Diesel Fuel Production
We are partnering with Green Power, Inc. ("Green Power") to build a 200 ton per day MSW processing station to provide biomass for an existing 100 ton per day diesel fuel production plant. Green Power has constructed a facility in Pasco, Washington capable of processing up to 100 tons of organic biomass material per day into diesel. The diesel produced is not biodiesel, but rather a high grade fuel diesel. Green Power has tested the system with wood waste and other organic matter and the results have proven superior, however it is difficult and costly to obtain long term supplies of organic matter to operate the plant on a continuous basis. We believe that the organic matter we derive from MSW (biomass and plastics) will provide an excellent feedstock for the Green Power process. The test vessel to be operated to produce biomass from Chicago MSW as described previously will be moved to Pasco, Washington within the next few weeks. We will operate this small vessel for sufficient time to enable an independent verification of the inputs and outputs to the system as well as completing a full feasibility study for the technology.
If the results from this stage of operations are successful, we plan to construct a system to process 200 tons of MSW (creating approximately 100 tons of usable biomass) daily at the Pasco plant. We anticipate the total costs to construct and operate the full system will be $4.0 million to $5.0 million. We have applied to the USDA for a grant pursuant to its Repowering America Program to offset part of this cost. Additionally, the company and Green Power have had preliminary discussions about a possible equity investment in our company in an amount that will enable us to complete this construction, regardless of whether governmental assistance becomes available.
As a result of the limited operating history of our company, prior years' financial statements provide little information and virtually no guidance as to our future performance. In order to finance our business beyond this stage, we will be required to raise additional capital. Management plans to secure additional funds through government grants, project financings and through future sales of the Company's common stock, preferred stock or debentures, until such time as the Company's revenues are sufficient to meet its cost structure, and ultimately achieve profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We may not be able to secure financing on favorable terms, or at all. If we are unable to obtain acceptable financing on a timely basis, our business will likely fail and our common stock may become worthless. Results of Operations
For accounting purposes, we treated our acquisition of SRS Energy as a recapitalization of our company. As a result, we treat the historical financial information of SRS Energy as our historical financial information. Prior to the merger, SRS Energy did not pay salary to Ed Hennessey or any other persons. All of the indebtedness of SRS Energy outstanding at the time of the merger from its operations was paid from the closing proceeds of the sale of the Series A Convertible Debentures.

General
Prior to April 2007, we had limited operations. In April 2007, we raised
$1,400,000 and commenced implementing our original plan of operations for
cellulosic ethanol. As described above, we have since commenced our plan our
operation for biomass production for multiple renewable energy uses. In
particular, we experienced the following specific changes in our operations:
Year ended December 31, 2008 compared to the year ended December 31, 2007

                                          2008            2007          Change         % Change
Costs and expenses:
General and administrative             $   568,115      $ 476,937      $  91,178              19 %
Professional fees                          430,798        279,814        150,984              54 %
Research and development                   392,471        118,230        274,241             232 %

                                         1,391,384        874,981        516,403

Other expense (income):
Interest                                   179,690         64,029        115,661             181 %
Amortization of technology license          15,000         20,000         (5,000 )           -25 %
Interest income                            (13,749 )      (21,405 )        7,656             -36 %


Net loss applicable to common
stockholders                           $ 1,572,325      $ 937,605      $ 634,720              68 %

Costs and expenses:
General and administrative - The increase in 2008 is due primarily to increased expenses of approximately $180,000 for share-based compensation and $150,000 for payroll, office and other administrative expenses offset by decreased marketing expenses and recording the fair value of $125,000 for the RAM warrant settlement in 2007.
Professional fees - The increase in 2008 is due to increased costs incurred for legal fees related to general business activities and ongoing litigation. Research and development - The increase in 2008 is due to increased costs related to the continued development of our technologies and the write-off of the balance of $97,500 for previously capitalized technology that will no longer be used.
Other expense (income):
Interest expense - The increase in 2008 is due primarily to the amortization of approximately $140,000 of discounts related to various notes and interest on those notes offset by a reduction of interest on the Series A Convertible Debentures as all except $140,000 of the $1.4 million of debentures were converted in March and April 2008.
Year ended December 31, 2007 compared to the year ended December 31, 2006

