**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D. C. 20549**




**Form
      10-KSB**




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




For
      the
      fiscal year ended December 31, 2005




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




Commission
      File Number 0-50520









**Biomass
      Processing Technology, Inc.**


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




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




**(561)
      684-6611**


(Issuer’s
      Telephone Number, Including Area Code)




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




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




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




Yes
o No
x




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




The
      issuer’s revenues for the fiscal year ended December 31, 2005 were $
      -0-.




As
      of
      June 30, 2007, 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 June 30, 2007, was $
      39,595,886.




As
      of
      June 30, 2007, there were 79,191,773 shares of Common Stock issued and
      outstanding.




The
      following documents are incorporated by reference: None.




Transitional
      Small Business Disclosure Format: Yes x No
o







**TABLE
      OF CONTENTS**


PART
                  I
              
              
              
              3ITEM1.
              
              DESCRIPTIONOFBUSINESS.
              
              3ITEM2.
              
              DESCRIPTIONOFPROPERTY.
              
              21ITEM3.
              
              DIRECTORS,
                  EXECUTIVE
                  OFFICERS
                  AND
                  SIGNIFICANT
                  EMPLOYEES.
              
              22ITEM4.
              
              REMUNERATION
                  OF
                  DIRECTORS
                  AND
                  OFFICERS.
              
              24ITEM5.
              
              SECURITYOWNERSHIPOFMANAGEMENTANDCERTAINSECURITYHOLDERS.
              
              25ITEM6.
              
              INTERESTSOFMANAGEMENTANDOTHERSINCERTAINTRANSACTIONS.
              
              25PART
                  II
              
              
              
              26ITEM1.
              
              MARKETPRICEOFANDDIVIDENDSONTHEREGISTRANT'SCOMMONEQUITYANDOTHERSHAREHOLDERMATTERS.
              
              26ITEM2.
              
              DESCRIPTIONOFEXHIBITS.
              
              27ITEM3.
              
              CHANGESINANDDISAGREEMENTSWITHACCOUNTANTS
              
              27ITEM4.
              
              SUBMISSIONOFMATTERSTOAVOTEOFSECURITYHOLDERS.
              
              28ITEM5.
              
              COMPLIANCEWITHSECTION16(A)
                  OFTHEEXCHANGEACT.
              
              28PART
                  III
              
              
              
              30ITEM1.
              
              INDEX
                  TO
                  EXHIBITS.
              
              30ITEM2.
              
              DESCRIPTIONOFEXHIBITS.
              
              31


2




**Caution
      Regarding Forward-Looking Information**




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




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




Forward-looking
      statements are made in reliance upon the safe harbor provisions of Section
      27A
      of the Securities Act of 1933, as amended, 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, 2005, 71,145,657 shares were issued and outstanding. Although
      the Company’s planned principal operations commenced in December 2004, with the
      Company’s initial operation of the CAV facility on a test basis, the Company has
      been a development stage company from inception through December 31, 2005,
      as it
      had not conducted significant operations or generated significant operating
      revenues since its inception. The Company spent $2,049,288 on research and
      development activities during 2004 and $4,822,954 on such activities during
      2005. The Company has incurred a net operating loss each year since its
      inception. The Company's management team devotes most of their activities to
      establishing the Company's business, the development of a detailed business
      plan
      and marketing strategy and raising the funds required to develop and operate
      the
      business successfully. The Company conducts its business activities directly
      and
      through its wholly owned subsidiaries Omni Environmental Corp., BPT CAV1
      Corporation and BPT Intellectual Property Corporation. References to "the
      Company" below generally refer to the Company and its wholly-owned subsidiaries,
      collectively. As of December 31, 2005, the Company had 19 employees, 18 of
      whom
      were full-time employees.




3




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




4




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




Types
      of Biomass Source Material




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




·
            manure;
                and




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




Animal-based
      biomass material is available from animal-based farming operations, including
      dairy farms and livestock producers. The Company has an agreement with an
      Okeechobee, Florida dairy farm that provides it with animal-based biomass
      material at no cost to the Company. See “Dairy Animal Waste Processing,
      Okeechobee, Florida” below. The Company has installed underground piping over
      the dairy farm’s land through which the farm’s animal waste materials are pumped
      in liquefied form directly to the Company’s 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 the Company may use include:




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




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




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




During
      the year ended December 31, 2004, vegetative biomass material was available
      to
      the Company from the St. Lucie County, Florida landfill operation described
      below under “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.




5




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




Types
      of Production Facilities




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




Description
      of the Process and Types of Byproducts of the Process




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




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




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




●
            five
                carbon sugars, such as xylose;




●
            six
                carbon sugars, such as glucose; and




●
            lignin,
                a natural polymer.




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




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




6




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.




7




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




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




8




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




●
            fuel;




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




●
            dust
                control in roads;




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




●
            soil
                amendments to improve marginal soil;




●
            pesticide
                dispersants;




●
            plastic
                additives;




●
            gypsum
                wallboards;




●
            dyes;
                and




●
            concrete
                formulations.




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




*CAV1
      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. Upon
      commencing operations the Company plans to gradually increase production until
      the Company is using all four lines. The facility is permitted for up to six
      lines and the Company plans to begin constructing the fifth and sixth lines
      upon
      commencement of operations. The Company expects its commercial processing
      operations at 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.




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




9





In
      February 2007 management determined that in order to become operational, the
      Company would need to obtain a significant amount of working capital all at
      one
      time in the range of $5 million to $10 million. Management has cutback on
      overhead while focusing full-time on seeking venture capital through investment
      banking firms as of the date of this report.





*Regulatory
      Matters*




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




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




10




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




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




*Proprietary
      Technology*





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




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




11





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





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





The
      waste
      streams explored are:




·
            Ruminant
                cattle manure


·
            Swine
                and other animal manure


·
            Municipal
                cellulosistic solid waste


·
            Other
                cellulosistic solid waste


·
            Whey
                broth from cheese production


·
            Fermentation
                broth remediation from alcohol and yeast
                production




·
            Other
                undefined dilute waste streams





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





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





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





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





·
            Recovery
                of organic material suitable for
                fermentation.


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




12




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





*Dairy
      Animal Waste Processing, Okeechobee, Florida*





The
      Company is a party to a Dairy Animal Waste Processing Operating Agreement,
      dated
      June 23, 1999, with Larson Dairy, Inc. in Okeechobee 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 lines to more barns at Larson Dairy and barns
      at
      other nearby dairies.




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




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




*Plan
      of Operations*




As
      further detailed in the financial statements under Note 14 - Subsequent Events,
      during the eighteen months subsequent to December 31, 2005, the Company
      allocated its capital resources to the completion of its fully-expanded
      production facilities and its endeavor to secure a significant investment
      banking or venture capital funding transaction sufficient to support commencing
      operations. During the coming twelve months (the second half of 2007 and first
      half of 2008), through a combination of expected securities offering proceeds
      and cash flows, the Company hopes to begin operating the existing production
      facility with lines 1 and 2, add productions 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.




13





In
      their
      report on the Company’s consolidated financial statements for the fiscal years
      ended December 31, 2005 and 2004, the Company’s independent auditors included an
      explanatory paragraph describing conditions which raise substantial doubt about
      the Company’s ability to continue as a going concern. Until the Company begins
      to generate cash revenues from its planned principal business operations, its
      expenses will substantially exceed its revenues and a substantial portion of
      the
      Company’s limited cash resources will be required to be used to pay operating
      expenses. The Company believes that its current capital resources will be
      insufficient to fund the Company's intended operations beyond the third quarter
      of 2007, and that unless the Company commences generating significant cash
      flow
      from operations, it will be required to raise additional capital through the
      offering of equity securities, the incurrence of indebtedness or a combination
      of the foregoing. The Company currently intends to seek to raise substantial
      additional capital through one or more private offerings of debt securities,
      common stock or convertible securities, or a combination of the foregoing.
      There
      is no assurance that the Company will be able to raise any additional funds
      which may be necessary to enable it to continue its planned business
      operations.





*Risk
      Factors*




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





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





The
      Company’s independent auditors have added an explanatory paragraph to their
      audit opinion (included elsewhere in this Annual Report on Form 10-KSB) issued
      in connection with their audit of our financial statements for the years ended
      December 31, 2005 and 2004, 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.




14





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





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





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





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





The
      Company’s cash flow from operations has been insufficient to cover the Company’s
      operating expenses and other cash commitments in each year since the Company’s
      inception, including each of the years ended December 31, 2005 and 2004, and
      through the date of this report in July, 2007. 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.




15





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





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





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





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





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





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





***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.




16





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





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





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





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





***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.




17





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





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





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





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




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





The
      Company will be required to comply with a number of statutes and regulations
      relating to the health and safety of personnel and the public, including the
      identification, generation, storage, handling, transportation, disposal, record
      keeping, labeling and reporting of, and emergency response in connection with,
      materials relating to the Company’s facilities that may be hazardous or toxic,
      safety and health standards, practices and procedures applicable to operation
      of
      the Company’s facilities, and environmental protection requirements including
      standards and limitations relating to the discharge of air and water pollutants
      and 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.




