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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, 2003 [   ]            TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-50520 Biomass Processing Technology, Inc. 
 Delaware
    
    65-0638890(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 3222 Commerce Place, Suite A, West Palm Beach, Florida
    
    33407(Address of Principal Executive Offices)
    
    (Zip Code)
 (561) 684-6611 
 Securities registered under Section 12 (b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock,
$.02 par value Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [   ] 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. The issuers revenues for the fiscal year ended December 31, 2003 were
$2,171,718. As of April 29, 2004, the aggregate market value of the registrants voting and
non-voting common equity held by non-affiliates, computed by reference to the
price at which the common equity was sold as of March 4, 2004, was $80,551,152.




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As of April 29, 2004, there were 69,618,038 shares of Common Stock issued and
outstanding. The following documents are incorporated by reference: None. Transitional Small Business
Disclosure Format: Yes [X] No [   ] 2




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TABLE OF CONTENTS PART I
    
    
    4Item 1. Description of Business.
    
    
    4Item 2.  Description of Property.
    
    
    19Item 3.  Directors, Executive Officers and Significant Employees.
    
    
    20Item 4. Remuneration of Directors and Officers.
    
    
    22Item 5. Security Ownership of Management and Certain Security Holders.
    
    
    23Item 6. Interests of Management and Others in Certain Transactions.
    
    
    23PART II
    
    
    24Item 1. Market Price of and Dividends on the Registrants Common Equity and Other Shareholder Matters.
    
    
    24Item 2.  Legal Proceedings.
    
    
    24Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    26Item 5. Compliance with Section 16(a) of the Exchange Act.
    
    
    26Item 6. Reports on Form 8-K.
    
    
    26PART III
    
    
    27Item 1. Index to Exhibits.
    
    
    27List of SubsidiariesSection 906 CEO & CFO Certification
  3




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Caution Regarding Forward-Looking Information All statements contained in this Form 10-KSB, other than statements of
historical facts, that address future activities, events or developments are
forward-looking statements, including, but not limited to, statements
containing the words believe, anticipate, expect and words of similar
import. These statements are based on certain assumptions and analyses made by
the Company in light of the Companys experience and the Companys assessment
of historical trends, current conditions and expected future developments as
well as other factors the Company believes are appropriate under the
circumstances. Whether actual results will conform to the expectations and
predictions of management, however, is subject to a number of risks and
uncertainties that may cause actual results to differ materially. Such risks
include, among others, the risks described below under Description of Business
 Risk Factors. Consequently, all of the forward-looking statements made in this Form
10-KSB are qualified by these cautionary statements and there can be no
assurance that the actual results anticipated by management will be realized
or, even if substantially realized, that they will have the expected
consequences to or effects on the Companys business operations. 
 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, 2003, 69,431,788 shares were issued and
outstanding. The Company is a development stage company, as its planned
principal operations have not commenced, and has not conducted significant
operations or generated significant operating revenues since its inception.
The Company spent $3,925,982 on research and development activities during
2002, and $2,651,722 on such activities during 2003. 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, 2003, the Company had 23 employees, all of whom were full-time
employees. 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 4




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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 produced by the process; and
    
    the type of end product the Company intends to market (which
will in some cases be identical to a byproduct produced by 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. Animal-based biomass materials
used by the Company include:  
    
    manure; and
    
    organic material used in animal operations for bedding or other purposes. 5




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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 piping
over the dairy farms land that will transfer the farms animal waste materials
directly to the Companys CAV1 facility for processing. The Company expects to
seek to enter into similar arrangements with other area dairy farmers once the
CAV1 facility becomes operational. Vegetative biomass materials used by the Company include:  
    
    crop residue, such as straw and bagasse (which is the residue
from the processing of sugar cane);
    
    yard waste residue, such as lawn clippings and palm fronds
stored at landfills; and
    
    commercially available feedstock, such as molasses,
phosphates and ammonia. Vegetative biomass material is available to the Company from the St. Lucie
County landfill operation described below under Activities at St. Lucie County
Landfill. The Company currently processes vegetative waste for St. Lucie
County, Florida, under a contract that provides for the Company to be paid a
fee per ton of waste processed. The Companys cost of receiving and processing
the vegetative waste under this contract, including the transportation of the
processed waste to the Companys CAV1 facility, has been slightly less than the
revenues it receives, therefore the net cost of this form of biomass to the
Company has been less than zero. 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 Produced by 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. 6




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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. The Company expects to use low or no-cost raw material in its processing
operations. The Company expects to acquire its raw materials from animal-based
agricultural operations and from vegetative waste collection operations. The
Company currently processes vegetative waste for St. Lucie County, Florida,
under a contract that provides for the Company to be paid a fee per ton of
waste processed. The Companys cost of receiving and processing the vegetative
waste under this contract has been slightly less than the revenues it receives,
therefore the net cost of this form of biomass to the Company has been less
than zero. The Company also expects that by employing advanced process control
technology, its labor costs associated with its processing operations will be
comparatively low. The Company expects that its products will be comparable in
quality to the highest cost products currently available, and that its low raw
material and labor costs may afford the Company a competitive pricing advantage
in selling its products. 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, that
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: 7




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
    
    food grade, including pharmaceutical grade;
    
    feed grade suitable for animal feed; and
    
    chemical or industrial grade. Food grade products can result from the processing of agricultural crop
biomass, such as straw or bagasse, and feed or chemical grade products result
from the processing of yard waste or animal waste. Upon completion of the development and commercialization of its technology
and production facilities, the Company would expect to market the following
products:  
    
    feed yeast, to be marketed to animal and dairy farming
operations and manufacturers of pet food;
    
    feed grade five carbon products, to be marketed to animal and
dairy farming operations and manufacturers of pet food;
    
    food grade five carbon products, to be marketed to
manufacturers of human food, health, and hygiene products;
    
    lignin polymer, to be marketed to manufacturers of pelletized
feed products and manufacturers of concrete and plastic polymers;
and
    
    other products as commercialized by the research and
development efforts of the Company. The summary below provides a more detailed description of each of these
products and the means by which these products will be marketed. Feed Yeast. Yeast is currently produced as a byproduct of the brewing
industry and the fuel grade ethanol industry. Manufacturers typically use corn
and molasses products to manufacture yeast. The current purchasers of yeast
are producers of livestock and animal products, including beef cattle, poultry
products, swine products and dairy products. Yeast is 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 8




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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, sorbitol is currently
used in overwhelming ratio to xylitol. Based on current market price
quotations obtained by the Company, management believes that xylitol costs
approximately five times as much as sorbitol on a unit-equivalent basis, which
limits its use. The Company believes that xylitol is sweeter and more
effectively non-carieogenic than sorbitol. According to numerous independent
sources, xylitol is as sweet as sugar, while sorbitol is only 60% as sweet.
The Company will seek to produce and sell food grade xylitol at price and
quality levels that are competitive with sorbitol. The Company expects to
market its food grade five-carbon products directly to food manufacturers for
incorporation into their products. Also, health and hygiene product
manufacturers may purchase xylitol directly from the Company for use in
products where sweetness, sugar level or tooth decay are marketing
considerations. Lignin Polymers. The commercial uses of lignin include:  
    
    fuel;
    
    pellet products for use as a binder in animal feed;
    
    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. 9




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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. Lignin, in the form of lignosulfonates, is sold for all of the above
uses, and one of the principal U.S. producers of lignin recently ceased
production because of the inefficiency of its production facility. The Company
believes that this created a domestic capacity shortfall, and that currently
the U.S. 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 is substantially complete; the Company is making
certain modifications based on the results of testing of the facility that
occurred during 2002, and is adding a hydrolysis process 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 farming operations. The Company expects to market and sell
the products of its CAV1 processing operation as described above. Regulatory Matters In addition to full processing of animal waste, 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 can process the waste from several
Okeechobee, Florida area dairy farming operations. The Company expects to
install solid/liquid separation equipment at each of these dairy farms and then
to pump the separated liquid portion of the animal-based biomass material to
the CAV1 facility for processing. The Company expects to receive a fee from
these operations based on the quantity of phosphorus and nitrogen removed. 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 nutrients 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. 10