                                         2007           2006          Change         % Change
Costs and expenses:
General and administrative             $ 476,937      $  16,496      $ 460,441            2791 %
Professional fees                        279,814         47,078        232,736             494 %
Research and development                 118,230         14,000        104,230             745 %

                                         874,981         77,574        797,407

Other expense (income):
Interest                                  64,029          2,439         61,590            2525 %
Amortization of technology license        20,000              -         20,000              NM
Deposit forfeiture                             -        (25,000 )       25,000            -100 %
Interest income                          (21,405 )            -        (21,405 )            NM


Net loss applicable to common
stockholders                           $ 937,605      $  55,013      $ 882,592            1604 %

Costs and expenses:
General and administrative - The increase in 2007 is due primarily to marketing expenses, recording the fair value of the RAM warrant settlement and salary paid to our Chief Executive Officer commencing in April 2007.
Professional fees - The increase in 2007 is due to increased costs incurred for legal, consulting and accounting fees related to the private placement of the Series A Convertible Debentures, the reverse merger and an increase in general business activities.
Research and development - The increase in 2007 is due to payments made to Merrick & Company as commencement of our proof of concept/demonstration phase began during the third quarter 2007. The expense in 2006 was paid to Merrick & Company for costs associated with initial consultation regarding entering into an agreement to use Merrick & Company to test, evaluate, design and construct a pilot scale system of our technologies.
Other expense (income):
Interest expense - The increase in 2007 is due to the issuance in April 2007 of the Series A Convertible Debentures, which accrue interest at 6.0% per annum. Interest on the debentures in 2007 is approximately $60,000.
Amortization of technology license - As the proof of concept/demonstration phase began during the third quarter 2007 we have begun to amortize the technology license fees previously capitalized.
Deposit forfeiture - The forfeiture was a nonrefundable deposit in the amount of $25,000 paid to us in 2006 with respect to our negotiation of a potential transaction. After the negotiation period lapsed, we retained the deposit. Interest income - The income in 2007 is primarily interest on $450,000 of promissory notes issued to us as part of the consideration for the issuance of the Series A Convertible Debentures.
Liquidity and Capital Resources
As a development-stage company, we have no revenues and will be required to raise additional capital in order to execute our business plan and commercialize our products.
Beginning in September 2008 and as of March 24, 2009, we raised $642,000 from investors in exchange for units comprised of a convertible note and a warrant. We are continuing to explore opportunities to raise cash through the issuance of these units and other financing opportunities. As of March 27, 2009, our current cash will be sufficient to fund approximately the next one to two months. Thereafter, we anticipate requiring additional capital to continue our plan of operation. These costs will be substantially greater than our current available funds. We currently expect attempting to obtain additional financing through the sale of additional equity and/or possibly through strategic alliances with larger energy or waste management companies. However, we may not be successful in securing additional capital. If we are not able to obtain additional financing in the near-term future, we will be required to delay our development until such financing becomes available. Further, even assuming that we secure additional funds, we may never achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, we will not have sufficient capital resources to implement our business plan. Debt
Convertible Notes Payable
During September 2008, the Company commenced an offering of units comprised of a convertible promissory note and a warrant. As of December 31, 2008, the Company raised a total of $607,000 of investment proceeds. Each convertible promissory note carries a one-year term and a 6% interest rate. In addition, each note can be converted, at the note holder's option, at any time during the one-year term into shares of the Company's common stock, par value $0.001 per share (the "Common Stock"), at $0.25 per share, or prior to the closing of any Qualifying Equity Financing (minimum capital received of $5 million). Each note was issued with a warrant to purchase additional shares of Common Stock equal to the principal amount of the promissory note at a price of $0.45 per share. These promissory notes have been recorded as short-term debt (notes payable) in the financial statements, net of discounts for the conversion and warrant features. The discounts are being amortized on a straight-line basis over the term of each note. For the year ended December 31, 2008, amortization of approximately $92,000 for these discounts has been recorded in interest expense.

