SFAS 144, as Crowe Chizek provided the Company with no basis under SFAS 144 to support
its conclusion as to possible impairment. 25




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##### Table of Contents



The Company requested that Crowe Chizek furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not it agrees with the above statements. A copy of such
letter, dated December 13, 2003, was filed as Exhibit 16.1 to the Registration Statement on Form
10-SB filed with the Commission on December 19, 2003. Effective September 25, 2003, the Company engaged Ahearn, Jasco + Company, P.A., (current
auditors) as independent accountants for the Company. The Company provided the current auditors
with a SFAS 144 analysis related to their audit of the financial statements for the year ended
December 31, 2002. The Company requested that Crowe Chezek furnish it with a letter addressed to the Securities and Exchange Commission
stating whether or not it agrees with the above statements. A copy of
such letter, dated December 13, 2003, was filed as
Exhibit 16.1 to the Registration Statement on Form 10-SB
filed with the Commission on December 19, 2003. 
 Item 4. Submission of Matters to a Vote of Security Holders. There were no meetings of the stockholders of the Company, and 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 Securities Exchange Act of 1934 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 Securities and Exchange Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership of the Companys
Common Stock. The rules promulgated by the Commission under Section 16(a) require those persons to
furnish the Company with copies of all reports filed with the Commission 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, 2004 provided to the Company, Mr. Denney, Mr. Simpson, Mr. Henderson, Dr. Orr and Dr.
Poe filed reports of beneficial ownership on Form 5 on a timely basis as required by the
Commission. Based on the Companys inquiries and copies of reports of beneficial ownership changes
on Form 4, Mr. Denney and Mr. Simpson each filed a late Form 4. On July 27, 2004 each transferred
shares of Common Stock back to the Company, which transactions were not reported until August
13, 2004. 26




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##### Table of Contents



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 Commission on December 19, 2003)
    
    
    3.1.1Certificate 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 Commission on December
19, 2003)
    
    
    3.1.2Certificate 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 Commission on December
19, 2003)
    
    
    3.1.3By-Laws (incorporated herein by reference to Exhibit 2.2 of
the registrants Form 10-SB, filed with the Commission on
December 19, 2003)
    
    
    3.2Dairy Animal Waste Processing Operating Agreement, dated June
23, 1999, between Larsen Dairy, Inc. and the Company
(incorporated herein by reference to Exhibit 6.1 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    10.1Contract, 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 Commission on April 16, 2004)
    
    
    10.2Letter from Crowe Chizek & Company LLC, dated December 13,
2003 (incorporated herein by reference to Exhibit 16.1 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    16.1List of Subsidiaries
    
    
    21.1Certification 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
 Item 2. Description
of Exhibits. The response to this Item is
contained in Part III, Item 1, Index to Exhibits. 27




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##### Table of Contents



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:  April 15, 2005
    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:  April 15, 2005
    By:
    /s/ Larry W. DenneyLarry W. Denney, Chairman of the Board,President, and Chief Executive Officer
(principal executive officer) Dated:  April 15, 2005
    By:
    /s/ Robert F. KendallRobert F. Kendall, CPA,Chief Financial Officer
(principal financial and accounting officer) Dated:  April 15, 2005
    By:
    /s/ Jack B. Simpson.Jack B. Simpson, Director Dated:  April 15, 2005
    By:
    /s/ Donald E. Orr, Jr.Donald E. Orr, Jr., Ph.D. Director Dated:  April 15, 2005
    By:
    /s/ Stanley E. PoeStanley E. Poe, Ph.D., Director Dated:  April 15, 2005
    By:
    /s/ Donald E. HendersonDonald E. Henderson, Director 28




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS REPORT
    
    
    F-2FINANCIAL STATEMENTS, YEARS ENDED DECEMBER 31, 2004 AND 2003:CONSOLIDATED BALANCE SHEETS
    
    
    F-3CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-4CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    
    