18





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





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




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





The
      Company is responsible for maintaining various permits and other regulatory
      approvals required for the operation of its facilities. Failure to satisfy
      certain of the permits’ conditions could prevent the 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 40% of the Company’s issued and outstanding shares of Common
      Stock, and the directors and officers of the Company as a group own
      approximately 43% of the Company’s issued and outstanding shares of Common
      Stock. Jack B. Simpson, a co-founder and former director of the Company, owns
      approximately 18% of the outstanding shares of Common stock. As a result,
      management of the Company will be able to exert a substantial and controlling
      influence over all matters submitted for a vote of the Company’s stockholders,
      including the election of directors. Non-management stockholders are unlikely
      to
      be able to replace management should those stockholders determine that the
      Company’s operations could be conducted more effectively by other
      management.




19





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





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





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





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





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





The
      tax
      authorities of Okeechobee County, Florida have assessed the Company for personal
      property taxes on the manufacturing and production equipment included in the
      Company’s CAV facility. The amount of these taxes for the 2004 calendar year was
      $179,355. The Company did not pay this amount when it was asserted to be due,
      and in June 2006, the County filed a lien on the Company's equipment in the
      amount of the back taxes. In May 2007 the County filed an additional lien in
      the
      amount of $328,259 for 2005 personal property taxes. The Company has been billed
      for an additional $328,574 for 2006 personal property taxes. The amounts due
      may
      be increased by penalties and interest. The County may enforce the lien by
      seizing the Company's equipment and offering it for sale to third parties.
      The
      Company believes that the County may not sell the lien, or a tax certificate
      secured by the lien, to a third party. The Company has been in discussions
      with
      County officials regarding the tax liability, has indicated its intention to
      satisfy the liability after the Company becomes operational and has the
      financial capacity to do so, and has made good-faith payments to the County
      of
      approximately $62,200 towards the Company's tax liability. There can be no
      assurance that the Okeechobee County tax authorities will not seek to execute
      on
      the liens placed on the Company's assets, which could result in the seizure
      and
      sale of such assets without any assurance that the proceeds would be sufficient
      to satisfy the Company's asserted tax liability. The occurrence of such events
      could have a material adverse effect on the Company.





20





**Item
      2. Description of Property.**




*Company
      Headquarters, West Palm Beach, Florida*




The
      Company is a party to a Lease, dated November 12, 2001, under which the Company
      leases its principal offices located in West Palm Beach, Florida from 45th
      Street Partnership, Ltd. The lease term as extended expires in October, 2007,
      and the current base rent under the lease is $7,761 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. The facilities are adequate for the Company’s present
      and anticipated future needs. The Company intends to negotiate an additional
      extension, execute a new lease, or relocate in the area.





*CAV1
      Production Facility, Okeechobee, Florida*




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". Although the optimal economic design of CAV1 includes internal
      generation of carbohydrate feed stock from the Company's hydrolysis process,
      the
      facility can operate using carbohydrate purchased from outside sources.
      Construction of the basic design of CAV1 is complete. Subject to raising
      sufficient additional capital, the Company intends to continue construction
      to
      expand production capacity and add 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.





21





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





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




Name
            
            Age
            
            Positions
                HeldLarry
                W. Denney
            
            68
            
            Chairman
                of the Board, President, Chief Executive OfficerSandra
                McDonald
            
            58
            
            DirectorP.E.
                MacAllister
            
            88
            
            DirectorRobert
                F. Kendall, CPA
            
            58
            
            Chief
                Financial Officer





Larry
      W.
      Denney, 68, 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.




Sandra
      McDonald, 58, was appointed to the Board on June 17, 2005, and was elected
      to
      continue to serve as a director at the Company’s 2006 and 2007 annual meetings
      of stockholders. Ms. McDonald is the world-wide sales and marketing manager
      for
      Pro Med Instruments, a
      leader
      in cranial stabilization and brain retraction, headquartered in Freiburg,
      Germany. She is the cofounder of PJ McDonald Corp., a construction
      company located in Cape Coral, Florida, where she served as Chief Financial
      Officer from 2004 through 2006. Ms. McDonald was Executive Director of
      Professional Services-Medical Systems Group of Olympus America, Inc., a medical
      instruments company, from 2000 through 2003 and was Director of
      Marketing-Olympus Diagnostic Systems Group from 1997 through 2000. Ms. McDonald
      was Vice President - Marketing & Chief Operations Officer of the Company in
      1997. She worked with Beckman-Coulter Corporation in Miami, Florida from 1985
      through 1997 serving as Worldwide Marketing Manager, Worldwide Group Product
      Manager-Hematology, and Worldwide Product Manager-Chemistry. From 1975 through
      1983 she worked in Bonn, Germany as Sales and Marketing Manager-Europe for
      American Monitor Corporation, a medical instruments company with which Mr.
      Denney, the Company’s Chairman and Chief Executive Officer, was previously
      associated.




P.E.
      MacAllister, 88, was appointed to the Board on June 23, 2005, and was elected
      to
      continue to serve as a director at the Company’s 2006 and 2007 annual meetings
      of stockholders. Since 1952 he has been the Chairman of the Board of MacAllister
      Machinery Co., Inc., a dealer for Caterpillar. He has served on boards of
      numerous civic organizations in Indianapolis, Indiana including 17 years on
      the
      Capital Improvements Board of the Convention Center & RCA Dome (a $100
      million facility), the Marion County Convention & Recreational Facilities
      Authority, the Community Hospital Foundation, the Indianapolis Opera Company,
      Indiana State Symphony Society, Board of Public Safety, and the Marion County
      Hospital Authority Board.




22




Robert
      F.
      Kendall, CPA, 58, has been Chief Financial Officer since June 2004. Mr. Kendall
      has been a certified public accountant in West Palm Beach, Florida for 22 years,
      ten of which were in public accounting including working with the international
      firm of Laventhol and Horwath. From 2003 through 2004 he was an auditor with
      Michaelson & Company, a CPA firm where he specialized in requirements of
      clients with SEC and Sarbanes-Oxley Act reporting 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 the following committees of the Board: an Audit
      Committee, a Compensation Committee, and a Technical Review
      Committee.




The
      full
      Board of Directors is presently acting as the Audit Committee in meetings
      designated for that purpose. Ms. McDonald and Mr. MacAllister are "independent"
      within the meaning of that term in Section 10A of the Securities Exchange Act
      of
      1934, as amended. The Audit Committee was created by the Board of Directors
      in
      October 2003. From October 2003 through June 2005 the members of the Audit
      Committee consisted of former independent directors Donald E. Henderson, Dr.
      Stanley E. Poe, and Dr. Donald E. Orr. 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 met four
      times during 2005, one meeting of which was a two-day conference meeting at
      the
      corporate offices and the CAV facility.




The
      Compensation Committee consists of Mr. MacAllister, an independent director.
      The
      Compensation Committee's responsibilities are to make recommendations to the
      Board of Directors regarding the compensation of the Company's officers and
      directors and to review and make recommendations with respect to existing and
      proposed compensation plans and programs. The Committee was created by the
      Board
      of Directors in October 2003. During 2005, the Compensation Committee met
      twice.




The
      Technical Review Committee consists of Ms. McDonald, who is the chairman, and
      Mr. Denney. The Technical Review Committee was constituted with members having
      a
      sufficient technical background, gained through education and experience, to
      perform an informed evaluation of the Company's technology. The purpose of
      the
      Committee is to advise the Board of Directors and Company management as to
      the
      strategic direction of the Company with respect to matters involving the
      Company's technology. The Committee was created by the Board of Directors in
      October 2003. During 2005, the Committee addressed technical review issues
      during general Board of Directors meetings instead of holding separate Technical
      Review Committee meetings.




23




*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, 2005.




Name
            
            
            Capacity
            
            
            AggregateRemunerationLarry
                W. Denney
            
            
            Chairman
                of the Board, President, and Chief Executive Officer
            
            $
            100,000*Robert
                F. Kendall, CPA
            
            
            Chief
                Financial Officer/Secretary
            
            $
            90,000*Peggy
                J. Denney
            
            
            Controller/Assistant
                Secretary
            
            $
            65,000*




*During
      the year 2004 officers elected to defer a portion of their salaries to be paid
      at a later date. In 2004 Mr. Denney deferred $70,833 and Mrs. Denney deferred
      $46,042; these balances remained unpaid as of December 31, 2005 and were paid
      in
      2006. In 2004 Mr. Kendall deferred $10,000 which was paid in 2005. Annual salary
      rates in both years were: Mr. Denney, $100,000, Mr. Kendall, $80,000, and Mrs.
      Denney, $65,000.




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




24




**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 June 30, 2007, by (i) each person who is one of the three highest paid
      officers or directors of the Company, (ii) all of the directors and 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.




Title
                of Class
            
            Name
                and Address of Owner(1)
            
            Amount
                Owned
            
            %
                of
              Class
                (2)Common
                Stock
            
            
            Larry
                W. Denney
            
            
            31,552,046
            
            
            39.8
            %Jack
                B. Simpson
            
            
            14,165,814
            
            
            17.9
            %All
                directors and executive officers as a group (4 persons)
            
            
            34,021,046
            
            
            43.0
            %




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




(2)
            Information
                as to the percent of class is based on 79,191,773 issued and outstanding
                shares of Common Stock as of June 30,
                2007.