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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 certified
feed manufacturer under the rules of the Florida Department of Agriculture and
Consumer Services, allowing it to sell animal feed to distributors and feed
mills. A significant portion of the Companys intended operations at its CAV1
facility will be subject to state and federal environmental laws and
regulations of regulatory agencies such as the FDEP, the Florida Water
Management Districts and the EPA, and will in some cases be subject to the
jurisdiction of county agencies such as the Okeechobee County Health
Department. The Company believes that it has complied with all applicable laws
and regulations regarding its activities. The Company does not foresee or
expect significant changes in the regulatory requirements for its business, and
does not anticipate additional capital expenditures dedicated to meeting
existing or foreseen environmental regulations. The Company believes that its
ongoing costs of compliance with regulatory requirements related to the CAV1
facility will be minimal, as the facility has been designed and constructed to
comply with all known requirements. The Companys projected food grade products business will be subject to
the rules and regulations of the U.S. Food and Drug Administration (the FDA).
The Companys process, facilities and products will be required to meet
existing and future regulations regarding the production of food and
pharmaceutical products. If the required federal approvals are not received,
or if the regulations change and compliance requires the Company to incur
additional expense, the Companys ability to market any food grade products it
may become able to produce may be adversely affected. The Company is unable to
predict at this time the cost of compliance with FDA requirements. Proprietary Technology The Company has expended substantial funds on research and development and
has developed proprietary technology for the processing of biomass. The value
of the Companys proprietary technology is substantially dependent upon the
Companys ability to obtain patent protection for those elements of its
technology that may be patentable, and to maintain the confidentiality of its
trade secrets. The Company has required all of its employees who are exposed
to or working with the Companys technology to sign written agreements
prohibiting the disclosure or use of the Companys confidential information and
trade secrets. The Company takes other steps to protect its technology,
including the compartmentalization of most employee functions, so that few
employees understand the full scope of the Companys technology, and the
maintenance of security at the Companys production facilities. The Company does not own any patents or license any rights to use any
patents. The Company has not filed any applications for the issuance of
patents covering any of its technology. There is no assurance that, should the
Company file any such patent applications, any patents will be issued to the
Company or that any patents that may be issued will prove to be enforceable. 11




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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 Company plans that the initial operations of the CAV1 facility will consist
of processing animal waste materials generated by Larson Dairy. The Company is
currently completing modifications to the CAV1 facility and the construction of
a hydrolysis process at the CAV1 facility, and has completed the installation
of piping over Larson Dairys land which will transfer the Dairys animal waste
materials directly to the CAV1 facility for processing. The Company expects to
complete these activities and commence processing operations at the CAV1
facility during the second quarter of 2004. Activities at St. Lucie County Landfill The Company is a party to an agreement with St. Lucie County, Florida,
under which the Company processes and removes the yard waste deposited at the
Countys landfill and receives a fee of $17.48 per ton of yard waste processed.
The term of the agreement expires 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. The per ton fee payable under the agreement
will be adjusted on February 1 of each year commencing February 1, 2005 based
on the change in the consumer price index (CPI) for that year relative to the
immediately preceding year. Management believes that it is advantageous for
the Company to have a ready supply of vegetative biomass available for the
commencement of processing operations at its CAV1 facility. Plan of Operations During the next twelve months, the Company expects to allocate its capital
resources to the completion of its production facilities, product development
and sales. The Company intends to complete the modifications to its CAV1
facility in Okeechobee, Florida, and the construction of a hydrolysis process
at its CAV1 facility, to complete all testing activities with respect to the
operation of the CAV1 facility, to then cause the CAV1 facility to become fully
operational and commence commercial processing operations, and to commence
marketing and selling the products of the CAV1 processing operation. In their report on the Companys consolidated financial statements for the
fiscal years ended December 31, 2003 and 2002, the Companys independent
auditors included an explanatory paragraph describing conditions which raise
substantial doubt about the Companys 12




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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 first
quarter of 2004, 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, 2003 and 2002, 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 the Shares 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, however, and may not be substantial in relationship to the
operations or business in which the Company intends to engage. Should the
Company fail to raise sufficient capital to meet its current financial needs,
or should the Company fail to commence business operations that generate
material amounts of revenue, it will be necessary for the Company to seek to
raise additional funds in order to continue its business operations. This may
involve offering additional shares of Common Stock. There can be no assurance
that the Company will successfully implement its business plan or that it will
be able to raise any additional capital which may be required. The Company 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. 13




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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, 2003 and
2002. 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 yet commenced its planned production operations, 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
CAV facility or any other processing equipment in service in conducting day to
day commercial operations. Further, the Company has not entered into any
license agreements for its technology or received any fees in respect thereof,
nor has it sold any actual products produced using its technology. If the
Company is not successful in completing the development of its technology and
licensing its technology or selling products produced using its technology, the
Company will not be able to make the transition from a development stage
company to successful operations. The Company may not achieve market acceptance for any of its products. Although the Companys proposed initial products are commodity products
for which management believes there is an established market, the Company has
not entered into any agreements with potential purchasers of its proposed
products for the Company to supply such products, nor have any potential
purchasers of the Companys products evaluated the Companys products or
production facilities or indicated to the Company their intention to purchase
the Companys products at such time as the products become available for
purchase. The Company may be required to expend significant resources on
marketing and sales to achieve market acceptance of its products, and even if
the Company expends such resources there is no assurance that the Companys
marketing and sales efforts will succeed or that its products will attain
market acceptance. 14




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The Company is dependent upon its chief executive officer, Larry W.
Denney, and other key personnel and the loss of any of them could materially
and adversely affect the Company. The Companys business depends upon the efforts, abilities and expertise
of the Companys executive officers and other key employees, including Larry W.
Denney, the Companys Chairman, Chief Executive Officer, President and Chief
Financial Officer. 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 products. If the Company is unable to adequately protect its intellectual property
rights, it could be materially and adversely affected. The protection of the Companys intellectual property rights is important
to its future success. The Company intends to rely on a combination of
patents, trade secret laws and contractual restrictions to establish and
protect its proprietary rights. The Company has entered, and will enter, into
confidentiality and invention assignment agreements with its employees and
contractors, and nondisclosure agreements with parties with whom it does
business in order to limit access to and disclosure of its proprietary
information. There can be no assurance that these contractual arrangements or
other steps that the Company takes will be sufficient to protect its
intellectual property rights from infringement or misappropriation. The
Company may be unable to detect the unauthorized use of, or take appropriate
steps to enforce, the Companys intellectual property rights. Furthermore,
third parties may claim that the Companys activities infringe upon their
proprietary rights. Such claims, whether meritorious or not, could have a
material adverse effect upon the Companys business, results of operations and
financial condition. Further, defending the Companys intellectual property
rights could result in the expenditure of significant financial and managerial
resources, which could materially adversely affect the Companys business,
results of operations and financial condition. The Companys inability to obtain or maintain patent protection on its
proprietary technology could have a material adverse effect upon the Company. The Companys success will depend in part on the Companys ability to
obtain and maintain patent protection for the Companys proprietary technology.
The Company does not currently own any patents nor does it possess rights as a
licensee of any patents. The patent positions of companies such as the Company
are generally uncertain and involve complex legal 15




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and factual questions. While the Company is preparing U.S. or foreign
applications for the issuance of patents, there is no assurance that any of the
Companys technology is in fact patentable, that any future patent applications
by the Company will be allowed, that any patents will actually be issued to the
Company, or that any patents, if issued, will provide adequate protection of
the Companys rights in its proprietary technology. There can be no assurance
that any patents that may be issued to the Company will provide a basis for
commercially viable products or will provide the Company with any competitive
advantages or will not be successfully challenged by third parties, or that the
patents of others will not have an adverse effect on the Companys business.
The degree of future protection for the Companys proprietary rights,
therefore, is uncertain. Furthermore, there can be no assurance that others
will not independently develop similar or alternative technology to the
Companys technology, or, if patents are issued to the Company, that others
will not design around the Companys patents. The Companys commercial success will also depend upon avoiding the
infringement of patents and other rights of competitors. Costly litigation may
be necessary to enforce the Companys patent rights or to determine the scope
and validity of proprietary rights of third parties. If any of the Companys
technology is found to infringe upon patents or other rights owned by third
parties, the Company could be required to obtain a license to continue using
such technology. Licenses to such patent rights may not be available to the
Company on commercially reasonable terms. If the Company does not obtain such
licenses, the Company could be required to cease using such technology, which
could have a materially adverse effect on the Companys business and
operations. The Company expects to face competition from companies with greater
financial and human resources, and the Company may not be able to compete with
these companies effectively. The Company intends to operate in highly competitive markets. The Company
will face competition in these markets from competitors such as Cargill, A. E.
Staley and Archer Daniels Midland, each of which is well capitalized and will
have material competitive advantages with respect to the Company. Competition
from large, nationwide competitors is likely to increase as the Company seeks
to attract additional customers and expand its markets. There can be no
assurance that in the future the Company will be able to compete favorably with
all or any of its prospective competitors. The Companys business is subject to extensive and changing regulation
that could increase the Companys costs, expose the Company to greater
competition or otherwise 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. 16