WWT Note Payable
On October 22, 2008, the Company completed the purchase of Patent No. 6,306,248 (the "Patent") pursuant to a Patent Purchase Agreement ("Agreement") with World Waste Technologies, Inc. ("WWT"). The Patent is the basis for the pressurized steam classification technology that cleans and separates municipal solid waste into its component parts, which the Company had licensed from Bio-Products International, Inc. Pursuant to the Agreement, the Company issued to WWT a note in the amount of $450,000 and a warrant to purchase 900,000 shares of Common Stock at a price of $0.45 per share related to the purchase of the Patent. The note matures on July 22, 2009, bears interest at 6.0% per annum and is secured by a security interest in the Patent. The warrants are exercisable at any time for five years from the date of issuance. The value of these warrants has been recorded as a contra-balance amount discount with the note and is being amortized through interest expense over the life of the note. For the year ended December 31, 2008, amortization of approximately $44,000 for this discount has been recorded in interest expense.
Note Payable
On September 15, 2008, the Company consummated the acquisition of Biomass North America Licensing, Inc. ("Biomass") pursuant to a merger between Biomass and a wholly-owned subsidiary of the Company (with Biomass as the surviving subsidiary of the Company) in accordance with an Agreement and Plan of Merger by and between the Company and Biomass. By virtue of the merger, the Company acquired a license agreement pursuant to which the Company holds a license in the United States and Canada to use patent pending technology owned by Biomass North America, LLC, the former parent of Biomass (the "Licensor"), to clean and separate municipal solid waste (the "Technology").
Upon consummation of the merger, the Company issued a promissory note in the original principal amount of $80,000 bearing interest at 6% per annum and is due April 10, 2009. If the amount due under the Note is not paid during the term of the Note, the holder has a right to receive 123,000 shares of the Company's common stock, par value $.001 per share ("Common Stock"), in addition to receiving the principal and interest due on the Note. Additionally, the Company issued to the four shareholders of the Licensor a total of 1,895,000 shares of Common Stock and deposited an additional 4,000,000 shares of Common Stock into an escrow account (collectively, the "Shares"). The Shares were issued as part of the merger consideration received by the shareholders of the Licensor. The escrowed shares will be released to the Licensor's shareholders if and when the Company commences a commercial development that utilizes the Technology. Series A Convertible Debentures
In April 2007, the Company sold $1,400,000 of Series A Convertible Debentures ("Debentures"), due April 16, 2010, that convert into shares of the Company's common stock at $.15 per share. The Company filed a registration statement with regard to the sale of these shares of common stock, which was declared effective by the Securities and Exchange Commission on January 2, 2008. The debentures accrue interest at 6% per annum. The interest is payable in cash or shares of the Company's common stock at the Company's option. The Debenture Holders can convert their amount into shares at any time until the due date. The maximum number of shares that would be issued at the due date is 11,013,333. During March 2008, various debenture holders converted an aggregate amount of $630,000 of our Debentures, plus interest earned, into 4,433,067 shares of our common stock. During April 2008, various debenture holders converted an aggregate amount of $630,000 of our Debentures, plus interest earned, into 4,455,844 shares of our common stock. These transactions converted in the aggregate $1,260,000 of our Debentures, leaving $140,000 remaining to be converted. As of December 31, 2008, $140,000 of our Debentures remained outstanding and eligible for conversion.