    F-5CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-9




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors of
Biomass Processing Technology, Inc. We have audited the accompanying consolidated balance sheets of Biomass Processing Technology, Inc.
and its subsidiaries (the Company), a development stage enterprise, as of December 31, 2004 and
2003, the related consolidated statements of operations and cash flows for each of the two years in
the period ended December 31, 2004 and for the cumulative during development stage period from
January 30, 1996 through December 31, 2004, and the consolidated statements of stockholders equity
for the period from January 30, 1996 through December 31, 2004. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. The Companys financial statements as of December 31,
2000 and for the period January 30, 1996 through December 31, 2000 (not presented herein) were
audited by other auditors whose report, dated September 7, 2001, expressed an unqualified opinion
on those statements. The cumulative during development stage amounts contain $460,570 of revenues
and $5,556,186 of net loss that was incurred during the period from January 30, 1996 through
December 31, 2000. The other auditors report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for the period through December 31, 2000, is based solely on
the report of such other auditors. We conducted our audit 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 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 financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that
our audits and the report of the other auditor provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditor, 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, 2004 and 2003, and the
results of their operations and their cash flows for each of the two years in the period ended
December 31, 2004, and for the cumulative during development stage period from January 30, 1996
through December 31, 2004, in conformity with U.S. generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming the Company will
continue as a going concern. The Company is a development stage enterprise with limited revenues,
has incurred cumulative losses since inception, and has been dependent on investor capital to
sustain its activities. This raises substantial doubt about the Companys ability to continue as a
going concern. Managements plans in regard to these matters are described in Note 1. /s/ Ahearn, Jasco + Company, P.A. AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida
March 18, 2005 F-2




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED BALANCE SHEETS
 DECEMBER 31, 2004 AND 2003
 
 2004
    
    
    2003ASSETSCurrent assetsCash and cash equivalents
    
    $
    44,559
    
    
    $
    394,816Accounts receivable
    
    
    79,963
    
    
    
    101,503Prepaid expenses and other current assets
    
    
    284,427
    
    
    
    273,224Equipment in process, held for sale
    
    
    2,137,783
    
    
    
    1,647,321Total Current Assets
    
    
    2,546,732
    
    
    
    2,416,864Property and equipment, net
    
    
    24,974,665
    
    
    
    22,803,456Other assetsPatent application costs
    
    
    246,489
    
    
    
    98,160Deposits and other assets
    
    
    101,780
    
    
    
    101,275Total Other Assets
    
    
    348,269
    
    
    
    199,435Total Assets
    
    $
    27,869,666
    
    
    $
    25,419,755LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    1,709,511
    
    
    $
    622,571Accrued expenses
    
    
    1,033,880
    
    
    
    138,467Current portion of long term debt and capital leases
    
    
    124,810
    
    
    
    297,488Total Current Liabilities
    
    
    2,868,201
    
    
    
    1,058,526Long term debt and capital leases, less current portion
    
    
    45,461
    
    
    
    101,185Notes payable  officers
    
    
    107,700
    
    
    
    Total Long-term Liabilities
    
    
    153,161
    
    
    
    101,185Commitments and ContingenciesStockholders equityCommon stock, $.02 par value; 100,000,000 shares
authorized; issued and outstanding,
69,931,413 in 2004 and 69,431,788 in 2003
    
    
    1,398,628
    
    
    
    1,388,636Additional paid in capital
    
    
    40,959,999
    
    
    
    37,106,241Deficit accumulated during the development stage
    
    
    (17,510,323
    )
    
    
    (14,234,833
    )Total Stockholders Equity
    
    
    24,848,304
    
    
    
    24,260,044Total Liabilities and Stockholders Equity
    
    $
    27,869,666
    
    
    $
    25,419,755
 See accompanying notes to the consolidated financial statements F-3




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 
 CumulativeDuringDevelopment
    
    
    Years Ended December 31,Stage (see Note 1)
    
    
    2004
    
    
    2003Revenues
    
    $
    7,979,504
    
    
    $
    1,152,641
    
    
    $
    2,171,718Cost of services provided
    
    
    7,937,384
    
    
    
    1,189,600
    
    
    
    2,090,748Gross profit (loss)
    
    
    42,120
    
    
    
    (36,959
    )
    
    
    80,970Operating expensesResearch and development
    
    
    16,983,956
    
    
    