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




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




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




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




25





On
      various dates between January 25, 2006, and May 17, 2006, in private placement
      offerings to existing shareholders only, the Company sold an aggregate of
      1,536,236 shares of common stock at a prices between $1.00 and $1.50 per share
      to 30 investors, all of whom the Company believes to be accredited investors
      for
      aggregate proceeds of $1,643,854. All of the shares sold were contributed to
      the
      Company without payment by Mr. Denney and Mr. Simpson, each of whom contributed
      half of the shares. The
      share
      contributions were accounted for as a capital contributions to the Company,
      recorded as a decrease to common stock in the amount of the $.02 per share
      par
      value of the contributed shares and an increase to additional paid in capital
      in
      the same amount. The shares were contributed to avoid the dilution to existing
      stockholders that would have resulted had the Company sold newly issued shares
      at lower prices than those paid by previous investors. Mr. Denney and Mr.
      Simpson, as the largest stockholders, stood to benefit from an increase in
      the
      Company’s value resulting from raising the additional capital. After the
      transactions, Mr. Denney owned 31,552,045.5 shares and Mr. Simpson owned
      14,565,813.5 shares.





Included
      in the sales of the contributed shares were sales on January 25, 2006, of
      250,000 shares for $250,000 and on May 2, 2006, of 200,000 shares for $200,000
      to P. E. MacAllister, a director of the Company.




On June
      30,
      2006, the Company sold 750,000 shares of common stock for $750,000 to Philip
      H.
      Good, a director of the Company at the time. The Company sold to Mr. MacAllister
      100,000 shares for $100,000 on August 31, 2006, 200,000 shares for $100,000
      on
      September 27, 2006, and 200,000 shares for $400,000 on October 24, 2006. The
      Company sold to Mr. Good 600,000 shares for $300,000 on September 27, 2006.
      In
      conjunction with an offering commencing on September 14, 2006, available only
      to
      existing stockholders, the Company distributed 2,621,236 “matching” shares of
      Common Stock to stockholders who had purchased shares between October 19, 2005
      (the date Hurricane Wilma crossed Florida with an impact causing an adjustment
      to the Company’s business plan as detailed in Note 14, Subsequent Events, of the
      financial statements) and the commencement of the new offering. The Board
      approved the distribution of the additional shares of Common Stock as an
      adjustment of the purchase price paid by such stockholders, in light of the
      unanticipated effects of the Florida hurricanes, which significantly delayed
      the
      Company’s timeline for becoming operational and the fact that the Company was
      offering shares at a lower price per share in the September 14, 2006 offering
      than the price previously paid by such stockholders. Included in the “matching”
shares issued as a purchase price adjustment were 550,000 shares issued to
      Mr.
      MacAllister and 1,715,000 shares issued to Mr. Good.




**PART
      II.**




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




There
      is
      currently no trading market for the Common Stock. As of December 31, 2005 there
      were 71,145,657 shares of Common Stock outstanding and approximately 1,056
      holders of record of the Common Stock. The Company has never declared or paid
      dividends on the Common Stock and does not anticipate doing so in the
      foreseeable future. The Company does not have any compensation plans under
      which
      Common Stock may be issued.




26




**Item
      2. Description of Exhibits.**




The
      information required under this item is included under Part III, Item 1
      below.





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




On
      December 28, 2005, the Board of Directors, acting as the Audit Committee,
      dismissed Ahearn, Jasco + Company, P.A. (“AJC’ or the “former accountant”) as
      the principal accountant to audit the Company's financial statements. The
      reports of AJC on the financial statements of the Company for the fiscal years
      ended December 31, 2004 (as amended) and 2003 contained no adverse opinion
      or
      disclaimer of opinion and were not modified as to uncertainty, audit scope
      or
      accounting principles except
      for the addition of an explanatory paragraph regarding the Company's ability
      to
      continue as a going concern.





The
      Company resolved a matter of accounting principles or practices and financial
      statement disclosure with its former accountant which, the Company believes,
      if
      it had not been resolved to the former accountant’s satisfaction, would have
      caused the former accountant to make reference to the subject matter of the
      disagreement in connection with its report. During the former accountant’s
      review of the Company’s interim quarterly financial statements for the
      nine-month period ended September 30, 2005, the Company and the former
      accountant disagreed as to the proper accounting and financial statement
      disclosure for a sale of the Company’s common stock to a related party. The
      Company ultimately recorded and disclosed the transaction to the satisfaction
      of
      the former accountant. The Board of Directors of the Company, acting as the
      Audit Committee, received and accepted the former accountant’s written statement
      of position as to the matter, however, there was no discussion of such
      disagreement between the Audit Committee or the Board of Directors and the
      former accountant. The Company has authorized AJC to respond fully to any
      inquiries of its successor auditor concerning the subject matter of the
      foregoing disagreement.





As
      part
      of the audit for the year ended December 31, 2004, the former accountant
      reported to management and the Board of Directors a material weakness in the
      Company's internal control over financial reporting. The former accountant
      reported that there are specific deficiencies in the Company’s internal
      accounting control structure design and operation as it pertains to control
      over
      the general ledger, and the preparation of financial statements from that
      general ledger, because of the absence of appropriate segregation of duties
      consistent with appropriate internal control objectives.





Except
      as
      stated in the preceding paragraphs, there were no disagreements between the
      Company and AJC on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure which, if not resolved
      to
      the satisfaction of AJC, would have caused it to make reference to the subject
      matter of the disagreement in connection with its reports.




27





On
      December 28, 2005, the Company engaged the firm of Sherb
      & Co., LLP as its principal accountant to audit the Company's financial
      statements. Neither
      the Company nor anyone engaged on its behalf has consulted with Sherb & Co.,
      LLP during the Company’s two most recently completed fiscal years or during its
      current fiscal year with regard to either: (i) the application of accounting
      principles to a specific completed or contemplated transaction, or the type
      of
      audit opinion that might be rendered on the Company’s financial statements; or
      (ii) the matter described above that was the subject of a disagreement between
      the Company and AJC.





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




On
      October 4, 2005, the Company held its Annual Meeting of Stockholders at its
      corporate offices in West Palm Beach, Florida. At the meeting Larry W. Denney,
      Sandra McDonald, P. E. MacAllister and Philip H. Good were elected to the Board
      of Directors by unanimous vote of those stockholders in attendance, who
      represented over 71% of the outstanding shares of Common Stock. Mr. Good
      resigned as a director on October 23, 2006.




Directors
      were elected for a term expiring at the next Annual Meeting of Stockholders.
      No
      other 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, 2005 provided to the Company, Mr. Denney, Mr. Simpson, Ms.
      McDonald, Mr. MacAllister and Mr. Good 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 ownership changes on Form 4, Mr. Denney,
      Mr.
      Simpson and Mr. Good each filed a late Form 4. On November 14, 2005 Mr. Good
      purchased 965,000 shares of Common Stock and Mr. Denney and Mr. Simpson each
      transferred 482,500 shares of Common Stock back to the Company, which
      transactions were not reported until November 21, 2005. Based on the Company's
      inquiries and copies of initial reports of beneficial ownership on Form 3,
      Ms.
      McDonald, Mr. MacAllister and Mr. Good each filed a late Form 3. Ms. McDonald
      was appointed to the Board on June 17, 2005, Mr. MacAllister was appointed
      to
      the Board on June 23, 2005, and Mr. Good was appointed to the Board on August
      2,
      2005; all three directors filed Form 3 on August 31, 2005.





Based
      on
      the Company's inquiries and copies of reports of beneficial ownership on Form
      5
      as of December 31, 2006 provided to the Company, Mr. Denney, Mr. Simpson, Ms.
      McDonald and Mr. MacAllister filed reports of beneficial ownership on Form
      5 on
      a timely basis as required by the Commission. Based on the Company's inquiries
      and copies of reports of ownership changes on Form 4, all required reports
      were
      filed timely during 2006.





28





**Controls
      and Procedures.**





As
      required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
      December 31, 2005, the Company's management carried out an evaluation of the
      effectiveness of the design and operation of the Company's disclosure controls
      and procedures. This evaluation was carried out by Larry W. Denney, the
      Company's Chief Executive Officer, and Robert F. Kendall, the Company’s Chief
      Financial Officer. Based upon that evaluation, the Company's Chief Executive
      Officer and Chief Financial Officer concluded that as of December 31, 2005,
      the
      Company's disclosure controls and procedures were not effective in timely
      alerting them to material information required to be included in the Company's
      periodic SEC reports.