Summary of Cash Flow Activity

                                                  For the Years Ended December 31,
                                                  2008            2007          2006
  Net cash used by operating activities       $   (866,285 )   $ (715,165 )   $ (85,471 )
  Net cash used by investing activities           (200,180 )       (3,355 )           -
  Net cash provided by financing activities      1,042,726        838,856        84,914

Net cash used by operating activities
During 2008, cash used by operating activities was impacted primarily by increases in accounts payable and other accrued liabilities. Net cash used by investing activities
During 2008, cash used by investing activities was for the acquisition of a patent, the merger of Biomass North America Licensing, Inc. and capital expenditures. Investing activities in 2007 was for capital expenditures. Net cash provided by financing activities During 2008, cash provided by financing activities was primarily from the issuance of our Convertible Notes for $607,000 and the remaining portion of the Series A Convertible Debentures plus interest of $474,900. During 2007, cash provided by financing activities was from the Series A Convertible Debentures of $950,000 offset by repayments of advances to related parties. Contractual Obligations and Commitments
In the table below, we set forth our obligations as of December 31, 2008. Some of the figures we include in this table are based on our estimates and assumptions about these obligations, including their durations, anticipated actions by third parties and other factors. The obligations we may pay in future periods may vary from those reflected in this table because of estimates or actions of third parties as disclosed in the notes to the table.

                                                             Payments due by Period
                                             Less than 1                                                 More than
                               Total             year           1 to 3 years        4 to 5 years          5 years
Convertible Notes (1)       $   643,420      $    643,420      $            -      $            -      $           -
WWT Note (2)                    470,250           470,250                   -                   -                  -
Note Payable (2)                 46,600            46,600                   -                   -                  -
Series A Convertible
Debentures (3)                  140,000                 -             140,000                   -                  -
Capital Lease (4)                12,150             5,400               6,750                   -                  -
Operating Lease (5)              43,200            21,600              21,600                   -                  -

Total contractual
obligations                 $ 1,355,620      $  1,187,270      $      168,350      $            -      $           -

(1) Amount represents value of principal amount of notes and estimates for interest. These notes are with various individuals, carry one-year terms and are convertible into shares of the Company's common stock at the noteholders option

(2) Amount represents value of principal amount of note and interest through term of note.

(3) Debentures are convertible at Company's option into shares of the Company's common stock.

(4) Represents lease on office furniture.

(5) Represents lease for office space. The lease is for three years from occupancy date of January 2008.

Additionally, we have the following commitment that will require us to make payments as set forth below:
Merrick & Company. We have entered into an engagement agreement with Merrick & Company to develop a complete project management plan. For the years ended December 31, 2008 and 2007, we incurred approximately $118,000 and $104,000, respectively, for engineering, design and consulting services. In 2008, we completed our initial project plan with Merrick & Company. We intend to continue to engage Merrick & Company on an as needed basis as we proceed with engineering review and testing of our technologies.

Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
We have not entered into any transaction, agreement or other contractual arrangement with an unconsolidated entity under which we have:
• a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit;

• liquidity or market risk support to such entity for such assets;

• an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging, or research and development services with us.

Critical Accounting Estimates
Intangible Assets - Our acquisition and merger in 2008 have resulted in aggregate licensing assets of approximately $2.0 million. We are required to conduct impairment tests of intangible assets on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of an asset below its carrying value. As we have not commenced commercial operations, these assets have not yet been placed in service. We will conduct our impairment tests in 2009. In 2008, we determined that we are no longer going to use the Brelsford technology for which an asset was previous capitalized and partially amortized. At December 31, 2008, the net remaining asset of $97,500 was written-off through our research and development expense for the year ended December 31, 2008.
Deferred Taxes - We recognize deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. The Company incurred no income taxes to date. Any benefits are the result of temporary differences (start-up costs, stock compensation and other items) and operating loss carryforwards. The difference between the expected income tax benefit and non-recognition of an income tax benefit in each period is the result of a valuation allowance applied to deferred tax assets. A valuation allowance in the same amount of the benefit has been provided to reduce the deferred tax asset, as realization of the asset is not assured. Stock-Based Compensation - We account for stock-based compensation in accordance . . .