    3,110,916
    
    
    
    2,651,722(Gain) loss on disposal of assets
    
    
    195,306
    
    
    
    96,357
    
    
    
    (3,401
    )Total operating expenses
    
    
    17,179,262
    
    
    
    3,207,273
    
    
    
    2,648,321Interest expense
    
    
    (373,181
    )
    
    
    (31,258
    )
    
    
    (21,735
    )Loss before income tax benefit
    
    
    (17,510,323
    )
    
    
    (3,275,490
    )
    
    
    (2,589,086
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (17,510,323
    )
    
    $
    (3,275,490
    )
    
    $
    (2,589,086
    )Basic loss per share
    
    
    
    
    
    $
    (0.05
    )
    
    $
    (0.04
    )Weighted average number of
common shares outstanding
    
    
    
    
    
    
    69,712,575
    
    
    
    68,881,560
 See accompanying notes to the consolidated financial statements F-4




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 FROM JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2004
 
 DeficitAccumulatedNumber of
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    During theCommon
    
    
    Stock,
    
    
    Subscription
    
    
    Paid in
    
    
    DevelopmentShares
    
    
    at Par Value
    
    
    Receivable
    
    
    Capital
    
    
    Stage
    
    
    TotalJanuary 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 as
Compensation
    
    
    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 as
Compensation
    
    
    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
    )
    
    
    19,642,914Contribution 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
    )
    
    $
    21,311,430
 (continued on next page) See accompanying notes to the consolidated financial statements F-5




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FROM JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2004 
 (continued) DeficitAccumulatedNumber of
    
    
    Common
    
    
    
    
    
    
    
    
    
    
    During theCommon
    
    
    Stock,
    
    
    Subscription
    
    
    Paid in
    
    
    DevelopmentShares
    
    
    at Par Value
    
    
    Receivable
    
    
    Capital
    
    
    Stage
    
    
    TotalBalances 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




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 Cumulative DuringDevelopment
    
    
    Years Ended December 31,Stage
    
    
    2004
    
    
    2003Operating ActivitiesNet loss
    
    $
    (17,510,323
    )
    
    $
    (3,275,490
    )
    
    $
    (2,589,086
    )Adjustments to reconcile net loss to net
cash used in operations:Depreciation
    
    
    1,602,388
    
    
    
    576,628
    
    
    
    238,347Loss (gain) on disposal of assets
    
    
    195,306
    
    
    
    96,357
    
    
    
    (3,401
    )Stock based compensation
    
    
    163,700
    
    
    
    
    
    
    
    Changes in assets and liabilities:Equipment in process held for sale
    
    
    (2,137,783
    )
    
    
    (490,462
    )
    
    
    (1,190,443
    )Accounts receivable
    
    
    (79,963
    )
    
    
    21,540
    
    
    
    95,212Prepaid expenses and other current
assets
    
    
    (284,427
    )
    
    
    (11,203
    )
    
    
    (106,952
    )Deposits and other assets
    
    
    (101,780
    )
    
    
    (505
    )
    
    
    18,801Accounts payable and accrued expenses
    
    
    2,751,063
    
    
    
    1,990,025
    
    
    
    (84,969
    )Net Cash Used in Operations
    
    
    (15,401,819
    )
    
    
    (1,093,110
    )
    
    
    (3,622,491
    )Investing ActivitiesProceeds from sale of assets
    
    
    137,230
    
    
    
    41,300
    
    
    
    95,930Patent application costs
    
    
    (246,489
    )
    
    
    (148,329
    )
    
    
    (84,969
    )Purchases of property and equipment
    
    
    (25,722,533
    )
    
    
    (2,872,740
    )
    
    
    (1,439,014
    )Net Cash Used in Investing Activities
    
    
    (25,831,792
    )
    
    
    (2,979,769
    )
    
    
    (1,428,053
    )Financing ActivitiesProceeds from new long term debt
    
    
    219,596
    
    
    
    10,000
    
    
    
    Repayment of debt and capital leases
    
    
    (1,234,053
    )
    
    
    (248,828
    )
    