The
      Company's former independent auditors, in conjunction with their audit of the
      Company’s financial statements for the year ended December 31, 2004, advised the
      Company and the Audit Committee that in the auditors' view, the Company's
      disclosure controls and procedures were subject to a material weakness resulting
      from inadequate segregation of duties related to accounting controls caused
      by
      the limited number of personnel available for accounting duties. The accounting
      department consists of the chief financial officer, who is a CPA, one
      accountant, and the controller, who is married to the chief executive officer
      of
      the Company. Additionally, the chief executive officer of the Company is active
      in review of all aspects of financial reporting. As a mitigating control, the
      chief executive officer, chief financial officer, controller, and the accountant
      do extensive review of all of the accounting records and financial reporting.
      The Company is a research and development company in the development stage.
      Since inception in 1996 the Company has been entirely funded by investment
      and
      has had no revenues to date in its intended business. Management believes that
      remediation of the cited lack of segregation of duties can be accomplished
      through the hiring of additional accounting personnel or by adding or modifying
      certain existing internal control procedures. As for hiring additional
      personnel, it has not been reasonable or cost beneficial for the Company to
      hire
      extra accounting personnel who have no other purpose, duties, or workload than
      to provide formal segregation of duties under internal control principles.
      In
      the future, the Company may hire additional accounting personnel as soon as
      it
      has sufficient financial resources and additional workload to justify such
      hiring.





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




29





There
      were no changes in the Company's internal control over financial reporting
      identified in connection with the evaluation required by paragraph (d) of Rule
      13a-15 under the Exchange Act with respect to the fiscal quarter ended December
      31, 2005 that have materially affected, or are reasonably likely to materially
      affect, the Company's internal control over financial
      reporting.




**PART
      III.**




**Item
      1. Index to Exhibits.**





The
      following exhibits are filed herewith:




Exhibit
            
            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)
            
            16.1




30




List
                of Subsidiaries*
            
            21.1Certification
                by the Chief Executive Officer of the Company pursuant to Rule 13a-14
                under the Securities Exchange Act of 1934, as amended*
            
            31.1*Filed
                herewithCertification
                by the Chief Financial Officer of the Company pursuant to Rule 13a-14
                under the Securities Exchange Act of 1934, as amended*
            
            31.2Certification
                by the Chief Executive Officer of the Company pursuant to 18 U.S.C.
                Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002*
            
            32.1Certification
                by the Chief Financial Officer of the Company pursuant to 18 U.S.C.
                Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002*
            
            32.2*Filed
                herewith




**Item
      2. Description of Exhibits.**




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




31


**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:
                July 23, 2007
            By:
            */s/
              Larry W. Denney*Larry
                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:
                July 23, 2007
            By:
            */s/
              Larry W. Denney*Larry
                W. Denney, Chairman of the Board,
              President,
                and Chief Executive Officer
              (principal
                executive officer)


Dated:
                July 23, 2007
            By:
            */s/
              Robert F. Kendall*Robert
                F. Kendall, CPA,
              Chief
                Financial Officer
              (principal
                financial and accounting officer)


Dated:
                July 23, 2007
            By:
            */s/
              Sandra McDonald*Sandra
                McDonald, Director


Dated:
                July 23, 2007
            By:
            */s/
              P.E. MacAllister*P.E.
                MacAllister, Director




32


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


**(A
      DEVELOPMENT STAGE COMPANY)**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


INDEPENDENT
                  REGISTERED PUBLIC ACCOUNTING FIRMS’ REPORTS
              
              F-2FINANCIAL
                  STATEMENTS, YEARS ENDED DECEMBER 31, 2005 AND 2004:CONSOLIDATED
                  BALANCE SHEET
              
              F-4CONSOLIDATED
                  STATEMENTS OF OPERATIONS
              
              F-5CONSOLIDATED
                  STATEMENTS OF STOCKHOLDERS’ EQUITY
              
              F-6CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
              
              F-9NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              
              F-11





F-1





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors of


Biomass
      Processing Technology, Inc.





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





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
      consolidated financial statements are free of material misstatement. The
      Company is not required to have, nor were we engaged to perform, an audit of
      its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion.An
      audit includes examining, on a test basis, evidence supporting the amounts
      and
      disclosures in the consolidated financial statements. An audit also includes
      assessing the accounting principles used and significant estimates made by
      management, as well as evaluating the overall consolidated financial statement
      presentation. We believe that our audit provides a reasonable basis for our
      opinion.





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





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. The Company is a development stage
      company that has had limited revenues, has incurred cumulative losses since
      inception, and has been dependent on investor capital to sustain its activities.
      These matters raise substantial doubt about the Company’s ability to continue as
      a going concern. Management’s plans in regard to these matters are described in
      Notes 1 and 14. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.





/s/
      Sherb
& Company LLP





Sherb
      & Company, LLP




Certified
      Public Accountants


Boca
      Raton, Florida





July
      2,
      2007





F-2




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors of


Biomass
      Processing Technology, Inc.





We
      have
      audited the accompanying consolidated statements of operations, stockholders’
equity, and cash flows for the year ended December 31, 2004 of Biomass
      Processing Technology, Inc. and its subsidiaries (the "Company"), a development
      stage enterprise. 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 audit.





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 audit provides
      a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the results of operations, changes in stockholders’
equity, and cash flows for the year ended December 31, 2004 of Biomass
      Processing Technology, Inc. and its subsidiaries 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 Notes 1
      and 14.





/s/
      Ahearn, Jasco + Company, P.A.





AHEARN,
      JASCO + COMPANY, P.A.


Certified
      Public Accountants


Pompano
      Beach, Florida





March
      18,
      2005





F-3




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


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2005**


**ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            138,671Prepaid
                expenses and other current assets
            
            
            182,525Total
                Current Assets
            
            
            321,196Property
                and equipment, net
            
            
            23,240,062Other
                assetsEquipment
                system
            
            
            328,968Spare
                parts
            
            
            1,074,948Patent
                application costs
            
            
            337,589Deposits
                and other assets
            
            
            101,780Total
                Other Assets
            
            
            1,843,285Total
                Assets
            
            $
            25,404,543**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            951,771Accrued
                liabilities
            
            
            757,279Liability
                of discontinued operations - casualty loss reserve
            
            
            192,949Current
                portion of long term debt and capital leases
            
            
            44,787Total
                Current Liabilities
            
            
            1,946,786Notes
                payable - officer
            
            
            39,325Total
                Long-term Liabilities
            
            
            39,325Commitments
                and ContingenciesStockholders’
                equityCommon
                stock, $.02 par value; 100,000,000 sharesauthorized;
                issued and outstanding, 71,145,657
            
            
            1,422,913Additional
                paid in capital
            
            
            48,677,649Deficit
                accumulated during the development stage
            
            
            (26,682,130
            )Total
                Stockholders’ Equity
            
            
            23,418,432Total
                Liabilities and Stockholders’ Equity
            
            $
            25,404,543




See
      accompanying notes to the consolidated
      financial statements





F-4




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


CumulativeDuringDevelopment
            
            Years
                Ended December 31,Stage
            
            2005
            
            2004(Unaudited)Revenues
                (Note 11)
            
            $
            -
            
            $
            -
            
            $
            -Operating
                expenses:Research
                and development
            
            
            19,719,522
            
            
            4,822,954
            
            
            2,049,288Depreciation
            
            
            3,645,765
            
            
            2,043,377
            
            
            576,628Valuation
                adjustment -Equipment
                system
            
            
            1,793,681
            
            
            1,793,681
            
            
            -Loss
                on disposal of assets
            
            
            785,656
            
            
            590,350
            
            
            96,357Total
                operating expenses
            
            
            25,944,624
            
            
            9,250,362
            
            
            2,722,273Interest
                expense
            
            
            (403,619
            )
            
            (30,438
            )
            
            (31,258
            )Loss
                from continuing operations
            
            
            (26,348,243
            )
            
            (9,280,800
            )
            
            (2,753,531
            )Discontinued
                operations (Note 11):Net
                  income (loss) from discontinued
                  landfill contract activities
            
            
            (333,887
            )
            
            108,993
            
            
            (521,959
            )**Net
                loss**
            
            $
            (26,682,130
            )
            $
            (9,171,807
            )
            $
            (3,275,490
            )LOSS
                PER SHARELoss
                from continuing operations
            $
            (0.13
            )
            $
            (0.04
            )(Loss)
                gain from discontinued operations
            
            0.00
            
            
            (0.01
            )Basic
                loss per share
            $
            (0.13
            )
            $
            (0.05
            )Weighted
                  average number of common
                  shares outstanding
            
            
            
            
            
            70,695,167
            
            
            69,712,575




See
      accompanying notes to the consolidated
      financial statements





F-5


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FROM
      JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2003**


**(Unaudited)**


DeficitAccumulatedNumber
                of
            
            Common
            
            
            
            
            
            During
                theCommon
            
            Stock,
            
            Subscription
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Receivable
            
            Capital
            
            Stage
            
            Total**January
                30, 1996 (Date of Inception)**Initial
                capitalization
            
            
            36,266,624
            
            $
            725,332
            
            $
            -
            
            $
            (705,332
            )
            $
            -
            
            $
            20,000Contribution
                of common shares
            
            
            (1,075,200
            )
            
            (21,504
            )
            
            -
            
            
            21,504
            
            
            -
            
            
            -Issuance
                  of common shares 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
            )
            $
            19,642,914