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The Company is subject to a number of operating risks and uncertainties
that could materially and adversely affect its results of operations. Operation of the Companys facilities involves various risks, including
the potential for breakdown or failure of equipment, the inability to obtain
adequate supplies of suitable biomass material at acceptable cost, performance
of equipment below expected levels of output or efficiency (whether due to
misuse, unexpected degradation or design or manufacturing defects), failure to
keep on hand adequate supplies of spare parts or other raw materials, operator
error, labor disputes, catastrophic events such as fires, floods, earthquakes,
acts of war or terrorism, and other similar events, and the inability to sell
products intended to be produced by the Companys facilities at acceptable
prices, or at all. The occurrence of any of the events described above could
increase the cost of operating the Companys facilities, reduce the sales of
the proposed output of the Companys facilities or otherwise materially and
adversely affect the financial condition of the Company. The Companys operations subject the Company to a substantial risk of
liability for violations of environmental, health and safety laws and
regulations. The Company will be required to comply with a number of statutes and
regulations relating to the health and safety of personnel and the public,
including the identification, generation, storage, handling, transportation,
disposal, record keeping, labeling and reporting of, and emergency response in
connection with, materials relating to the Companys facilities that may be
hazardous or toxic, safety and health standards, practices and procedures
applicable to operation of the Companys facilities, and environmental
protection requirements including standards and limitations relating to the
discharge of air and water pollutants and discharge of solid waste. Failure to
comply with any of such statutes and regulations could have a material adverse
effect on the Company, including the imposition of criminal or civil liability
either by regulatory agencies or as a result of litigation by private parties,
imposition of clean-up fines or liens, the posting of reclamation bonds or the
mandatory expenditure of funds to bring the Companys facilities into
compliance. The Company conducts its operations based upon environmental and other
regulatory standards currently in effect. There can be no assurance that
existing laws and regulations will not be revised, that new laws and
regulations will not be adopted or become applicable to the Companys
operations, or that the business and financial condition of the Company will
not be materially and adversely affected by any such future changes in laws and
regulations. Similarly, there can be no assurance that existing or future
environmental laws and regulations will not 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. 17




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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, Chief Executive Officer and
Chief Financial Officer of the Company, owns approximately 48% of the Companys
issued and outstanding shares of Common Stock, and the directors and officers
of the Company as a group own approximately 71% of the Companys issued and
outstanding shares of Common Stock. As a result, management will be able to
elect all directors and otherwise control the Company for the foreseeable
future. Non-management stockholders are unlikely to be able to replace
management should those stockholders determine that the Companys operations
could be conducted more effectively by other management. The Company does not intend to pay dividends on its shares of common
stock. The Company has never declared or paid any cash dividends on the Companys
common stock. The Company currently intends to retain any future earnings to
fund growth and, therefore, does not expect to pay any dividends in the
foreseeable future. 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 18




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absence of this indemnification provision. Similarly, the bylaws contain
exculpatory provisions limiting the liability of directors except in
extraordinary circumstances. 
 Item 2. Description of Property. Company Headquarters, West Palm Beach, Florida The Company is a party to a Lease, dated November 12, 2001, under which
the Company leases its principal offices located in West Palm Beach, Florida
from 45th Street Partnership, Ltd. The lease term expires in November 2006,
and the current base rent under the lease is $3,180 per month. The Company is
also required to pay its proportionate share of the lessors operating expenses
attributable to the office building in which the leased premises is located,
and related real estate taxes. CAV1 Production Facility, Okeechobee, Florida Combined Animal/Vegetative Waste One (CAV1) is a Company facility sited
on a six acre parcel leased by the Company from Larson Dairy, Inc. in
Okeechobee, Florida and designed and implemented as a four-line production
facility. The fermentation capacity of CAV1 is 4,000,000 liters, implemented
in four 1,000,000 liter lines. The economic design of CAV1 is substantially
dependent upon internal generation of carbohydrate feed stock from the
Companys hydrolysis process. Construction of CAV1 is substantially complete.
The Company is making certain modifications based on the results of testing of
the facility that occurred during 2002, and is adding a hydrolysis process 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. The Company formerly leased approximately 300 acres of farmland in
Okeechobee County adjacent to the CAV1 facility from Mr. Denney pursuant to the
agreement described below under Item 6  Interests of Management and Others in
Certain Transactions. This land was cultivated to produce vegetative
materials which were used in testing the processing operations of CAV1, and for
storage of biomass materials used in the Companys operations. This lease was
terminated in July 2003 upon Mr. Denneys sale of the land. 19




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Item 3. Directors, Executive Officers and Significant Employees. The following table sets forth the names, ages and positions of the
executive officers and directors of the Company. The board of directors
currently consists of five directors. Directors will be elected at the annual
meeting of stockholders of the Company and serve for one year or until their
successors are elected and qualify. Officers are elected by the board of
directors and their terms of office are, except to the extent governed by
employment contract, at the discretion of the board of directors. Name
    
    Age
    
    Positions HeldLarry W. Denney
    
    
    65
    
    
    Chairman of the Board, President,
Chief Executive Officer and Chief
Financial OfficerJack B. Simpson
    
    
    66
    
    
    DirectorDonald E. Henderson
    
    
    70
    
    
    DirectorDonald E. Orr, Jr., Ph. D.
    
    
    59
    
    
    DirectorStanley E. Poe, Ph. D.
    
    
    68
    
    
    DirectorRichard M. Schroeder
    
    
    54
    
    
    Vice President, Field Operations
 Larry W. Denney, 65, has been Chairman of the Board, President and Chief
Executive Officer of the Company since the inception of the Company in 1996,
and has been Chief Financial Officer of the Company since February 2004. Mr.
Denney founded Omni Technologies International, Ltd. (now a wholly-owned
subsidiary of the Company under the name Omni Environmental Corporation) in
1991 for the purpose of conducting research and development of process control
automation equipment and technology which improve the efficiency and lower the
operating costs of manufacturing processes. Jack B. Simpson, 66, has been a Director of the Company since its
inception in 1996. Mr. Simpson also served as the Companys Senior Vice
President, Corporate Finance and Treasurer from inception until November 2003,
and served as the Chief Financial Officer of the Company from 1996 to September
2002 and from November 2002 to July 2003, and as the Secretary of the Company
from 1996 to June 2003. Mr. Simpson is currently a private investor. Donald E. Henderson, 70, has been a Director of the Company since June
2003. Mr. Henderson has been the President of the Town Council of Pendleton,
Indiana since 1999. Mr. Henderson served as the Chief Executive Officer of
Farm Bureau Insurance Companies, a group of affiliated life and casualty
insurance companies, from 1995 to 1998. From 1987 to 1995 Mr. Henderson served
as the Vice President of the Board of Directors, and as the Director of
Legislative Affairs, of the Indiana Farm Bureau and its affiliated companies. Donald E. Orr, Jr., Ph. D., 59, has been a Director of the Company since
June 2003. Dr. Orr has been the President and a Director of United Feeds, Inc.
a livestock feed manufacturing firm, since 1997. Dr. Orrs experience at
United Feeds has involved the development of animal feed products and of
national and international markets for United Feeds products. Dr. Orr has
served on the Advisory Committee of the Company since 2000. 20




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Stanley E. Poe, Ph.D., 68, has been a Director of the Company since June
2003. Dr. Poe has been an independent agricultural producer and livestock
consultant since 2000. Dr. Poe served as Manager of International Animal
Science Field Research, Elanco Animal Health, a division of Eli Lilly and Co.,
from 1988 to 2000. In that capacity, Dr. Poe developed new products, conducted
animal science research and introduced new feed and pharmaceutical products
into the animal feed market. Dr. Poe has served on the Advisory Committee of
the Company since 2000. Richard M. Schroeder, 54, has been Vice President, Field Operations of the
Company since 2000. Mr. Schroeder served as Vice President of Marketing and
Development for Consolidated Resource Recovery, Inc., a Florida-based biomass
recycling company, from 1996 to 2000. Mr. Schroeders primary responsibilities
were the development of new business and the marketing of the companys
services and products to governmental and corporate customers. Committees of the Board of Directors The Board of Directors has established an Audit Committee, a Compensation
Committee and a Technical Review Committee of the Board. The Audit Committee consists of Mr. Henderson, Dr. Orr and Dr. Poe. The
Audit Committee is currently constituted without a chairman. Each member of
the Audit Committee is independent within the meaning of that term in Section
10A of the Securities Exchange Act of 1934, as amended. The Audit Committees
responsibilities are principally concerned with the accuracy and effectiveness
of the audits of the Companys financial statements by its independent
auditors. The Audit Committee is responsible for selecting, retaining,
overseeing and evaluating the Companys independent auditors, meeting with the
auditors to review the scope and results of the audit, approving any non-audit
services which may be provided to the Company by the independent auditors, and
considering various accounting and auditing matters related to the Companys
system of internal controls, financial management practices and other matters.
The Audit Committee was created by the Board of Directors in October 2003 and
met twice during 2003. The Compensation Committee consists of Mr. Denney, Dr. Poe and Mr.
Henderson. The Compensation Committee is currently constituted without a
chairman. 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 and met once
during 2003 in conjunction with a regular meeting of the Board of Directors. The Technical Review Committee consists of Mr. Denney, Dr. Orr and Dr.
Poe. 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 and met once during 2003. 21