    
    (293,474
    )Proceeds from notes payable - Officers
    
    
    107,700
    
    
    
    107,700
    
    
    
    12,700Proceeds from issuance of common stock
    
    
    42,184,927
    
    
    
    3,853,750
    
    
    
    5,537,700Net Cash Provided by Financing Activities
    
    
    41,278,170
    
    
    
    3,722,622
    
    
    
    5,256,926Net increase (decrease) in cash
and cash equivalents
    
    
    44,559
    
    
    
    (350,257
    )
    
    
    206,382Cash and cash equivalents
at beginning of the period
    
    
    
    
    
    
    394,816
    
    
    
    188,434Cash and cash equivalents
at the end of the period
    
    $
    44,559
    
    
    $
    44,559
    
    
    $
    394,816
 Continued See accompanying notes to the consolidated financial statements F-7




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS 
 Continued Cumulative DuringDevelopment
    
    
    Years Ended December 31,Stage
    
    
    2004
    
    
    2003CASH PAID DURING THE PERIOD FOR:Interest (net of amounts capitalized)
    
    $
    368,863
    
    
    $
    26,940
    
    
    $
    21,735Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
 Supplemental Disclosure of Noncash Investing and Financing Activities: Equipment Financing.During the year ended December 31, 2004, the Company acquired equipment and
vehicles by entering into capital leases totaling $155,975. Since inception, the Company acquired
equipment and vehicles by entering into capital leases totaling $1,330,277. During the year ended December 31, 2004, the Company assigned a capital lease with respect to
certain equipment subject to that lease. On the date of assignment, the equipment had a book value
of $134,103 and the capital lease balance assumed by the buyer was $135,549. Debt to Equity Conversion.During the year ended December 31, 2004, the holder of a convertible
promissory note in the amount of $10,000 elected, in accordance with provisions of the note, to
convert the note into 2,500 shares of common stock at a conversion price of $4.00 per share. See accompanying notes to the consolidated financial statements F-8




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY) 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER 31, 2004 AND 2003
 NOTE 1  ORGANIZATION 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. and its wholly-owned subsidiaries, Omni Environmental Corporation (formerly known
as Omni Technologie International, Ltd. and incorporated in Delaware on June 23, 1989), BPT CAV1
Corporation (CAV1), and BPT Intellectual Property Corporation (IP) (collectively, the
Company). All significant inter-company transactions have been eliminated. CAV1 was incorporated
in the State of Florida on October 24, 2003, to operate the CAV1 facility when operational. IP was
incorporated in the State of Delaware on October 24, 2003, to manage certain intellectual property
assets. These two companies were inactive in 2003. Certain assets were transferred to CAV1 and IP
by the parent as of January 1, 2004, and the accounts of these subsidiaries are included in the
consolidated group as of January 1, 2004. The transfer of assets to the subsidiaries was done to
address future organizational needs and does not represent any change in current year operations. Going Concern Considerations: In December 2004, the Company commenced operating the CAV
facility on a test basis by initiating production of inventory. 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 CAV the Company will concentrate its efforts on
testing for quality and consistency of product, production technique refinements, and building of
inventory. Initial sales are expected by mid-2005. 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. Should the Company continue to experience operating
losses during 2005, it will be necessary to raise additional funds from outside investors and/or
lenders in order to continue as a going concern. The Company cannot provide assurances that
additional investor funds will be available on terms acceptable to the Company. The Company is a
development stage enterprise with limited revenues, has incurred cumulative losses since inception,
and has been dependent on investor capital to sustain its activities; these conditions raise
substantial doubt about the Companys ability to continue as a going concern. The
accompanying financial statements have been F-9