*(continued
        on next page)*


See
      accompanying notes to the consolidated
      financial statements


F-6


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS’ EQUITY**
 **FROM
        JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2003**
 **(Unaudited)**


*(continued)*


Deficit
                AccumulatedNumber
                of
            
            Common
            
            
            
            
            
            During
                theCommon
            
            Stock,
            
            Subscription
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Receivable
            
            Capital
            
            Stage
            
            Total**Balances
                as of December 31, 2001**
            
            
            68,274,392
            
            $
            1,365,488
            
            $
            (13,700
            )
            $
            25,983,869
            
            $
            (7,692,743
            )
            $
            19,642,914Contribution
                of common shares
            
            
            (123,575
            )
            
            (2,472
            )
            
            -
            
            
            2,472
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            403,966
            
            
            8,080
            
            
            -
            
            
            5,599,740
            
            
            -
            
            
            5,607,820Settlement
                of subscription receivable
            
            
            -
            
            
            -
            
            
            13,700
            
            
            -
            
            
            -
            
            
            13,7002002
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,953,004
            )
            
            (3,953,004
            )**Balances
                as of December 31, 2002**
            
            
            68,554,783
            
            
            1,371,096
            
            
            -
            
            
            31,586,081
            
            
            (11,645,747
            )
            
            21,311,430Contribution
                of common shares
            
            
            (265,530
            )
            
            (5,311
            )
            
            -
            
            
            5,311
            
            
            -
            
            
            -Issuance
                of common shares
            
            
            1,142,535
            
            
            22,851
            
            
            -
            
            
            5,514,849
            
            
            -
            
            
            5,537,7002003
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,589,086
            )
            
            (2,589,086
            )**Balances
                as of December 31, 2003**
            
            
            69,431,788
            
            $
            1,388,636
            
            $
            -
            
            $
            37,106,241
            
            $
            (14,234,833
            )
            $
            24,260,044




See
      accompanying notes to the consolidated
      financial statements





F-7


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITY**


**FROM
      JANUARY 1, 2004 THROUGH DECEMBER 31, 2005**


Deficit
              AccumulatedNumber
                of
            
            Common
            
            Additional
            
            During
                theCommon
            
            Stock,
            
            Paid
                in
            
            DevelopmentShares
            
            at
                Par Value
            
            Capital
            
            Stage
            
            Total**Balances
                as of January 1, 2004**
            
            
            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
            )
            
            24,848,304Issuance
                of common shares
            
            
            1,179,444
            
            
            23,589
            
            
            4,624,346
            
            
            -
            
            
            4,647,935Issuance
                of common shares toRelated
                Party (Note 4 ):****Contribution
                of common shares
            
            
            (1,092,600
            )
            
            (21,852
            )
            
            21,852
            
            
            -
            
            
            -****Acquisition
                of common stock
            
            
            (
                127,600
            )
            
            (
                2,552
            )
            
            (40,948
            )
            
            -
            
            
            (43,500
            )****Issuance
                to related party
            
            
            1,255,000
            
            
            25,100
            
            
            3,112,400
            
            
            -
            
            
            3,137,5002005
                net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,171,807
            )
            
            (9,171,807
            )**Balances
                as of December 31, 2005**
            
            
            71,145,657
            
            $
            1,422,913
            
            $
            48,677,649
            
            $
            (26,682,130
            )
            $
            23,418,432




See
      accompanying notes to the consolidated
      financial statements




F-8




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


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




Cumulative
                DuringDevelopment
            
            Years
                Ended December 31,Stage
            
            2005
            
            2004(Unaudited)**Operating
                Activities**Net
                Loss from continuing operations
            
            $
            (26,348,243
            )
            $
            (9,280,800
            )
            $
            (2,753,531
            )Adjustments
                to reconcile net loss to net cash used in continuing
                operations:Depreciation
            
            
            3,645,765
            
            
            2,043,377
            
            
            576,628Valuation
                adjustment - equipment system
            
            
            1,793,681
            
            
            1,793,681
            
            
            -Loss
                on disposal of assets
            
            
            785,656
            
            
            590,350
            
            
            96,357Stock-based
                compensation
            
            
            163,700
            
            
            -
            
            
            -Non-cash
                expense-common
                stock transaction
            
            
            1,737,500
            
            
            1,737,500
            
            
            -Changes
                in certain assets and liabilities:Prepaid
                expenses & other current assets
            
            
            (231,491
            )
            
            52,936
            
            
            (11,203
            )Deposits,
                spare parts, and other assets
            
            
            (439,087
            )
            
            (337,307
            )
            
            (505
            )Accounts
                payable and accrued liabilities
            
            
            1,765,199
            
            
            (395,197
            )
            
            1,399,358Net
                Cash Used in continuing operations
            
            
            (17,127,320
            )
            
            (3,795,460
            )
            
            (692,896
            )Net
                income (loss) fromdiscontinued
                operations
            
            
            (333,887
            )
            
            108,993
            
            
            (521,959
            )Adjustments
                to reconcile net cash used in discontinued operations:Reserve
                (adjustment) for casualty loss
            
            
            375,282
            
            
            (109,718
            )
            
            485,000Changes
                in certain assets and liabilities:Assets
                of discontinued operations -****Accounts
                Receivable
            
            
            -
            
            
            79,963
            
            
            21,540****Liabilities
                of discontinued operations
            
            
            (230,810
            )
            
            (336,477
            )
            
            105,667Net
                Cash Provided by (Used in) Discontinued Operations
            
            
            (189,415
            )
            
            (257,239
            )
            
            90,248Net
                Cash Used in Operating Activities
            
            
            (17,316,735
            )
            
            (4,052,699
            )
            
            (602,648
            )**Investing
                Activities**Proceeds
                from sale of assets
            
            
            137,230
            
            
            -
            
            
            41,300****Patent
                application costs
            
            
            (337,589
            )
            
            (91,100
            )
            
            (148,329
            )Construction
                of equipment system
            
            
            (2,331,504
            )
            
            (193,721
            )
            
            (490,462
            )Purchases
                of property and equipment
            
            
            (27,101,477
            )
            
            (1,378,944
            )
            
            (2,872,740
            )Net
                Cash Used in Investing Activities
            
            
            (29,633,340
            )
            
            (1,663,765
            )
            
            (3,470,231
            )


*(Continued)*
  See
          accompanying notes to the consolidated
          financial statements
 F-9


**BIOMASS
          PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
          DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
  *(Continued)*
 Cumulative
                  DuringDevelopment
              
              Years
                  Ended December 31,Stage
              
              2005
              
              2004(Unaudited)**Financing
                  Activities**Proceeds
                  from long-term debt issuances
              
              
              219,596
              
              
              -
              
              
              10,000Repayment
                  of debt and capital leases
              
              
              (1,359,537
              )
              
              (125,484
              )
              
              (248,828
              )Proceeds
                  from (payments on)Note
                  payable - officer
              
              
              39,325
              
              
              (68,375
              )
              
              107,700Re-acquisition
                  of common stock
              
              
              (43,500
              )
              
              (43,500
              )
              
              -Proceeds
                  from common stock issuance
              
              
              48,232,862
              
              
              6,047,935
              
              
              3,853,750Net
                  Cash Provided by Financing Activities
              
              
              47,088,746
              
              
              5,810,576
              
              
              3,722,622Net
                  increase (decrease) in cash and cash equivalents
              
              
              138,671
              
              
              94,112
              
              
              (350,257
              )Cash
                    and cash equivalents at
                    beginning of the period
              
              
              -
              
              
              44,559
              
              
              394,816Cash
                    and cash equivalents at
                    the end of the period
              
              $
              138,671
              
              $
              138,671
              
              $
              44,559CASH
                  PAID DURING THE PERIOD FOR:Interest
                  (net of amounts capitalized)
              
              $
              402,479
              
              $
              33,616
              
              $
              26,940Income
                  taxes
              
              $
              -
              
              $
              -
              
              $
              -





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





**Equipment
      Financing.** During
      the years ended December 31, 2005 and 2004, the Company acquired equipment
      and
      vehicles by entering into new capital lease arrangements totaling $-0- and
      $155,975, respectively. Since inception, the Company acquired equipment and
      vehicles by entering into capital leases totaling $1,330,277 (Unaudited). (See
      Note 7 - Capital Leases.)





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-10


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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005 AND 2004**


**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 accounts and transactions have
      been eliminated in consolidation. 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 beginning 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 test production of product. The Company continues to be a
      development stage enterprise as defined under accounting principles generally
      accepted in the United States of America because it has not yet generated
      significant revenues in its intended business. During initial stages of
      operating the CAV the Company will concentrate its efforts on testing for
      quality and consistency of product, production technique refinements, and
      building of inventory. Historically, the Company has relied upon outside
      investor funds to maintain its operations and develop its business. The Company
      anticipates it will continue to require funding from investors for working
      capital and expansion during its initial stages of operations. The Company
      cannot provide assurances that additional investor funds will be available
      on
      terms acceptable to the Company. The Company is a development stage company
      with
      a working capital deficit of $1,625,590, has incurred cumulative losses since
      inception, and has been dependent on investor capital to sustain its activities.
      The Company also reflected a net loss of $9,171,807 and net cash used in
      operations of $4,052,699 for the year ended December 31, 2005. These conditions
      raise substantial doubt about the Company’s ability to continue as a going
      concern.  The
      accompanying consolidated financial statements have been prepared on a going
      concern basis, which contemplates the realization of assets and the settlement
      of liabilities in the normal course of business.




