Notes to Consolidated Financial Statements December 31, 2003

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Millennium Biotechnologies Group, Inc. (the Company or "Millennium Group"), formerly Regent Group, Inc., is a holding company for its subsidiary Millennium Biotechnologies, Inc. ("Millennium").

Millennium was incorporated in the State of Delaware on November 9, 2000 and is located in New Jersey. Millennium is a research based bio-nutraceutical corporation involved in the field of nutritional science. Millennium's principal source of revenue is from sales of its nutraceutical supplements, RESURGEX(TM) and PROSURGEX(TM) which serve as a nutritional support for immuno-compromised individuals undergoing medical treatment for chronic debilitating diseases.

The Company acquired Millennium on July 27, 2001, when it completed a merger with Millennium. In the merger, new Convertible Preferred Series D stock was issued in exchange for all the outstanding stock of Millennium. Such preferred shares were convertible into approximately 96% of the outstanding common stock of the Company at the time of issuance. Under the terms of the Agreement and Plan of Reorganization, a new wholly-owned Millennium Group subsidiary merged into Millennium. For accounting purposes, the merger has been treated as an acquisition of Millennium Group by Millennium, and a re-capitalization of Millennium. The historical financial statements prior to July 27, 2001, are those of Millennium. Subsequent to July 27, 2001, the financial statements are those of the Company and its wholly-owned subsidiary Millennium on a consolidated basis.

Principles of Consolidation

The Company's operations presently consist almost exclusively of the operations of Millennium. The consolidated financial statements include the accounts of the Company and its subsidiary from the acquisition date and/or through their respective disposition dates. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation, which includes amortization of assets under capital leases, is calculated using the straight-line method over the estimated useful lives of the assets: 3-8 years for machinery and equipment, leasehold improvements are amortized over the shorter of the estimated useful lives of the underlying lease term. Repairs and maintenance expenditures which do not extend the useful lives of related assets are expensed as incurred. For Federal income tax purposes, depreciation is computed under accelerated methods over the assets class life.

Patents

Patents are capitalized and amortized over 240 months. Amortization expense was $576 and $816 for 2003 and 2002, respectively.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Evaluation of Long-Lived Assets

Long-lived assets are assessed for recoverability on an ongoing basis. In evaluating the fair value and future benefits of long-lived assets, their carrying value would be reduced by the excess, if any, of the long-lived asset over management's estimate of the anticipated undiscounted future net cash flows of the related long-lived asset.

Revenue Recognition

Revenue is recognized at the date of shipment to customers provided that the resulting receivable is deemed probable of collection.

Advertising costs

Advertising costs are charged to operations when incurred. Advertising expense was $223,446 and $4,571 for the years ended December 31, 2003 and 2002, respectively.

Shipping and Handling Costs

Shipping and handling costs are included in cost of sales. Shipping and handling costs were $42,492 and $24,484 for the years ended December 31, 2003 and 2002, respectively.

Stock-Based Compensation

The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". The standard encourages, but does not require, companies to recognize compensation expense for grants of stock, stock option and other equity instruments to employees based on fair value. For non-employees, the fair market value of the Company's stock on the date of stock issuance or option grant is used.

Income Taxes

The Company provides for income taxes based on enacted tax law and statutory tax rates at which items of income and expenses are expected to be settled in the Company's income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. Accordingly, for Federal and state income tax purposes, the benefit for income taxes has been offset entirely by a valuation allowance against the related federal and state deferred tax asset for the year ended December 31, 2003.

Loss Per Common Share

Basic and diluted loss per common share are computed by dividing net loss by the weighted average number of common shares outstanding during the periods, giving effect retroactively to the conversion of 268,605.73 shares Series D convertible preferred stock into common shares and the reverse split on a one-for twelve basis, on April 1, 2002. Potential common shares used in computing diluted earnings per share related to stock options, warrants, convertible preferred stock and convertible debt which, if exercised, would have an anti- dilutive effect on earnings per share, have not been included.

Fair Value of Financial Instruments

For financial instruments including cash, prepaid expenses and other current assets, short-term debt, accounts payable and accrued expenses, it was assumed that the carrying values approximated fair value because of their short-term maturities.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Reclassification

Certain reclassifications have been made to prior year balances to conform to the current year's presentation.

GOING CONCERN

As shown in the accompanying financial statements, the Company incurred net losses of $4,936,860 and $3,205,419 during the years ended December 31, 2003 and 2002, respectively. In addition, the Company had a working capital deficit of $1,550,055 and a stockholders' impairment of $935,656 at December 31, 2003. The ability of the Company to continue as a going concern is dependent on increasing sales and obtaining additional capital and financing. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management's plans are to continue discussions with several potential investors to obtain additional capital in order to alleviate the situation.

CONCENTRATIONS OF BUSINESS AND CREDIT RISK

The Company maintains cash balances in several financial institutions which are insured by the Federal Deposit Insurance Corporation up to $100,000. Balances in these accounts may, at times, exceed the federally insured limits.

The Company provides credit in the normal course of business to customers located throughout the U. S. The Company performs ongoing credit evaluations of its customers and maintains allowances for doubtful accounts based on factors surrounding the credit risk of specific customers, historical trends, and other information.

PREPAID CONSULTING

Prepaid consulting was recorded in connection with common stock/warrants issued to consultants for future services and is amortized over the period of the agreement, ranging from one to three years.