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION (Continued) prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities in the normal course of business. During the next twelve months, the Company expects to allocate its capital resources to the
completion of its fully-expanded production facilities, product development, and sales. During
2005, through a combination of securities offering proceeds and cash flows, the Company intends to
begin operating existing production lines 3 and 4, complete construction of its hydrolysis system
(a pre-process on vegetative biomass that reduces the cost of raw materials and fuel costs), and
construct two additional permitted fermentation lines 5 and 6, at its CAV1 facility in Okeechobee,
Florida. The Company believes that its current capital resources and revenue from operations will be
insufficient to fund the Companys intended operations and expansion beyond the first quarter of
2005 and that it will be required to raise additional capital through the offering of equity
securities, the incurrence of indebtedness 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. Should any of managements planned events
not occur, the accompanying financial statements may be materially affected. The Company prepares its financial statements in accordance with accounting principles generally
accepted in the United States of America (GAAP). The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results may differ from those
estimates. NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition, Accounts Receivable, and Credit Risk: The Company records revenue in
the period in which services are rendered. During 2004 and 2003, the Companys revenues were
generated by services provided under the wood waste agreements described in Note 11. The Company recognized and recorded these revenues when the following criteria were met: there was
evidence of an agreement, the services required were performed, the price to be paid was
determinable, and the collection of the price to be paid was reasonably assured. All of the
Companys accounts receivable and revenues are from one customer using credit terms customary in
the industry. No allowance for bad debts has been recorded at December 31, 2004 or 2003 based upon
management estimates, historic loss F-10




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) experience and current economic conditions. The Company incurred no bad debt expenses for the
years ended December 31, 2004 and 2003. 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 began in December 2004, when the assets were placed in service. Interest totaling
$294,801 ($24,274 and $51,088 for the years ended December 31, 2004 and 2003, respectively) 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. All items of property and equipment are reviewed periodically for possible impairment. The
Companys impairment review is based on an undiscounted cash flow analysis at the lowest level for
which identifiable cash flows exist. Impairment occurs when the carrying value of the asset
exceeds the future undiscounted cash flows. When impairment is indicated, the asset is written
down to its fair value. No impairments have been recorded through December 31, 2004. Equipment in process held for sale: The Company has constructed an equipment system
(referred to as an EcoGold Processor) which produces animal feed protein supplement while
simultaneously removing polluting phosphorus and nitrogen from watersheds at remote Confined Animal
Feed Operations. In the agricultural industry such farm operations are referred to as CAFOs.
This equipment system utilizes the Companys new proprietary technology, a portion of which is the
subject of seven provisional patents discussed below. The EcoGold Processor will be marketed 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 equipment system is valued at the cost of
construction, which is lower than the expected sales price of the finished equipment. Patents: Costs incurred to apply for patents have been capitalized. 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. The Company is in the process of completing seven related Patent Cooperation Treaty
(PCT) applications, which process is expected F-11




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) to be completed prior to May 18, 2005. The PCT applications will internationalize the provisional
applications and further extend by eighteen months the period of time for filing final applications
in the U.S. and foreign countries. Based on the provisional applications, the Company has been advised by its patent counsel that the
final applications may seek issuance of 50 or more U.S. and foreign patents. Upon the
granting of any patents, the associated costs will be amortized over the life of the patents. Fair Value of Financial Instruments: Cash, 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. Stock-Based Compensation: The Company accounts for stock-based compensation under the
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. For common shares issued to
employees, the compensation was measured and recorded on the basis of the fair value of the stock
issued. The Company presently has no employee stock option plans, and it has not issued any stock
options to any employee. SFAS No. 123 also governs stock-based compensation transactions with
persons who are not employees in which transactions services were performed in exchange for stock
or other equity instruments. The Company has issued its common shares to non-employees in exchange for services. In accordance
with SFAS No. 123, these transactions were recorded on the basis of the fair value of the services
received or the fair value of the stock issued, whichever was more readily measurable. There were
no such transactions during 2004 and 2003. 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-12




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 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, 2004 and 2003. 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 $3,110,916 and $2,651,722 for the years ended December 31, 2004 and 2003,
respectively. Cash and Cash Equivalents: Cash and cash equivalents consist of normal business checking
and savings accounts. The Company maintains its cash balances primarily at one financial
institution and at times balances are in excess of federally insured limits. The Company considers
all investments purchased with a maturity of three months or less to be cash equivalents. 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. Reclassifications: Certain fiscal 2003 amounts have been reclassified to conform to the
fiscal 2004 presentation. Recent Accounting Pronouncements: In November 2004, the Financial Accounting Standards
Board (FASB) issued SFAS No. 151, Inventory Costsan amendment of ARB No. 43, Chapter 4, which
amends the guidance in Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing, to
clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and
wasted material (spoilage). The statement is effective for financial statements for fiscal years
beginning after June 15, 2005. We believe that SFAS 151 will have no significant effect on the
financial position, results of operations, and cash flows of the Company. F-13