F-11


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)**




As
      further detailed in Note 14 - Subsequent Events, during the eighteen months
      subsequent to December 31, 2005, the Company allocated its capital resources
      to
      the completion of its production facilities and its efforts to secure
      significant additional funding sufficient to support commencing operations.
      During the second half of 2007 and first half of 2008 subject to raising the
      additional capital the Company requires in order to commence operations, through
      a combination of additional capital investment and operating and cash flows,
      the
      Company plans to begin operating its existing production facility with lines
      1
      and 2, add production lines 3 and 4, complete construction of its hydrolysis
      system (a pre-processing of biomass that reduces the cost of raw materials
      and
      fuel costs), and construct two additional permitted fermentation lines (5 and
      6)
      at its CAV1 facility in Okeechobee, Florida.




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





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





Use
      of
      Estimates: The
      preparation of financial statements in accordance with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting periods. Actual results may differ from these estimates.





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





All
      of
      the Company’s accounts receivable and revenues were from one customer using
      credit terms customary in the industry pursuant to a contract that ended January
      13, 2005 (See Note 11 - Discontinued Operations).





F-12


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**


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





No
      allowance for bad debts has been recorded at December 31, 2005 or 2004 based
      upon management estimates, historic loss experience and current economic
      conditions. The Company incurred no bad debt expenses for the years ended
      December 31, 2005 and 2004.




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





Construction
      in Process :
      The
      Company has constructed equipment for internal use. Depreciation on much of
      the
      equipment began in December 2004, when the assets were placed in service.
      Interest totaling $294,801 ($-0- and $24,274 for the years ended December 31,
      2005 and 2004, 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. (See Note 3 - Property
      and
      Equipment for detail of Construction in Process amounts.)





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




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




·
            Separate
                Sand and Foreign heavy materials(PS for “Preliminary Sand” separation is the Company’s product
                designation). This consists of dual large (several thousand gallon)
                stainless steel vessels, with appropriate material-handling sensors
                and
                controls to separate, on a continuous basis without operator interaction
                the tons of sand daily that is mixed with the manure flow, with sufficient
                cleanliness that the sand can be reused as bedding
                material.




F-13


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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




·
            Separate
                liquid and dissolved solids from fibrous solid manure(S/L for “Solid/Liquid” separation is the Company’s product designation).
                This is composed of dual 4,000 gallon stainless steel tanks with
                appropriate sensors and controls to effect separation and extraction
                of
                the fiber and sand-free liquid (containing most of the nutrients
                and
                pollutants), at the rate of 144,000 gallons per
                day.




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




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




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




The
      equipment is reflected at $328,968 as of December 31, 2005. During 2005, the
      Company reclassified “Equipment in process, held for sale” from current assets
      to “Other Assets - Equipment system” consistent with the Company’s current
      intention to offer the equipment for rental, with servicing and licensing
      included.




F-14




**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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





As
      further detailed in Note 14, Subsequent Events, due to the effects of the
      Florida hurricanes in 2005, during 2006 and 2007 the Company made an adjustment
      to its business plan which affected the timing of completing installation and
      testing of the EcoGoldTM Processor. Management determined that the Company did
      not have the personnel resources to allocate toward completion of the
      installation of the equipment system prior to completion and testing of
      additional construction at the CAV facility. The Company has expended
      approximately $2.3 million on development of the equipment system. Management
      believes that when installation and testing of the system is complete there
      will
      be a significant market for the system among the approximately 17,000 CAFO’s in
      the United States; however, currently there is no equivalent equipment or
      comparable technology on the market as one method to validate total cost as
      representing a recoverable value. Accordingly, the Company has written off
      $1,793,681 as a valuation adjustment to reflect the capitalized portion of
      the
      equipment system at the cost basis of components of the equipment that are
      interchangeable and available for alternative use in the Company’s CAV
      processing facility. The Company has also reclassified some components of the
      system as spare parts inventory to reflect the Company’s utilization or
      potential utilization of those parts common to both projects for development
      of
      the CAV facility.




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





Spare
      Parts: The
      Company’s CAV facility is designed to operate on a continuous basis, requiring
      an extensive inventory of spare parts. During 2005 the Company enhanced its
      system of spare parts inventory reporting and system of physical counts of
      spare
      parts inventory. Those spare parts which had previously been recorded in
      construction in process accounts but had not been affixed to a construction
      project were adjusted to the “Spare Parts” account (see Note 3). Spare parts are
      reflected at a cost of $1,074,948 as of December 31, 2005, classified in “other
      assets.”




F-15


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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





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





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





The
      waste
      streams explored are:





·
            Ruminant
                cattle manure


·
            Swine
                and other animal manure


·
            Municipal
                cellulosistic solid waste


·
            Other
                cellulosistic solid waste


·
            Whey
                broth from cheese production


·
            Fermentation
                broth remediation from alcohol and yeast
                production


·
            Other
                undefined dilute waste streams





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





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




F-16


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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





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





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




·
            Recovery
                of organic material suitable for
                fermentation.


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





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




The
      Company can give no assurance that its patent applications will result in the
      issuance of any specific patents, or that any patents that may be issued will
      withstand challenge, provide any specific protection or ultimately be of
      commercial value to the Company.





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





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




F-17





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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005 AND 2004**




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





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





Stock-Based
      Compensation: Effective January 1, 2005, the Company adopted the provisions of SFAS No.
      123(R), “Share-Based Payment,” under the modified prospective method. SFAS No.
      123(R) eliminates accounting for share-based compensation transactions using
      the
      intrinsic value method prescribed under APB Opinion No. 25 “Accounting for Stock
      Issued to Employees,” and requires instead that such transactions be accounted
      for using a fair-value-based method. Under the modified prospective method,
      the
      Company is required to recognize compensation cost for share-based payment
      to
      employees based on their grant date fair value from the beginning of the fiscal
      period in which the recognition provisions are first applied. For periods prior
      to adoption, the financial statements are unchanged, and the pro forma
      disclosures previously required by SFAS No. 123, as amended by SFAS No. 148,
      will continue to be required under SFAS No. 123(R) to the extent those amounts
      differ from those in the Statement of Operations.





During
      2005 and 2004, the Company did not grant any stock options.





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





F-18


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**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, 2005 and 2004.





Research
      and Development :
      All
      research and development costs are expensed as incurred. The Company’s research
      and development activities are described in Note 1 and costs for such activities
      totaled $4,822,954 and $2,049,288 for the years ended December 31, 2005 and
      2004, respectively.





Cash
      and Cash Equivalents :
      The
      Company maintains its cash and cash equivalent accounts in financial
      institutions. Accounts at these institutions are insured by the Federal Deposit
      Insurance Corporation (“FDIC”) up to $100,000. During 2005 and 2004, the Company
      has reached bank balances exceeding the FDIC insurance limit. To reduce its
      risk
      associated with the failure of such financial institutions, the Company
      evaluates at least annually the rating of the financial institutions in which
      it
      holds deposits.





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





Reclassifications: Certain
      fiscal 2004 amounts have been reclassified to conform to the fiscal 2005
      presentation. Such reclassifications primarily related to the presentation
      of
      discontinued operations.





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





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




F-19


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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





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





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





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





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





F-20


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      3 - PROPERTY AND EQUIPMENT**





As
      of
      December 31, 2005, property and equipment consisted of the
      following:





2005Machinery
                and equipment
            
            $
            18,544,664Furniture
                and fixtures
            
            
            142,083Transportation
            
            
            100,495Leasehold
                improvements
            
            
            553,921Buildings
            
            
            1,538,582Construction
                in process
            
            
            5,690,792Total
            
            
            26,570,537Accumulated
                depreciation
            
            
            (3,330,475
            )Property
                and equipment, net
            
            $
            23,240,062





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





Depreciation
      on assets placed in service amounted to $2,043,377 and $576,628 for the years
      ended December 31, 2005 and 2004, respectively.





Certain
      assets are pledged as collateral on debt and capital leases (see Note
      6).





F-21


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      4 - RELATED PARTY TRANSACTIONS**





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





Jack
      B.
      Simpson, a cofounder of the Company and a principal stockholder, advanced the
      Company $3,000 as a short-term, non-interest bearing loan which was included
      in
      accrued expenses as of December 31, 2004, at which time Mr. Simpson was also
      a
      Director. This amount was repaid to Mr. Simpson during the three months ended
      March 31, 2005.





During
      the year ended December 31, 2004, the Board of Directors approved payment of
      $67,110 in consulting fees for shareholder relations services provided by a
      company wholly-owned by Mr. Simpson. As of December 31, 2004, the balance due
      on
      these fees of $42,110 was included in accrued expenses. This amount was paid
      during the three months ended March 31, 2005. The Board also approved the
      payment of an additional $16,777 in consulting fees to the same company during
      the three months ended March 31, 2005.