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Other Significant Employees Ying Zhou, Ph.D., 35, has been Director of Research of the Company since
1999. Prior to employment with the Company Dr. Zhou was engaged in graduate
studies at Purdue University. Dr. Zhou specializes in microbiology and
mechanical engineering. Dr. Zhou is the wife of Dr. Jianxin Du. Jianxin Du, Ph.D., 36, has been Chief Engineer of the Company since 1999.
Prior to joining the Company, Dr. Du was engaged in post-graduate research at
Purdue University. Dr. Du received his doctorate from Tsinghua University in
China, and specializes in chemical engineering and the design of reactor
vessels and heat exchange systems. Dr. Du is the husband of Dr. Ying Zhou. Advisory Committee The Company has an advisory committee consisting of three members, each of
whom is a stockholder, which committee advises the Board of Directors with
respect to material strategic and operational matters. The Advisory Committee
provides input on markets, strategic opportunities and management decisions
regarding the Companys development. 
 Item 4. Remuneration of Directors and Officers. The following table sets forth the aggregate remuneration paid to the
three highest paid officers of the Company during the year ended December 31,
2003. AggregateName
    
    Capacity
    
    RemunerationLarry W. Denney
    
    Chairman of the Board,
President, Chief Executive
Officer and Chief Financial
Officer
    
    $
    100,000Jack B. Simpson
    
    Director, former Vice
President, Secretary and
Treasurer
    
    
    91,667Richard M. Schroeder
    
    Vice President, Field Operations
    
    
    120,360
 Commencing in November 2003, directors who are not employees of, or
consultants to, the Company receive a fee of $200 for each meeting of the Board
of Directors and each meeting of any committee of the Board that is conducted
by telephone conference call and which the director attends, and a fee of
$1,000 for each meeting of the Board of Directors and each meeting of any
committee of the Board that requires the personal presence of the director and
which the director attends. Directors are also reimbursed for their travel
expenses of attending any in person meetings of the Board or any committee of
the Board. 22




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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 April 30, 2004, by (i) each person who is one of the three highest
paid officers or directors of the Company, (ii) all of the directors and
executive officers of the Company as a group, and (iii) any person who the
Company knows to be the owner of record of more than five percent of the Common
Stock. % ofTitle of Class
    
    Name and Address of Owner(1)
    
    Amount Owned
    
    Class (2)Common Stock
    
    Larry W. Denney
    
    
    33,374,056
    
    
    
    48
    %Jack B. Simpson
    
    
    15,961,194
    
    
    
    23
    %Richard M. Schroeder
    
    
    16,000
    
    
    
    *All directors and
executive officers as a
group (7 persons)
    
    
    49,455,250
    
    
    
    71
    %
   *
    
    Less than 1%  (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 69,618,038 issued and
outstanding shares of Common Stock as of April 30, 2004. The Company has one convertible note executed on February 24, 2004 which is
convertible into 2,500 shares of Common Stock. Other than the convertible
note, the Company does not have any outstanding options, warrants or other
convertible securities. 
 Item 6. Interests of Management and Others in Certain Transactions. In November 2000, Mr. Schroeder borrowed $20,000 from the Company for use
in the purchase of 1,000 shares of Common Stock. Mr. Schroeder paid $6,300 to
the Company during 2001 with respect to the loan, and the $13,700 balance on
the loan was settled on January 8, 2002 by converting it to compensation. The Company was party to an agreement with Mr. Denney, dated as of
December 30, 2002, pursuant to which the Company leased approximately 300 acres
of farmland in Okeechobee County adjacent to the CAV1 facility in exchange for
payment by the Company of all taxes related to such property and all interest
payable under the loan pursuant to which Mr. Denney acquired the property. The
Company used the property to test sorghum species to determine which species is
optimal as a raw material for possible future Company products, and has also
used the property for waste disposal associated with its handling of St. Lucie
Countys biomass material. The average monthly interest payment with respect
to the property was approximately $6,000, and 2002 taxes were approximately
$4,200. The agreement also provided 23




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the Company with the option, exercisable by the Company at any time in its
sole discretion, to purchase the property from Mr. Denney at a purchase price
equal to $901,462 (which represents the purchase price paid by Mr. Denney for
the property), increased to give effect to the percentage change in the CPI
from the date of the purchase of the property by Mr. Denney to the date of the
purchase of the property by the Company. This Agreement was terminated during
July 2003 upon Mr. Denneys sale of the property. The Company elected not to
exercise its right of first refusal to purchase the property. As of December 31, 2002, the Company was owed $12,700 by Mr. Denney, its
Chairman, chief executive officer and largest stockholder, as a result of Mr.
Denneys purchase from the Company of the Companys option to purchase the
tract of land described in the preceding paragraph. The Company had originally
leased the property with an option to purchase. As the option expiration date
approached and the Company did not have the financial capacity to purchase the
land, Mr. Denney acquired the Companys purchase option for $12,700, which
equaled the amount the Company had paid for the option, and subsequently
exercised the option and purchased the land, and then leased the land to the
Company pursuant to the arrangement described in the preceding paragraph.
There was no written agreement in place with respect to this arrangement and no
interest was charged to Mr. Denney on the receivable, which was paid in 2003. During the three months ended March 31, 2004, the President of the Company
loaned the Company $110,000 for working capital under a note with a maximum
principal amount not to exceed $200,000. The note bears interest at a rate of
4% per annum and is payable on or before April 1, 2005. 
 PART II 
 Item 1. Market Price of and Dividends on the Registrants Common Equity and Other Shareholder Matters. There is currently no trading market for the Common Stock. The number of
shares of Common Stock outstanding as of December 31, 2003 was 69,431,788, and
as of that date the Company had approximately 898 holders of record of the
Common Stock. The Company is not aware of any restrictions that limit its
ability to declare dividends on the Common Stock, other than restrictions under
Delaware law. The Company has never declared or paid dividends on the Common
Stock and does not anticipate doing so in the foreseeable future. The Company
does not have any compensation plans under which Common Stock of the Company
may be issued, although it is likely to seek to adopt one or more of such plans
within the next twelve months. 
 Item 2. Legal Proceedings. The Company is not a party to, nor is any property of the Company subject
to, any pending legal proceedings. The Company is not aware of any
governmental authority that is contemplating any legal proceedings against the
Company or its property. 24




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Item 3. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures. Effective September 4, 2003, the firm of Crowe Chizek and Company LLC
(Crowe, Chizek), which served as independent accountants for the Company
since the inception of the Company and audited the Companys fiscal year 2001
financial statements, resigned as independent accountants for the year ended
December 31, 2002. Crowe Chizeks report on the Companys consolidated
financial statements for fiscal year 2001 did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principle. Crowe Chizek did not report on the
Companys consolidated financial statements for fiscal year 2002. In connection with Crowe Chizeks work done on the audit of the Companys
financial statements for the 2002 fiscal year, the Company and Crowe Chizek
disagreed (the 2002 Audit Disagreement) regarding whether Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS 144),
requires the Companys CAV1 facility to be evaluated for impairment for
purposes of the Companys 2002 financial statements. SFAS 144 requires the
Company to review long-lived assets for recoverability whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be fully recoverable. If the Companys recoverability analysis, based on
future undiscounted cash flows, indicates that a possible impairment exists,
the Company is required to then estimate the fair value of the asset determined
either by third party appraisal or estimated discounted future cash flows.
Crowe Chizeks position with respect to CAV1 was that the Companys history of
operating losses since inception, delays in the commencement of production from
CAV1, the fact that revenue has not yet been generated from CAV1 and the need
for additional capital to complete the development of the facility and to cause
CAV1 to become fully operational indicate that the value of CAV1 as stated in
the Companys balance sheet may be impaired. The Companys position with
respect to SFAS 144 and the CAV1 facility at the time of the 2002 Audit
Disagreement was that the facts regarding CAV1 and the operation of the
Company, when analyzed in light of the requirements of SFAS 144, did not
require the CAV1 asset to be tested for recoverability for the period ended
December 2002, and that if recoverability were to be tested using future
undiscounted cash flows, there would be no impairment. Crowe Chizek informed
the Company that it believed the CAV1 asset was impaired, even though the
Companys analysis following the provisions of SFAS 144 indicated that there
was no impairment. The Company is unable to determine the effect on its
financial statements for the fiscal year ended December 31, 2002 of analyzing
CAV1 for impairment using the guidance in SFAS 144, as Crowe Chizek provided
the Company with no basis under SFAS 144 to support its conclusion as to
possible impairment. The Company requested that Crowe Chizek furnish it with a letter addressed
to the Securities and Exchange Commission stating whether or not it agrees with
the above statements. A copy of such letter, dated December 13, 2003, was
filed as Exhibit 16.1 to the Registration Statement on Form 10-SB filed with
the Commission on December 19, 2003. 25




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders. There were no meetings of the stockholders of the Company, and no matters
were submitted to the security holders of the Company for a vote, during the
fourth quarter of the fiscal year covered by this report. 
 Item 5. Compliance with Section 16(a) of the Exchange Act. Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys directors and executive officers, and persons who beneficially own
more than ten percent of a registered class of the Companys equity securities,
to file with the Securities and Exchange Commission initial reports of
beneficial ownership and reports of changes in beneficial ownership of the
Companys Common Stock. The rules promulgated by the Commission under Section
16(a) require those persons to furnish the Company with copies of all reports
filed with the Commission pursuant to Section 16(a). Based
on the Companys inquiries and copies of initial reports of
beneficial ownership on Form 3 provided to the Company by
Mr. Denney and Mr. Henderson, each of
Mr. Simpson, Mr. Schroeder, Dr. Orr and Dr. Poe has yet to file
an initial report of beneficial ownership on Form 3 as required by the
Commission, and each of Mr. Denneys and
Mr. Hendersons initial report of beneficial ownership on Form 3
was not filed on a timely basis. 
 Item 6. Reports on Form 8-K. None. 26