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets. This statement
amends the guidance in Accounting Principles Board Opinion (APB) No.29, Accounting for
Nonmonetary Transactions. APB 29 provided an exception to the basic measurement principle (fair
value) for exchanges of similar assets, requiring that some nommonetary exchanges be recorded on a
carryover basis. The provisions of SFAS 153 are effective for exchanges of nonmonetary assets
occurring in fiscal periods beginning after June 15, 2005. We believe that SFAS 153 will have no
significant effect on the financial position, results of operations, and cash flows of the Company. In December 2004, the FASB issued SFAS No. 123 (revised), Share-Based Payment, which requires
the measurement of all share-based payments to employees, including grants of employee stock
options, using a fair-value-based method and the recording of such expense in the statement of
operations. The accounting provisions of SFAS 123R are effective for reporting periods beginning
after June 15, 2005. We believe that SFAS 123R will have no significant effect on the financial
position, results of operations, and cash flows of the Company. NOTE 3  PROPERTY AND EQUIPMENT As of December 31, 2004 and 2003, property and equipment consisted of the following: 2004
    
    
    2003Machinery and equipment
    
    $
    23,938,568
    
    
    $
    896,226Furniture and fixtures
    
    
    142,650
    
    
    
    142,171Transportation
    
    
    100,495
    
    
    
    199,423Leasehold improvements
    
    
    542,035
    
    
    
    586,899Buildings
    
    
    1,538,582
    
    
    
    Construction in process
    
    
    
    
    
    
    21,813,357Total
    
    
    26,262,330
    
    
    
    23,638,076Accumulated depreciation
    
    
    (1,287,665
    )
    
    
    (834,620
    )Property and equipment, net
    
    $
    24,974,665
    
    
    $
    22,803,456
 Depreciation on assets placed in service amounted to $576,628 and $238,347 for the years ended
December 31, 2004 and 2003, respectively. Certain assets are pledged as collateral on debt and capital leases (see Notes 5 and 6). F-14




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 4  RELATED PARTY TRANSACTIONS During 2004, Larry W. Denney, the Companys Chairman, President, and Chief Executive Officer and
its principal stockholder, 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%. 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, is payable on or before January 1, 2006 and may be prepaid without
penalty. The balance as of December 31, 2004 was $107,700. Accrued interest, which is presented
as a component of accrued expenses, totaled $4,318. Mr. Jack B. Simpson, who is also a director,
advanced the Company $3,000 as a short-term, non-interest bearing loan at year end which loan is
included in accrued expenses at December 31, 2004. For the year ended December 31, 2004, the Board approved $67,110 in consulting fees for shareholder
relations services provided by a company wholly-owned by Mr. Simpson. As of December 31, 2004,
$25,000 of this amount was paid. The balance of $42,110 is included in accrued expenses. During the year ended
December 31, 2004, Mr. Denney and Mr. Simpson directly transferred an
aggregate of 239,325 of their own shares of Company common stock to the Company for no
consideration to them, in connection with the sale of those shares by the Company in private
placements of the Companys common stock. Each stockholder contributed half of the shares. The
shares were accounted for as capital contributions to the Company at par value of $.02 per share. During the year ended December 31, 2003, Mr. Denney and Mr. Simpson directly transferred 265,530
shares of their personal common stock holdings to investors who purchased Company stock in the
private placements of the Companys common stock. These 265,530 shares were accounted for as
capital contributions to the Company, and as shares issued to the investors in the private
placements. F-15




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 5  LONG TERM OBLIGATIONS Long term obligations as of December 31, 2004 and 2003 consisted of the following: 2004
    
    
    2003Debt  Installment notes
collateralized by vehicles
and farm equipment payable
in monthly installments of
$2,005 including interest
at rates ranging from 0.0%
to 14.9% through June
2006. One note was repaid
and one entered into
during 2004.
    