On
      September 27, 2005, Philip H. Good, a Director of the Company, acquired 290,000
      shares of the Company’s common stock, pursuant to the following transactions.
      Larry W. Denney, President, Chief Executive Officer, and Chairman of the Board,
      transferred 127,600 shares of common stock he owned to the Company as a capital
      contribution; the Company purchased 127,600 shares of common stock from Jack
      B.
      Simpson, a co-founder and former director of the Company, for $43,500; and
      the
      Company sold such shares, along with 34,800 of newly issued shares for a total
      of 290,000 shares, to Mr. Good for cash consideration of $435,000. The
      transactions resulted in net cash proceeds to the Company of $391,500 for a
      net
      increase of 34,800 issued and outstanding shares of common stock.





F-22


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




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





On
      November 14, 2005, the Company sold 965,000 shares of common stock to Mr. Good
      for $965,000 in cash. Of the shares sold, 482,500 shares were contributed to
      the
      Company by Mr. Denney and 482,500 shares were contributed to the Company by
      Mr.
      Simpson. The
      transactions resulted in net cash proceeds to the Company of $965,000 with
      no
      net increase of issued and outstanding common shares. On September 11, 2006,
      the
      Board approved the issuance of 2,621,236 shares of common stock as a price
      adjustment to all shareholders who purchased shares between October 19, 2005
      and
      the date of the resolution; included in this issuance were 550,000 shares issued
      to Mr. MacAllister and 1,715,000 shares issued to Mr. Good, 965,000 of which
      matched his purchase on November 14, 2005.





In
      conjunction with the two sales to Mr. Good, Mr. Denney and Mr. Simpson, as
      the
      largest stockholders, stood to benefit from an increase in the Company's value
      resulting from their stock contributions and Mr. Simpson’s sale of his personal
      stock to the Company, both of which were done in conjunction with raising
      additional capital. The
      contributed shares were accounted for as capital contributions to the Company
      at
      par value of $.02 per share, as
      a
      decrease in common stock issued and outstanding and an increase in additional
      paid in capital. The stock acquisition of 127,600 shares for $43,500 was
      recorded as a reduction of common stock issued and outstanding at par value
      of
      $.02 in the total amount of $2,552 and a reduction of additional paid in capital
      of $40,948. As of December 31, 2005, directly and indirectly Mr. Denney owned
      32,320,163.5 shares and Mr. Simpson owned 15,333,931.5 shares.




In
      conjunction with the two stock purchases by Mr. Good, pursuant to accounting
      rules and principles applicable to stock sales in related party transactions,
      the Company recorded a $1,737,500 non-cash increase in its “additional paid in
      capital” account and recorded a non-cash transaction expense for the same
      amount. The accounting rules require that in related party transactions, a
      non-cash expense be recorded for the difference between “fair value” (as defined
      in the rules) and the selling price. Further, the transaction with the related
      party cannot be considered to represent “fair value” and cannot be viewed as an
“arms-length transaction” for purposes of the application of the rule and for
      the related computation.





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





F-23





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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005 AND 2004**




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





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





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





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





Mr.
      Good
      and P. E. MacAllister, a director, purchased stock subsequent to year end.
      (See
      Note 14 - Subsequent Events.)





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
      Company was engaged in capital raising during 2004; the shares were contributed
      to reduce the dilutive effect on existing stockholders of sales of stock at
      lower prices than what previous investors had paid. Mr. Denney and Mr. Simpson
      as the largest stockholders stood to benefit from an increase in the Company's
      value resulting from raising the additional capital. After the 2004
      transactions, Mr. Denney owned 33,532,893.5 shares and Mr. Simpson owned
      15,896,031.5 shares. On March 1, 2004 the Company issued and sold 200,000 shares
      of Common Stock to a single investor for aggregate proceeds of $700,000. In
      connection with this sale, Mr. Denney contributed 25,000 shares of Common Stock
      for no consideration to him. The Company issued and sold 428,650 shares at
      $5.00
      per share for aggregate proceeds of $2,143,250. Of the 428,650 shares, 214,325
      shares were contributed to the Company by Mr. Denney and Mr. Simpson (107,162.5
      shares each). The
      shares were accounted for as capital contributions to the Company at par value
      of $.02 per share as
      a
      decrease in common stock issued and outstanding and an increase in additional
      paid in capital .





F-24


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      5 - ACCRUED LIABILITIES**





Accrued
      liabilities represent expenses that apply to the reported period and have not
      been billed by the provider or paid by the Company. At December 31, 2005,
      accrued liabilities consisted of the following:





December
                31,
              2005Accrued
                Property Taxes
            
            $
            503,904Deferred
                Officers Salaries
            
            
            125,816Accrued
                Vacation
            
            
            37,642Accrued
                Payroll and Payroll Taxes
            
            
            39,777Accrued
                Professional Fees
            
            
            49,000Accrued
                Interest - officer loan
            
            
            1,140Total
                Accrued Liabilities
            
            $
            757,279




**NOTE
      6 - LONG TERM OBLIGATIONS**





Long
      term
      obligations as of December 31, 2005 consisted of the following:





2005Debt
                - Installment notes collateralized by vehicles and farm equipment
                payable
                in monthly installments of $460 including interest at rates ranging
                from
                0.0% to 14.9% through June 2006. Two notes were repaid during
                2005.
            
            $
            3,704Obligations
                under capital leases (see Note 7)
            
            
            41,083Total
                long-term obligations
            
            
            44,787Less:
                current maturities
            
            
            44,787Long-term
                portion
            
            $
            -





Future
      maturities of long-term debt and capital leases are $44,787 in 2006.





F-25


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      7 - 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 $5,064 including imputed interest
      at
      rates ranging from 10.1% to 20.4%. During 2005, the Company repaid two lease
      agreements.





The
      following table shows the value of those assets still subject to capital lease
      payments as of December 31, 2005. The assets are included in the balance sheet
      under the caption “Property and equipment, net.”





2005Historical
                cost
            
            $
            232,778Accumulated
                depreciation
            
            
            (110,854
            )Net
            
            $
            121,924





Future
      minimum lease payments as of December 31, 2005 under capital leases are as
      follows:





Payments
                due in 2006
            
            $
            43,391Amount
                representing interest
            
            
            (
                2,308
            )Present
                value of net minimum lease payments (see Note 6)
            
            $
            41,083





**NOTE
      8 - 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, 2005, the Company directly sold 2,434,444 shares
      of
      common stock through private placements that resulted in net proceeds to the
      Company of $6,047,935. Mr. Denney, who is the Chairman, President, CEO and
      a
      principal shareholder, and Mr. Simpson, who is a principal shareholder and
      who
      was a director from inception through June 2005, directly transferred 1,092,600
      shares of common stock they owned to investors who purchased common stock from
      the Company in the private placements. Additionally, the Company acquired
      127,600 shares from Mr. Simpson for $43,500. The transferred shares were accounted
      for as capital contributions to the Company and then recorded as shares issued
      to the investors in the private placements. The acquired shares were accounted
      for as reduction in common stock and additional paid in capital and then
      recorded as shares issued to the investors in the private placements. (See
      Note
      4 - Related Party Transactions.) These transactions resulted in net proceeds
      to
      the Company of $6,004,435 for the net issuance of 1,214,244 additional shares of
      common stock during the year ended December 31, 2005.




F-26


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      8 - EQUITY CAPITAL (Continued)**





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 and Mr. Simpson directly transferred 239,325
      shares of common stock they owned to investors who purchased common stock from
      the 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.





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
      9 - NET LOSS PER COMMON SHARE**





For
      the
      years ended December 31, 2005 and 2004, 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:





2005
            
            2004Common
                shares outstanding
            
            
            71,145,657
            
            
            69,931,413Effect
                of weighting
            
            
            (450,490
            )
            
            (218,838
            )Weighted
                average common shares outstanding
            
            
            70,695,167
            
            
            69,712,575




F-27


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      10 - INCOME TAXES**





A
      summary
      of income taxes for the years ended December 31, 2005 and 2004 is as follows:




2005
            
            2004Currently
                payable (refundable):Federal
            
            $
            -
            
            $
            -State
            
            
            -
            
            
            -Deferred
                tax (benefit) provision
            
            
            (2,775,000
            )
            
            (1,259,426
            )Income
                tax (benefit) provision
            
            
            (2,775,000
            )
            
            (1,259,426
            )Change
                in valuation allowance
            
            
            2,775,000
            
            
            1,259,426Total
                income tax provision
            
            $
            -
            
            $
            -





Temporary
      differences between the financial statement carrying amounts and tax bases
      of
      assets and liabilities that give rise to net deferred income tax assets as
      of
      December 31, 2005 approximate the following:




Net
                operating loss carryforward
            
            $
            11,130,000Depreciation
                timing differences
            
            
            (2,583,000
            )R&D
                credit carryforward
            
            
            481,000Valuation
                adjustment - equipment system
            
            
            690,000Other
            
            
            48,000Valuation
                allowance
            
            
            (9,766,000
            )Net
                deferred income tax asset
            
            $
            -





The
      Company’s tax expense differs from the “expected” tax (benefit) for the years
      ended December 31, 2005 and 2004, computed by applying the statutory Federal
      tax
      rate of 35% to loss before taxes, as follows:





***2005***
            
            ***2004***Computed
                “expected” tax (benefit)
            
            $
            (3,210,000
            )
            $
            (1,146,000
            )State
                tax (benefit), net ofFederal
                tax effect
            
            
            (321,000
            )
            
            (115,000
            )Permanent
                Differences
            
            
            675,000
            
            
            3,000Other
            
            
            81,000
            
            
            (1,000
            )Change
                in valuation allowance
            
            
            2,775,000
            
            
            1,259,000$
            -
            
            $
            -





F-28


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      10 - INCOME TAXES (Continued)**





The
      Company has tax net operating loss carryforwards totaling approximately
      $28,900,000 expiring at various times through the year 2025 to offset future
      federal taxable income.