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##### Table of Contents



PART III 
 Item 1. Index to Exhibits. (a) The following exhibits are filed herewith: Document
    
    Exhibit No.Certificate of Incorporation filed with the Delaware Secretary
of State on January 30, 1996 (incorporated herein by reference
to Exhibit 2.1.1 of the registrants Form 10-SB, filed with
the Commission on December 19, 2003)
    
    
    3.1.1Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on September 12, 1997
(incorporated herein by reference to Exhibit 2.1.2 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    3.1.2Certificate of Amendment to Certificate of Incorporation filed
with the Delaware Secretary of State on May 23, 2001
(incorporated herein by reference to Exhibit 2.1.3 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    3.1.3By-Laws (incorporated herein by reference to Exhibit 2.2 of
the registrants Form 10-SB, filed with the Commission on
December 19, 2003)
    
    
    3.2Dairy Animal Waste Processing Operating Agreement, dated June
23, 1999, between Larsen Dairy, Inc. and the Company
(incorporated herein by reference to Exhibit 6.1 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    10.1Contract, dated January 13, 2004, between St. Lucie County,
Florida and the Company (incorporated herein by reference to
Exhibit 6.2 of the registrants Amendment No. 1 to Form 10-SB,
filed with the Commission on April 16, 2004)
    
    
    10.2Letter from Crowe Chizek & Company LLC, dated December 13,
2003 (incorporated herein by reference to Exhibit 16.1 of the
registrants Form 10-SB, filed with the Commission on December
19, 2003)
    
    
    16.1List of Subsidiaries
    
    
    21.1Certification by the Chief Executive Officer and 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
    
    
    32.1
 27




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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: May 12, 2004
    By:
    /s/ Larry W. DenneyLarry W. Denney, Chairman of the Board,President, Chief Executive Officer and Chief
Financial 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: May 12, 2004
    By:
    /s/ Larry W. DenneyLarry W. Denney, Chairman of the Board,President, Chief Executive Officer and Chief
Financial Officer
(principal financial officer and principal
accounting officer) Dated: May 12, 2004
    By:
    Donald E. Orr, Jr.Donald E. Orr, Jr., Ph.D. Director Dated: May 12, 2004
    By:
    Stanley E. PoeStanley E. Poe, Ph.D., Director Dated: May 12, 2004
    By:
    Donald E. HendersonDonald E. Henderson, Director Dated: May 12, 2004
    By:
    Jack
B. SimpsonJack B. Simpson, Director 28




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT AUDITORS REPORT
    
    
    F-2FINANCIAL STATEMENTS, YEARS ENDED DECEMBER 31, 2003 AND 2002:CONSOLIDATED BALANCE SHEETS
    
    
    F-3CONSOLIDATED STATEMENTS OF OPERATIONS
    
    
    F-4CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
    
    
    F-5CONSOLIDATED STATEMENTS OF CASH FLOWS
    
    
    F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-9




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##### Table of Contents



INDEPENDENT AUDITORS REPORT To the Board of Directors of
Biomass Processing Technology, Inc. We have audited the accompanying consolidated balance sheets of Biomass
Processing Technology, Inc. and its subsidiary (the Company), a development
stage enterprise, as of December 31, 2003 and 2002, the related consolidated
statements of operations and cash flows for the years then ended and for the
cumulative during development stage period from January 30, 1996 through
December 31, 2003, and the consolidated statements of stockholders equity for
the period from January 30, 1996 through December 31, 2003. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The Companys financial statements as of December 31, 2000 and for
the period January 30, 1996 through December 31, 2000 (not presented herein)
were audited by other auditors whose report, dated September 7, 2001, expressed
an unqualified opinion on those statements. The cumulative during development
stage amounts contain $460,570 of revenues and $5,556,186 of net loss that was
incurred during the period from January 30, 1996 through December 31, 2000.
The other auditors report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for the period through December 31, 2000,
is based solely on the report of such other auditors. We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. 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 and the report of
the other auditor provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of the other auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Biomass Processing Technology,
Inc. and its subsidiary as of December 31, 2003 and 2002, and the results of
their operations and their cash flows for the years then ended, and for the
cumulative during development stage period from January 30, 1996 through
December 31, 2003, 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 enterprise with limited revenues, has incurred cumulative losses since
inception, and has been dependent on investor capital to sustain its
activities. This raises substantial doubt about the Companys ability to
continue as a going concern. Managements plans in regard to these matters are
described in Note 1. /s/ Ahearn, Jasco + Company, P.A. AHEARN, JASCO + COMPANY, P.A.
Certified Public Accountants
Pompano Beach, Florida March 16, 2004 F-2




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
 2003
    
    2002ASSETSCurrent assetsCash and cash equivalents
    
    $
    394,816
    
    
    $
    188,434Accounts receivable
    
    
    101,503
    
    
    
    196,715Prepaid expenses and other current assets
    
    
    273,224
    
    
    
    166,272Advance to stockholder
    
    
    
    
    
    
    12,700Equipment in process, held for sale
    
    
    1,647,321
    
    
    
    456,878Total Current Assets
    
    
    2,416,864
    
    
    
    1,020,999Property and equipment, net
    
    
    22,803,456
    
    
    
    21,695,318Other assetsPatent application costs
    
    
    98,160
    
    
    
    13,191Deposits and other assets
    
    
    101,275
    
    
    
    120,076Total Other Assets
    
    
    199,435
    
    
    
    133,267Total Assets
    
    $
    25,419,755
    
    
    $
    22,849,584LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilitiesAccounts payable
    
    $
    622,571
    
    
    $
    682,128Accrued expenses
    
    
    138,467
    
    
    
    163,879Current portion of long term debt and capital leases
    
    
    297,488
    
    
    
    282,669Total Current Liabilities
    
    
    1,058,526
    
    
    
    1,128,676Long term debt and capital leases, less current portion
    
    
    101,185
    
    
    
    409,478Commitments and ContingenciesStockholders equityCommon stock, $.02 par value; 100,000,000 shares
authorized; issued and outstanding,
69,431,788 in 2003 and 68,554,783 in 2002
    
    
    1,388,636
    
    
    
    1,371,096Additional paid in capital
    
    
    37,106,241
    
    
    
    31,586,081Deficit accumulated during the development stage
    
    
    (14,234,833
    )
    
    
    (11,645,747
    )Total Stockholders Equity
    
    
    24,260,044
    
    
    
    21,311,430Total Liabilities and Stockholders Equity
    
    $
    25,419,755
    
    
    $
    22,849,584
 See accompanying notes to the consolidated financial statements F-3




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 CumulativeDuringDevelopment
    
    Years Ended December 31,Stage (see Note 1)
    
    2003
    
    2002Revenues
    
    $
    6,826,863
    
    
    $
    2,171,718
    
    
    $
    2,036,733Cost of services provided
    
    
    6,747,784
    
    
    
    2,090,748
    
    
    
    1,983,992Gross profit
    
    
    79,079
    
    
    
    80,970
    
    
    
    52,741Operating expenses
Research and development
    
    
    13,873,040
    
    
    
    2,651,722
    
    
    
    3,925,982Total operating expenses
    
    
    13,873,040
    
    
    
    2,651,722
    
    
    
    3,925,982Other income (expense)Interest expense
    
    
    (341,923
    )
    
    
    (21,735
    )
    
    
    (60,890
    )Gain (loss) on disposal of
assets
    
    
    (98,949
    )
    
    
    3,401
    
    
    
    (18,873
    )Total other income (expenses)
    
    
    (440,872
    )
    
    
    (18,334
    )
    
    
    (79,763
    )Loss before income tax benefit
    
    
    (14,234,833
    )
    
    
    (2,589,086
    )
    
    
    (3,953,004
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    $
    (14,234,833
    )
    
    $
    (2,589,086
    )
    
    $
    (3,953,004
    )Basic loss per share
    
    
    
    
    
    $
    (0.04
    )
    
    $
    (0.06
    )Weighted average number of
common shares outstanding
    
    
    
    
    
    
    68,881,560
    
    
    
    68,405,978
 See accompanying notes to the consolidated financial statements F-4




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##### Table of Contents



BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FROM JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2003
 DeficitAccumulatedNumber of
    
    Common
    
    
    
    
    
    
    
    
    
    During theCommon
    
    Stock,
    
    Subscription
    
    Paid in
    
    DevelopmentShares
    
    at Par Value
    
    Receivable
    
    Capital
    
    Stage
    
    TotalJanuary 30, 1996 (Date of Inception)Initial capitalization
    
    
    36,266,624
    
    
    $
    725,332
    
    
    $
    
    
    