    $
    14,382
    
    
    $
    30,590Obligations under capital
leases (see Note 6)
    
    
    155,889
    
    
    
    368,083Total long-term obligations
    
    
    170,271
    
    
    
    398,673Less: current maturities
    
    
    124,810
    
    
    
    297,488Long-term portion
    
    $
    45,461
    
    
    $
    101,185
 Future maturities of long-term debt and capital leases are as follows: 2005
    
    $
    124,8102006
    
    
    45,461$
    170,271
 NOTE 6  CAPITAL LEASES Since inception, the Company acquired equipment and vehicles by entering into capital leases
totaling $1,330,277. The Company has entered into several lease agreements for operating
and laboratory equipment, which agreements are accounted for as capital leases expiring through
2006, payable in monthly installments of $18,014 including imputed interest at rates ranging from
10.1% to 20.4%. During 2004, the Company repaid four lease agreements. The following table shows the value of those assets still subject to capital lease payments as of
December 31, 2004 and 2003. The assets are included in the balance sheet under the caption
Property and equipment, net. 2004
    
    
    2003Historical cost
    
    $
    787,778
    
    
    $
    1,090,368Accumulated depreciation
    
    
    (79,869
    )
    
    
    (132,923
    )Net
    
    $
    707,909
    
    
    $
    957,445
 F-16




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 6  CAPITAL LEASES (Continued) Future minimum lease payments as of December 31, 2004 under capital leases are as follows: 2005
    
    $
    127,8632006
    
    
    41,695Total
    
    
    169,558Amount representing interest
    
    
    (13,669
    )Present value of net minimum lease payments (see Note 5)
    
    $
    155,889
 NOTE 7  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. Private Placements of Common Stock: During the year ended December 31, 2004, the Company
directly sold 736,450 shares of common stock through private placements that resulted in net
proceeds to the Company of $3,853,750. Mr. Denney, who is the Chairman, President, CEO and a
principal shareholder, and Mr. Simpson, who is a director and principal shareholder, directly
transferred 239,325 shares of their personal common stock holdings to investors who purchased
Company stock in the private placements. These 239,325 shares were accounted for as capital
contributions to the Company, and as shares issued to the investors in the private placements. During the year ended December 31, 2003, the Company directly sold 1,142,535 shares of common stock
through private placements that resulted in net proceeds to the Company of $5,537,700. Mr. Denney
and Mr. Simpson directly transferred 265,530 shares of their personal common stock holdings to
investors who purchased Company stock in the private placements. These 265,530 shares were
accounted for as capital contributions to the Company, and as shares issued to the investors in the
private placements. F-17




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 7  EQUITY CAPITAL (Continued) Convertible Promissory Note: During the year 2004, the Company issued a convertible
promissory note in the principal amount of $10,000 bearing interest at a rate of 10% and maturing
February 24, 2006. Interest on the note was payable quarterly. The holder of the note was
entitled to convert the note into 2,500 shares of common stock during the 30 days prior to the
maturity date or during the 30 days prior to an accelerated maturity date which could be selected
by the Company at any time within six months after issuance. The Company selected August 24, 2004
as the accelerated maturity date and the holder of the note elected to convert the note into 2,500
shares of common stock. The Company paid quarterly interest from the date of the note through July
26, 2004, the date of conversion. NOTE 8  NET LOSS PER COMMON SHARE For the years ended December 31, 2004 and 2003, 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: 2004
    
    
    2003Common shares outstanding
    
    
    69,931,413
    
    
    
    69,431,788Effect of weighting
    
    
    (218,838
    )
    
    
    (550,228
    )Weighted average common shares outstanding
    
    
    69,712,575
    
    
    
    68,881,560
 NOTE 9  INCOME TAXES A summary of income taxes for the years ended December 31, 2004 and 2003 is as follows: 2004
    
    
    2003Currently payable (refundable):Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Deferred tax (benefit) provision
    
    
    (1,259,426
    )
    
    
    (1,016,289
    )Income tax (benefit) provision
    
    
    (1,259,426
    )
    