The
      Company also has research and development credit carryforwards of approximately
      $481,000 as of December 31, 2005, which are available to offset future federal
      income tax liabilities.





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





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





**NOTE
      11 - DISCONTINUED OPERATIONS**





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





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





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





Because
      of the reclassification of previously reported revenues to discontinued
      operations, the Company now reports $ -0- revenues. The revenue and the
      operating results of the discontinued activities described above for the year
      ended December 31, 2005 and 2004, and for the cumulative period during
      development stage were as follows:




CumulativeDuring
            
            
            For
                the YearsDevelopment
            
            
            Ended
                December 31,Stage
            
            
            2005
            
            
            2004(Unaudited)Revenues
            
            $
            8,448,276
            
            $
            468,772
            
            $
            1,152,641Cost
                of Services Provided
            
            
            8,782,163
            
            
            359,779
            
            
            1,674,600Net
                Income (Loss)
            
            $
            (333,887
            )
            $
            108,993
            
            $
            (521,959
            )


F-29
 
 **BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**


**NOTE
        11 - DISCONTINUED OPERATIONS (Continued)**


The
      following items have been reclassified from presentation within operating
      expenses in prior period financial statements to discontinued operations as
      reflected above. Effective May 2004, the Company recorded a $485,000 loss
      accrual related to equipment damaged in a fire at the St. Lucie landfill site.
      “Cost of Services Provided” in the discontinued operations shown above for the
      year ended December 31, 2005 includes an adjustment of $109,718 for revisions
      reducing the accrual.





There
      were no assets related to discontinued operations as of December 31, 2005.
      Liability related to discontinued operations as of December 31, 2005 is the
      reserve for casualty loss, the balance of which was $192,949 (See Note 12 -
      Casualty Loss).





**NOTE
      12 - 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 contended that the equipment was fully
      insured, and alternatively that if the Company's coverage was in fact so
      limited, this limitation was attributable to the negligence and
      misrepresentation of the insurance agent who placed the insurance policy, who
      should be held liable for the difference. The damaged equipment was pledged
      as
      security for the Company’s obligations under an equipment lease, for which the
      Company remained liable to the equipment lessor.





Pending
      resolution of the insurance coverage dispute, the Company accrued a $485,000
      loss provision, net of $15,000 received from insurance proceeds, as an estimate
      of the loss incurred. As of December 31, 2005 the balance on the accrual was
      $192,949. The balance of this liability was paid off in 2006.




F-30




**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**


**NOTE
      13 - COMMITMENTS AND CONTINGENCIES**





Operating
      Leases :
      The
      Company has entered into several operating leases for the rental of office
      facilities. The terms of the leases expire in October, 2006. As of December
      31,
      2005, future minimum lease payments under the leases were $152,732.





Exclusive
      of a land lease that is part of the “Dairy Farm Waste Agreement” discussed
      below, rent expense amounted to $186,674 and $183,613 for the years ended
      December 31, 2005 and 2004, respectively. In addition, there is $142,309 of
      rent
      expense that is included in discontinued operations.





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.





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




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





In
      February 2004, the Company entered into 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.




F-31


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      13 - 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 12
      -
      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
      14 - SUBSEQUENT EVENTS**





Sales
      of Securities:  During
      the year ended December 31, 2006, the Company directly sold 5,388,843 shares
      of
      common stock through private placements in offerings available only to existing
      stockholders that resulted in net proceeds to the Company of $3,644,670. Of
      the
      shares sold, 1,536,236
      shares of common stock were
      contributed by the Company’s two founders (see below). In conjunction with an
      offering commencing on September 14, 2006 available only to existing
      stockholders, the Company distributed 2,621,236 “matching” shares of common
      stock to stockholders who had purchased shares between October 19, 2005 (the
      date Hurricane Wilma crossed Florida with an impact causing an adjustment to
      the
      Company’s business plan as detailed below) and the commencement of the new
      offering. The Board approved the distribution of the additional shares as an
      adjustment of the purchase price paid by such stockholders, in light of the
      unanticipated effects of the Florida hurricanes, which significantly delayed
      the
      Company’s timeline for becoming operational and the fact that the Company was
      offering shares at a lower price in the September 14, 2006 offering than the
      price previously paid by such stockholders. During the year ended December
      31,
      2006, on various dates the Company directly sold 30,454 shares of common stock
      through private placements that resulted in net proceeds to the Company of
      $152,273 in an offering available to new accredited investors.





During
      the first six months of 2007 to the date of this report, on various dates the
      Company directly sold 1,519,419 shares of common stock through private
      placements in an offering available only to existing stockholders that resulted
      in net proceeds to the Company of $880,931. On various dates the Company
      directly sold 22,400 shares of common stock through private placements that
      resulted in net proceeds to the Company of $112,000 in an offering available
      to
      new accredited investors.




F-32


**BIOMASS
        PROCESSING TECHNOLOGY, INC. AND SUBSIDIARIES**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**




**NOTE
      14 - SUBSEQUENT EVENTS (Continued)**





Related
      Party Transactions - Stock Sales: The
      following related party transactions are included in the 2006 common stock
      sales
      amounts reported above. On various dates between January 25, 2006, and May
      17,
      2006, in private offerings to existing stockholders only, the Company sold
      an
      aggregate of 1,536,236 shares of common stock at prices between $1.00 and $1.50
      per share to 30 investors, all of whom the Company believe
      to be accredited investors, for aggregate proceeds of $1,643,854. All of the
      shares sold were contributed by Larry W. Denney, Chairman of the Board,
      President, and Chief Executive Officer, and Jack B. Simpson, a co-founder of
      the
      Company, a principal stockholder, and former director; Mr. Denney and Mr.
      Simpson each contributed half of the shares. These
      contributed shares were accounted for as a capital contribution to the Company,
      recorded as a decrease to common stock at $.02 per share par value and an
      increase to additional paid in capital in the same amount. The shares were
      contributed to avoid the dilutive effect on existing stockholders that would
      have resulted had the Company sold newly issued shares at lower prices than
      those paid by previous investors. Mr. Denney and Mr. Simpson, as the largest
      stockholders, stood to benefit from an increase in the Company’s value resulting
      from raising the additional capital. After the transactions, Mr. Denney owned
      31,552,045.5 shares and Mr. Simpson owned 14,565,813.5 shares.





Included
      in the sales of the contributed common stock were the following: on January
      25,
      2006, the Company sold 250,000 shares of common stock for $250,000 and on May
      2,
      2006, the Company sold 200,000 shares of common stock for $200,000 to P. E.
      MacAllister, a director.





On June
      30,
      2006, the Company sold 750,000 shares of common stock for $750,000 to Philip
      H.
      Good, a former director. Mr. MacAllister purchased 100,000 shares for $100,000
      on August 31, 2006, 200,000 shares for $100,000 on September 27, 2006, and
      400,000 shares for $200,000 on October 24, 2006. Mr. Good purchased 600,000
      shares for $300,000 on September 27, 2006. Included in the 2,621,236 “matching”
shares issued to existing stockholders as a price adjustment, as described
      above, were 550,000 shares issued to Mr. McAllister and 1,715,000 shares issued
      to Mr. Good.





Settlement: On
      August 2, 2006 the Company accepted $75,000 in cancellation of an order of
      a
      piece of equipment for which the Company had made a deposit of $123,966. The
      write-down of $48,966 was recorded as loss on disposition of asset as of
      December 31, 2005.





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




F-33





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


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2005 AND 2004**




**NOTE
      14 - SUBSEQUENT EVENTS (Continued)**





The
      County may enforce the lien by seizing the Company's equipment and offering
      it
      for sale to third parties. The Company believes that the County may not sell
      the
      lien, or a tax certificate secured by the lien, to a third party. The Company
      has been in discussions with County officials regarding the tax liability,
      has
      indicated its intention to satisfy the liability after the Company becomes
      operational and has the financial capacity to do so, and has made good-faith
      payments to the County of approximately $62,200 towards the Company's tax
      liability.





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





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





Efforts
      to Raise New Capital: In
      February 2007 management determined that in order to become operational, the
      Company would need to raise a significant amount of additional working capital.
      Management has cut back on overhead while focusing full-time on seeking
      additional capital through investment banking firms and other sources as of
      the
      date of this report.




F-34