    $
    (705,332
    )
    
    $
    
    
    
    $
    20,000Contribution of common shares
    
    
    (1,075,200
    )
    
    
    (21,504
    )
    
    
    
    
    
    
    21,504
    
    
    
    
    
    
    
    Issuance of common shares as
compensation
    
    
    192,000
    
    
    
    3,840
    
    
    
    
    
    
    
    26,160
    
    
    
    
    
    
    
    30,000Issuance of common shares
    
    
    22,426,560
    
    
    
    448,532
    
    
    
    
    
    
    
    202,165
    
    
    
    
    
    
    
    650,6971996 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (464,277
    )
    
    
    (464,277
    )Balances as of December 31, 1996
    
    
    57,809,984
    
    
    
    1,156,200
    
    
    
    
    
    
    
    (455,503
    )
    
    
    (464,277
    )
    
    
    236,420Contribution of common shares
    
    
    (646,400
    )
    
    
    (12,928
    )
    
    
    
    
    
    
    12,928
    
    
    
    
    
    
    
    Issuance of common shares as
compensation
    
    
    384,000
    
    
    
    7,679
    
    
    
    
    
    
    
    112,321
    
    
    
    
    
    
    
    120,000Issuance of common shares
    
    
    3,817,088
    
    
    
    76,342
    
    
    
    
    
    
    
    1,126,158
    
    
    
    
    
    
    
    1,202,5001997 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (999,872
    )
    
    
    (999,872
    )Balances as of December 31, 1997
    
    
    61,364,672
    
    
    
    1,227,293
    
    
    
    
    
    
    
    795,904
    
    
    
    (1,464,149
    )
    
    
    559,048Contribution of common shares
    
    
    (80,000
    )
    
    
    (1,600
    )
    
    
    
    
    
    
    1,600
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    2,087,200
    
    
    
    41,744
    
    
    
    
    
    
    
    1,795,256
    
    
    
    
    
    
    
    1,837,0001998 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (673,625
    )
    
    
    (673,625
    )Balances as of December 31, 1998
    
    
    63,371,872
    
    
    
    1,267,437
    
    
    
    
    
    
    
    2,592,760
    
    
    
    (2,137,774
    )
    
    
    1,722,423Contribution of common shares
    
    
    (131,680
    )
    
    
    (2,634
    )
    
    
    
    
    
    
    2,634
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    1,454,608
    
    
    
    29,093
    
    
    
    
    
    
    
    2,854,827
    
    
    
    
    
    
    
    2,883,9201999 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,722,762
    )
    
    
    (1,722,762
    )Balances as of December 31, 1999
    
    
    64,694,800
    
    
    
    1,293,896
    
    
    
    
    
    
    
    5,450,221
    
    
    
    (3,860,536
    )
    
    
    2,883,581Contribution of common shares
    
    
    (31,680
    )
    
    
    (634
    )
    
    
    
    
    
    
    634
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    2,740,556
    
    
    
    54,812
    
    
    
    (19,850
    )
    
    
    10,003,468
    
    
    
    
    
    
    
    10,038,4302000 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,845,650
    )
    
    
    (1,845,650
    )Balances as of December 31, 2000
    
    
    67,403,676
    
    
    
    1,348,074
    
    
    
    (19,850
    )
    
    
    15,454,323
    
    
    

    (5,706,186
    )
    
    
    11,076,361Contribution of common shares
    
    
    (6,000
    )
    
    
    (120
    )
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    876,716
    
    
    
    17,534
    
    
    
    
    
    
    
    10,529,426
    
    
    
    
    
    
    
    10,546,960Settlement of subscription receivable
    
    
    
    
    
    
    
    
    
    
    6,150
    
    
    
    
    
    
    
    
    
    
    
    6,1502001 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,986,557
    )
    
    
    (1,986,557
    )Balances as of December 31, 2001
    
    
    68,274,392
    
    
    
    1,365,488
    
    
    
    (13,700
    )
    
    
    25,983,869
    
    
    
    (7,692,743
    )
    
    
    19,642,914Contribution of common shares
    
    
    (123,575
    )
    
    
    (2,472
    )
    
    
    
    
    
    
    2,472
    
    
    
    Issuance of common shares
    
    
    403,966
    
    
    
    8,080
    
    
    
    
    
    
    
    5,599,740
    
    
    
    
    
    
    
    5,607,820Settlement of subscription receivable
    
    
    
    
    
    
    
    
    
    
    13,700
    
    
    
    
    
    
    
    
    
    
    
    13,7002002 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,953,004
    )
    
    
    (3,953,004
    )Balances as of December 31, 2002
    
    
    68,554,783
    
    
    $
    1,371,096
    
    
    $
    
    
    
    $
    31,586,081
    
    
    $
    (11,645,747
    )
    
    $
    21,311,430
 (continued on next page) See accompanying notes to the consolidated financial statements F-5




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FROM JANUARY 30, 1996 (INCEPTION) THROUGH DECEMBER 31, 2003 (continued) DeficitAccumulatedNumber of
    
    Common
    
    
    
    
    
    
    
    
    
    During theCommon
    
    Stock,
    
    Subscription
    
    Paid in
    
    DevelopmentShares
    
    at Par Value
    
    Receivable
    
    Capital
    
    Stage
    
    TotalBalances as of December 31, 2002
    
    
    68,554,783
    
    
    $
    1,371,096
    
    
    
    
    
    
    $
    31,586,081
    
    
    $
    (11,645,747
    )
    
    $
    21,311,430Contribution of common shares
    
    
    (265,530
    )
    
    
    (5,311
    )
    
    
    
    
    
    
    5,311
    
    
    
    
    
    
    
    Issuance of common shares
    
    
    1,142,535
    
    
    
    22,851
    
    
    
    
    
    
    
    5,514,849
    
    
    
    
    
    
    
    5,537,7002003 net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,589,086
    )
    
    
    (2,589,086
    )Balances as of December 31, 2003
    
    
    69,431,788
    
    
    $
    1,388,636
    
    
    $
    
    
    
    $
    37,106,241
    
    
    $
    (14,234,833
    )
    
    $
    24,260,044
 See accompanying notes to the consolidated financial statements F-6




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY) 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 CumulativeDuring
    
    Years Ended December 31,DevelopmentStage (see Note 1)
    
    2003
    
    2002Operating ActivitiesNet Loss
    
    $
    (14,234,833
    )
    
    $
    (2,589,086
    )
    
    $
    (3,953,004
    )Adjustments to reconcile net loss to
net cash used in operations:Depreciation and amortization
    
    
    1,025,760
    
    
    
    238,347
    
    
    
    246,440Loss (gain) on disposal of assets
    
    
    98,949
    
    
    
    (3,401
    )
    
    
    18,873Stock-based compensation
    
    
    163,700
    
    
    
    
    
    
    
    13,700Changes in assets and liabilities:Equipment in process held for sale
    
    
    (1,647,321
    )
    
    
    (1,190,443
    )
    
    
    (456,878
    )Accounts receivable
    
    
    (101,503
    )
    
    
    95,212
    
    
    
    (48,859
    )Prepaid expenses and other current
assets
    
    
    (273,224
    )
    
    
    (106,952
    )
    
    
    (136,778
    )Accounts payable and accrued expenses
    
    
    761,038
    
    
    
    (84,969
    )
    
    
    20,479Net Cash Used in Operations
    
    
    (14,207,434
    )
    
    
    (3,641,292
    )
    
    
    (4,296,027
    )Investing ActivitiesProceeds from sale of assets
    
    
    95,930
    
    
    
    95,930
    
    
    
    Patent expenditures
    
    
    (98,160
    )
    
    
    (84,969
    )
    
    
    (13,191
    )Purchases of property and equipment
    
    
    (22,849,793
    )
    
    
    (1,439,014
    )
    
    
    (2,207,753
    )Deposits and other assets
    
    
    (101,275
    )
    
    
    18,801
    
    
    
    37,311Net Cash Used in Investing Activities
    
    
    (22,953,298
    )
    
    
    (1,409,252
    )
    
    
    (2,183,633
    )Financing ActivitiesProceeds from new long term debt
    
    
    209,596
    
    
    
    
    
    
    
    Repayment of debt and capital leases
    
    
    (985,225
    )
    
    
    (293,474
    )
    
    
    (236,563
    )Net advances to stockholders
    
    
    
    
    
    
    12,700
    
    
    
    (12,700
    )Proceeds from the issuance of common
stock
    
    
    38,331,177
    
    
    
    5,537,700
    
    
    
    5,607,820Net Cash Provided by Financing
Activities
    
    
    37,555,548
    
    
    
    5,256,926
    
    
    
    5,358,557Net increase (decrease) in cash and
cash equivalents
    
    
    394,816
    
    
    
    206,382
    
    
    
    (1,121,103
    )Cash and cash equivalents at beginning
of the period
    
    
    
    
    
    
    188,434
    
    
    