    
    (1,016,289
    )Change in valuation allowance
    
    
    1,259,426
    
    
    
    1,016,289Total income tax provision
    
    $
    
    
    
    $
    
 F-18




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 9  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 relate to the following: 2004
    
    
    2003Net operating loss carryforward
    
    $
    8,049,431
    
    
    $
    5,375,947Depreciation timing differences
    
    
    (1,498,743
    )
    
    
    (28,530
    )R&D credit carryforward
    
    
    375,460
    
    
    
    200,516Other
    
    
    65,197
    
    
    
    18,784Valuation allowance
    
    
    (6,991,345
    )
    
    
    (5,566,717
    )Net deferred income tax asset
    
    $
    
    
    
    $

    
 The Company has used a combined estimated federal and state tax rate of approximately 38.5% for all
deferred tax computations. The tax benefit prior to the allowance differs from the federal
statutory rate of 34% primarily because of permanent differences, the effect of state income taxes,
and the effect of the R&D tax credits. The 2004 valuation allowance was adjusted to account for the 2004 R&D tax credit of approximately
$100,000, an adjustment of prior period R&D tax credits of $74,944, and an adjustment of prior
period net operating loss carryforward of $9,742. The prior period adjustments arose from the
amendment of prior years tax returns. The Company has tax net operating loss carryforwards which are available to offset future federal
taxable income. These operating losses, and their year of expiration, are as follows: 2016
    
    $
    532,3422017
    
    
    880,4902018
    
    
    665,3012019
    
    
    1,756,3922020
    
    
    1,785,7882021
    
    
    1,909,0062022
    
    
    4,011,2572023
    
    
    2,425,7462024
    
    
    6,978,480Total
    
    $
    20,944,802
 The Company also has research and development credit carryforwards of $375,460 and $275,460 as of
December 31, 2004 and 2003, respectively, which are available to offset future federal income tax
liabilities. F-19




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 9  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 a significant change in ownership interest. Management
believes that such an ownership change has not occurred and it does not expect the future use of
its net operating loss carryover to be significantly limited. 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 has taken the position that the Companys insurance coverage on the
damaged equipment limited the insurers liability to $15,000. The Company contends 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 Board has
resolved its intention to consider legal counsel to handle the matter. The damaged equipment was
pledged as security for the Companys obligations under an equipment lease, for which the Company
remains liable to the equipment lessor. Pending resolution of the insurance coverage dispute, the
Company has accrued a $485,000 loss provision, net of $15,000 received from insurance proceeds, as
an estimate of the loss incurred. As of December 31, 2004, the balance on the accrual was
$445,687. NOTE 11  COMMITMENTS AND CONTINGENCIES Operating Leases: The Company has entered into several operating leases for the rental of
operating equipment, land, and laboratory and office facilities. The terms of the leases expire in
various years through 2006. Future minimum lease payments under these leases are as follows: 2005
    
    $
    170,3882006
    
    
    145,733$
    316,121
 F-20




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 11  COMMITMENTS AND CONTINGENCIES (Continued) Rent expense amounted to $325,922 and $507,597 for the years ended December 31, 2004 and 2003,
respectively. 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. The term of the agreement was twenty years from the date of operation of the
Landfill Gas Combustion System. 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 an 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 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. Dairy Farm Waste Agreement: In June 1999 the Company entered into an agreement with a
local dairy farm (Larson Dairy) to remove animal waste, approximating twenty-four tons per day,
from two barn sites and lagoons which waste the Company intends to process at its CAV 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 5 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. F-21




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003 NOTE 11  COMMITMENTS AND CONTINGENCIES (Continued) 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 (See Note 10  Casualty
Loss). 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. NOTE 12  SUBSEQUENT EVENTS From January 1, 2005 through March 18, 2005, the Company directly sold an aggregate of 400,980
shares of common stock through private placements that resulted in net proceeds to the Company of
$2,256,150. Of these totals $1,763,650 was raised in the sale of 351,730 shares sold in a private
placement to existing shareholders only and $492,500 was raised in sales of 49,250 shares to new
shareholders. F-22