    1,309,537Cash and cash equivalents at the end of
the period
    
    $
    394,816
    
    
    $
    394,816
    
    
    $
    188,434
 (continued on next page) See accompanying notes to the consolidated financial statements F-7




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BIOMASS PROCESSING TECHNOLOGY, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) CumulativeDuring
    
    Years Ended December 31,DevelopmentStage (see Note 1)
    
    2003
    
    2002Supplemental Disclosure of Cash Flow InformationCASH PAID DURING THE PERIOD FOR:Interest (net of amounts capitalized)
    
    $
    341,923
    
    
    $
    21,735
    
    
    $
    60,890Income taxes
    
    $
    
    
    
    $
    
    
    
    $
    
 Supplemental Disclosure of Noncash Investing and Financing Activities: Equipment Financing During 2002, the Company acquired equipment and vehicles under capital leases and debt agreements in the amount of
$245,680. Since inception, the Company acquired equipment and vehicles by entering into capital leases and debt
agreements totaling $1,174,302. See accompanying notes to the consolidated financial statements F-8




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##### Table of Contents



NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION Organization and Basis of Consolidation: Biomass Processing Technology, Inc.
began its activities on January 30, 1996. Its principal offices and laboratory
are located in West Palm Beach, Florida with construction in progress on a
facility in Okeechobee, Florida. The consolidated financial statements include
the accounts of Biomass Processing Technology, Inc. and its wholly owned
subsidiary, Omni Environmental Corp., formerly known as Omni Technologie
International, Ltd. (collectively, the Company). All significant
inter-company transactions have been eliminated. The Company is constructing a
facility and equipment which the Company intends to use to process biomass
residue to basic feed stocks for the chemical and energy markets. 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. Development Stage and Going Concern Considerations: The Company is a
development stage enterprise as planned principal operations have not
commenced, and the Company has not generated significant revenues since its
inception. Historically, the Company has relied upon outside investor funds to
maintain its operations and develop its business. Should the Company continue
to experience operating losses into 2004, it will be necessary to raise
additional funds from outside investors and/or lenders in order to continue as
a going concern. The Company cannot provide assurances that if additional
investor funding were needed, the necessary funds would be available, or
available on terms acceptable to the Company. The accompanying 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. During the next twelve months, the Company expects to allocate its capital resources to
the completion of its production facilities, product development and sales.
The Company intends to complete the modifications to its CAV1 facility in
Okeechobee, Florida, and the construction of a hydrolysis process at its CAV1
facility, to complete all testing activities with respect to the operation of
the CAV1 facility, to then cause the CAV1 facility to become fully operational
and commence commercial processing operations, and to commence marketing and
selling the products of the CAV1 processing operation. The Company believes that its current capital resources and revenue from
operations will be insufficient to fund the Companys intended operations
beyond the first quarter of 2004, 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. There is no assurance that the
Company will be able to raise any additional funds which may be necessary to
enable it to continue its planned business operations. Should any of
managements planned events not occur, the accompanying financial statements
may be materially affected. F-9




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##### Table of Contents



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition, Accounts Receivable, and Credit Risk: The Company
records revenue in the period in which services are rendered. During 2003 and
2002, the Companys revenues were generated by services provided under the wood
waste agreements described in Note 10. The Company recognized and recorded
these revenues when the following criteria were met: there was evidence of an
agreement, the services required were performed, the price to be paid was
determinable, and the collection of the price to be paid was reasonably
assured. All of the Companys accounts receivable and revenues are from two
customers using credit terms customary in the industry. No allowance for bad
debts has been recorded at December 31, 2003 or 2002 based upon management
estimates, historic loss experience and current economic conditions. The
Company incurred no bad debt expenses for the years ended December 31, 2003 and
2002. Property and Equipment: Property and equipment are stated at cost less
accumulated depreciation. Expenditures for maintenance, repairs, and minor
renewals are charged to expense in the period incurred. Betterments and
additions are capitalized. Depreciation and amortization are provided for on
straight-line methods over the estimated useful lives of the assets. Construction in Process: The Company is constructing equipment for internal
use. Costs of manufacturing this equipment is classified as construction in
process (see Note 3). Depreciation will begin when the assets are placed in
service. Since inception, interest totaling $270,527 through December 31, 2003
($51,088 and $68,656 for the years ended December 31, 2003 and 2002,
respectively) has been capitalized into this self-constructed asset pursuant to
applicable accounting principles. All items of property and equipment are reviewed periodically for possible
impairment. The Companys impairment review is based on an undiscounted cash
flow analysis at the lowest level for which identifiable cash flows exist.
Impairment occurs when the carrying value of the asset exceeds the future
undiscounted cash flows. When impairment is indicated, the asset is written
down to its fair value. No impairments have been recorded through December 31,
2003. Equipment in process held for sale: The Company is constructing proprietary
equipment for treatment of waste at remote confined animal feed operations.
This equipment has been and is being designed and constructed for sale to
others, not for internal use. This equipment utilizes new proprietary
technology developed by the Company and will be offered for sale following
submission of patent applications or upon the abandonment of pursuit of patents
and after completion of appropriate testing. The in-process equipment is
valued at the cost of construction, which is lower than the expected sales
price of the finished equipment. F-10




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##### Table of Contents



NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Patents: Costs incurred to apply for patents have been capitalized. As of
December 31, 2003, no patent applications have been filed and no patents have
been granted to the Company. Upon the granting of any patents, the associated
costs will be amortized over the life of the patents. Fair Value of Financial Instruments: Cash, accounts receivable, accounts
payable, and accrued expenses are reflected in the financial statements at
cost, which approximates fair value because of the short-term maturity of those instruments. The recorded
amounts of the Companys debt obligations approximate fair value, as the terms
and interest rates are at levels that approximate current market conditions. Amounts due from or due
to stockholders are not subject to reasonable fair value estimation because of
their unique nature. Stock-Based Compensation: The Company accounts for stock-based compensation
under the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. For common shares issued
to employees, the compensation was measured and recorded on the basis of fair
value of the stock issued. The Company presently has no employee stock option
plans, and it has issued no stock options to any employee. SFAS No. 123 also
governs stock-based compensation transactions with persons who are not
employees in which services were performed in exchange for stock or other
equity instruments. The Company has issued its common shares to non-employees in exchange for
services. In accordance with SFAS No. 123, these transactions were recorded on
the basis of the fair value of the services received or the fair value of the
stock issued, whichever was more readily measurable. 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 some portion or all 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. 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 F-11




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NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) common stockholders divided by the weighted average number of common shares
outstanding during the period. No diluted earnings per share are presented
because the Company has not issued any financial instruments convertible into
shares of the Companys stock. 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 totaled $2,651,722 and $3,925,982 for the years ended December 31,
2003 and 2002, respectively. Cash and Cash Equivalents: Cash and cash equivalents consist of normal
business checking and savings accounts. The Company maintains its cash
balances primarily at one financial institution and at times balances are in
excess of federally insured limits. The Company considers all investments
purchased with a maturity of three months or less to be cash equivalents. Comprehensive Income: A statement of comprehensive income (loss) has not been
included, per SFAS No. 130, Reporting Comprehensive Income, as the Company
has no items of other comprehensive income. Comprehensive loss is the same as
net loss for all periods presented. Use of Estimates in the Preparation of the Financial Statements: The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results may differ
from those estimates. Recent Accounting Pronouncements: In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. This SFAS amends and clarifies financial accounting and reporting
for derivative securities and hedging activities. The Company does not have any
derivative securities or hedging activities. Accordingly, SFAS 149 has no
effect on the Companys financial position, results of operations or cash
flows. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This SFAS
changes practice in the accounting for a number of financial instruments,
including mandatorily redeemable equity instruments and certain equity
derivatives. The Company does not presently have any such financial
instruments, and accordingly SFAS 150 has no effect on the Companys financial
position, results of operations or cash flows. F-12




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##### Table of Contents



NOTE 3  PROPERTY AND EQUIPMENT As of December 31, 2003 and 2002, property and equipment consisted of the
following: 2003
    
    2002Machinery and equipment
    
    $
    896,226
    
    
    $
    996,109Furniture and fixtures
    
    
    142,171
    
    
    
    149,003Transportation
    
    
    199,423
    
    
    
    275,566Leasehold improvements
    
    
    586,899
    
    
    
    480,536Construction in process
    
    
    21,813,357
    
    
    
    20,495,982Total
    
    
    23,638,076
    
    
    
    22,397,196Accumulated depreciation
    
    
    (834,620
    )
    
    
    (701,878
    )Property and equipment, net
    
    $
    22,803,456
    
    
    $
    21,695,318
 Depreciation and amortization on assets placed in service amounted to $238,347
and $246,440 for the years ended December 31, 2003 and 2002, respectively. Certain assets are pledged as collateral on debt and capital leases (see Notes
5 and 6). NOTE 4  RELATED PARTY TRANSACTIONS In December 2002, the Company entered into an agreement with its chief
executive officer and principal stockholder, pursuant to which the Company
leased approximately 300 acres of farmland in Okeechobee County (the
Okeechobee Land) in exchange for approximately $6,000 per month. The
agreement also provided the Company with the option, exercisable by the
Company at any time in its sole discretion, to purchase the property at a purchase price equal to $901,462 (which represents the purchase
price paid by the officer for the property), increased to give effect to the
percentage change in the CPI from the date of the purchase of the property by
the officer to the date of the purchase of the property by the Company. During 2003, the officer sold the property to an unrelated third
party, effectively terminating the above agreement. As of December 31, 2002, the Company was owed $12,700 by its chief executive
officer and principal stockholder related to the purchase of an option to
purchase the Okeechobee Land. There was no formal agreement in place and no
interest was charged on the loan, which was repaid during 2003. F-13




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##### Table of Contents



NOTE 5  LONG TERM OBLIGATIONS Long term obligations as of December 31, 2003 and 2002 consisted of the
following: 2003
    
    2002Debt  Installment
notes collateralized
by vehicles and farm
equipment payable in
monthly installments
of $2,805 including
interest at rates
ranging from 0.0% to
11.9% through January
2005. Two notes were
repaid during 2003.
    
    $
    30,590
    
    
    $
    86,554Obligations under
capital leases (see
Note 6)
    
    
    368,083
    
    
    
    605,593398,673
    
    
    
    692,147Current maturities
    
    
    297,488
    
    
    
    282,669Long term portion
    
    $
    101,185
    
    
    $
    409,478
 Future maturities of long-term debt and capital leases are as follows: 2004
    
    $
    297,4882005
    
    
    75,0252006
    
    
    26,160$
    398,673
 NOTE 6  CAPITAL LEASES The Company has entered into several lease agreements for operating and
laboratory equipment which are accounted for as capital leases expiring through
2006, payable in monthly installments of $25,109 including imputed interest at
rates ranging from 7.2% to 23.9%. During 2003, the Company repaid two lease
agreements. The assets acquired under capital leases are included in the balance sheet
under the caption Property and equipment, net as follows: 2003
    
    2002Historical cost
    
    $
    1,180,743
    
    
    $
    1,180,743Accumulated depreciation
    
    
    (132,823
    )
    
    
    (75,689
    )Net
    
    $
    1,047,920
    
    
    $
    1,105,054
 F-14




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##### Table of Contents



NOTE 6  CAPITAL LEASES (continued) Future minimum lease payments as of December 31, 2003 under capital leases are
as follows: 2004
    
    $
    303,2582005
    
    
    81,1682006
    
    
    27,438Total
    
    
    411,864Amount representing interest
    
    
    (43,781
    )Present value of net minimum lease payments (see Note 5)
    
    $
    368,083
 NOTE 7  EQUITY CAPITAL Authorized Capital: The total number of shares of capital stock which the
Company has the authority to issue is 100,000,000 shares of common stock having
a par value of $0.02 per share. All shares of common stock are identical with
each other in every respect, and the holders thereof are entitled to one vote
for each share of common stock upon all matters upon which the stockholders
have the right to vote. Split of Common Stock: The Company completed six 2 for 1 splits of its
common shares prior to the start of fiscal year 2002. In accordance with
applicable accounting rules, these splits have been retroactively applied to
all periods presented. Private Placements of Common Stock: During the year ended December 31, 2002,
the Company directly sold 280,391 shares of common stock through private
offerings that resulted in net proceeds to the Company of $5,607,820. A
principal stockholder, who was an officer and director at the time, directly
transferred 123,575 shares of his personal common stock holdings to investors
who purchased Company stock in the private offerings. These 123,575 shares
were accounted for as capital contributions to the Company, and as shares
issued to the investors in the offerings. During the year ended December 31, 2003, the Company directly sold 877,005
shares of common stock through private offerings that resulted in net proceeds
to the Company of $5,537,700. The Companys two principal stockholders, each
of whom was an officer and director at the time, directly transferred 265,530
shares of their personal common stock holdings to investors who purchased Company stock in the private offerings. These
265,530 shares were accounted for as capital contributions to the Company, and
as shares issued to the investors in the offerings. NOTE 8  NET LOSS PER COMMON SHARE For the years ended December 31, 2003 and 2002, basic and diluted weighted
average common shares include only common shares outstanding, as the Company
does not have F-15




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##### Table of Contents



NOTE 8  NET LOSS PER COMMON SHARE (continued) 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: 2003
    
    2002Common shares outstanding
    
    
    69,431,788
    
    
    
    68,554,783Effect of weighting
    
    
    (550,228
    )
    
    
    (148,805
    )Weighted average common shares outstanding
    
    
    68,881,560
    
    
    
    68,405,978
 NOTE 9  INCOME TAXES A summary of income taxes for the years ended December 31, 2003 and 2002 is as
follows: 2003
    
    2002Currently payable (refundable):Federal
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    Deferred tax (benefit) provision
    
    
    (1,016,289
    )
    
    
    (1,642,116
    )Income tax (benefit) provision
    
    
    (1,016,289
    )
    
    
    (1,642,116
    )Change in valuation allowance
    
    
    1,016,289
    
    
    
    1,642,116Total 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 relate to the following: 2003
    
    2002Net operating loss carryforward
    
    $
    5,375,947
    
    
    $
    4,442,890R&D credit carryforward
    
    
    200,516
    
    
    
    175,904Other
    
    
    (9,746
    )
    
    
    (68,366
    )Valuation allowance
    
    
    (5,566,717
    )
    
    
    (4,550,428
    )Net deferred income tax asset
    
    $
    
    
    
    $
    
 There are no significant deferred tax liabilities. The Company has used a
combined estimated federal and state tax rate of approximately 38.5% for all
deferred tax computations. The tax benefit prior to the allowance differs from
the Federal statutory rate of 34% primarily because of permanent differences,
the effect of state income taxes, and the effect of the R&D tax credits. F-16




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##### Table of Contents



NOTE 9  INCOME TAXES (continued) The Company has tax net operating loss carryforwards which are available to
offset future federal taxable income. These operating losses, and their year
of expiration, are as follows: 2016
    

    $
    545,3212017
    
    
    880,4902018
    
    
    665,3012019
    
    
    1,756,3922020
    
    
    1,785,7882021
    
    
    1,909,0062022
    
    
    4,011,2572023
    
    
    2,426,378Total
    
    $
    13,979,933
 The Company also has research and development credit carryforwards of $200,516
and $175,904 as of December 31, 2003 and 2002, respectively, 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 a significant
change in ownership interest. Management believes that such an ownership
change has not occurred, and it does not expect the future use of its net
operating loss carryover to be significantly limited. NOTE 10  COMMITMENTS AND CONTINGENCIES Operating Leases: The Company has entered into several operating leases for
the rental of operating equipment, land, and laboratory and office facilities.
The terms of the leases expire in various years through 2006. Future minimum
lease payments under these leases are as follows: 2004
    
    $
    327,9602005
    
    
    294,8192006
    
    
    204,860$
    827,639
 F-17




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##### Table of Contents



NOTE 10  COMMITMENTS AND CONTINGENCIES (continued) Rent expense amounted to $507,597 and $451,050 for the years ended December 31,
2003 and 2002, respectively. Vegetative and Wood Waste Agreements: In May 2001 the Company entered into an
agreement with St. Lucie County, Florida to process vegetative waste for
compensation of $17 per ton. The agreement also required the Company to, at
its expense, design, construct, start-up, shakedown and test a Landfill Gas
Combustion System to put the countys landfill gas to productive use by June
2004. Beginning in June 2003, the Company began paying St. Lucie County
$11,583 per month for the use of its landfill gas. The term of the agreement
was for twenty years from the date of operation of the Landfill Gas Combustion
System. In September 2003, the Company entered into an agreement to terminate,
by mutual consent, the agreement to construct the Landfill Gas Combustion
System and purchase landfill gas, but continue processing vegetative waste
until January 31, 2003 for compensation of $17 per ton. In February of 2004,
the Company entered into an agreement with St. Lucie County to process
vegetative waste for compensation of approximately $17 per ton for a period of
five years. In September 2000, the Company entered into an agreement with the Indian River
County Board of County Commissioners to remove vegetative and wood waste from
the countys landfill site for compensation determined on a per ton basis. The
agreement expired in September 2003. Dairy Farm Waste Agreement: In June 1999 the Company entered into an agreement
with a local dairy farm (Larson Dairy) to remove animal waste from two barn
sites and lagoons, approximating twenty-four tons per day, which the Company intends to
process at its Okeechobee 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 (6) acres of land on
which the Company is constructing its facility to process the waste. The
agreement is for an initial term of 5 years commencing 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. Litigation: From time to time the Company is exposed to claims and legal
actions in the normal course of business, some of which are initiated by the
Company. Management believes that the settlement or resolution of these
actions will not have a material effect on the financial position or results of
operations of the Company. NOTE 11  SUBSEQUENT EVENTS From January 1, 2004 through March 16, 2004, the Company directly sold 186,250
shares of common stock through private offerings that resulted in net proceeds
to the Company of $745,000. F-18