PREPAID INTEREST

Prepaid interest was recorded in connection with common stock warrants issued to short-term note holders and is amortized over the period of the notes which are all six months.

ACQUISITIONS AND MERGERS

On July 27, 2001, pursuant to an Agreement and Plan of Reorganization, Millennium paid Regent $146,000, which was used to pay certain indebtedness of Millennium. In addition, in November and December, 2001, the Company paid off pre-merger Millennium Group liabilities of $91,640. Each share of common stock of Millennium was converted into preferred Series D shares of Millennium Group at a rate of .025 preferred shares for each common share of Millennium. Each of these preferred Series D shares is convertible into 641.215 common shares of Millennium and is entitled to 641.215 votes. The preferred Series D shares have been converted into common shares on April 1, 2002.

Due from employees                   $16,590

Total                                $16,590
                                     =======

Raw Materials                       $206,574
Work in Process                       10,485
Finished Goods                       142,078
Packaging                             43,772
                                     402,909
Less: Reserve for losses             102,993
  Total                             $299,916
                                    ========

Furniture                           $ 46,127
Equipment                             28,881
Leasehold improvements                61,757
     Subtotal                        136,765
Less accumulated depreciation         68,726
     Total                          $ 68,039
                                    ========

Depreciation expense charged to operations was $30,771 and $ 24,226 for the years ended December 31, 2003 and 2002, respectively.

Accounts payable                  $  688,634
Accrued interest                      27,927
Accrued professional fees            403,832
Accrued advertising                   49,146
Miscellaneous accruals               212,381

                                  $1,381,920
                                  ==========

Non-interest bearing cash advances by three accredited investors due               $ 149,690
on demand.

Promissory  note dated  December  17, 2002,  originally  for $50,000
issued to an  accredited  investor,  maturing  September  28,  2003,
bearing  interest  at the rate of 10% per  annum.  The holder of the
note is entitled to convert  all or a portion of the  principal  and
interest at any time after the  maturity  date into shares of common
stock of the Company at a price equal to $.10/share of the principal
if the  principal  and interest is not fully repaid on or before the                  25,000
maturity  date.  Management  has repaid $25,000 in December 2003 and
subsequently  agreed to convert the  remaining  $25,000  into equity
pursuant to the terms of the note. The Company issued 125,000 5-year
common stock purchase  warrants in  conjunction  with the note which
were exercised at a rate of $0.01 per share.  The computed  discount
(computed  with  Black-Scholes)  related  to  the  detachable  stock
purchase warrants has been fully amortized.

Two non-interest bearing convertible promissory notes dated July 15,
2002,  issued to two  accredited  investors  originally at $200,000,
maturing  July 15,  2003,  convertible  at the option of the holders
into common  shares at the rate of  $1.50/share.  $82,000 was repaid
and payment on the balance has been extended through July 2004. This                 118,000
loan  has  been  subsequently   converted  into  337,143  shares  of
commonstock in 2004 at a reduced conversion rate of $0.35 per share.
The loan was originally collateralized by a security interest in the
proceeds  from the sale of 2002 from the sale of 2002 net  operating
losses under the State of New Jersey Tax Transfer Program.

Promissory  note dated  October 17, 2002 in the amount of  $125,000,
bearing interest at 12% per annum,  originally maturing February 17,
2003 less  discount.  The 12% interest per annum  accrued to date on
the principal  amount  outstanding  is to be paid weekly with 25% of                  83,747
all cash receipts received by the Company. The Company issued 70,000
3-year common stock purchase warrants  exercisable at $.50 per share
in  conjunction  with the note and has  recorded a discount  for the
fair market value  (computed under  Black-Scholes)  for the warrant.
The maturity date on the note was extended to September 17, 2003 and
subsequently to March 26, 2004.

Promissory  convertible  note dated February 21, 2003,  issued to an
accredited  investor  originally  due on August  21,  2003,  bearing
interest at 8% per annum payable in stock.  The note was extended to                  10,000
December  31, 2004 and was made  non-interest  bearing.  The note is
convertible  into restricted  common shares at the rate of $0.25 per
share, at the option of the holder.

Promissory note dated March 5, 2003, bearing interest payable in the
form of 100,000  shares of  restricted  common  stock,  issued to an
accredited  investor and originally maturing April 5, 2003. The note                 150,000
was initially extended to October 5, 2003. The note was subsequently
extended to March 26, 2004 bearing 12% interest per annum.

Senior  Secured  Promissory  Note dated  December  19, 2003  bearing
interest at 12% per annum,  maturing on May 15,  2004.  Subsequently
management  negotiated an extension of the due date through June 15,
2004. A 1%  origination  fee was paid related to the funding of this
note at the time of closing.  The note was accompanied with warrants                 300,000
to purchase  300,000  shares of common  stock at a rate of $0.78 per
share.  This execution price was  subsequently  reduced to $0.45 per
share to allow  for the one  month  extension  in 2004.  The note is
secured by a first-priority  security  interest in substantially all
of the Company's tangible and intangible assets.

Convertible  Promissory Note to an accredited investor dated May 20,
2003, maturing May 20, 2004, bearing interest at a rate 8% per annum
payable in restricted  shares of common stock at a rate of $0.25 per
share.  The note is  convertible  at the option of the  holder  into                  30,000
restricted  shares of common stock at a rate of $0.25 per share. The
note is  collateralized  by a security interest in proceeds from the
sale of 2003 net operating  losses under the State of New Jersey Tax
Transfer Program.

Convertible  Promissory Note to an accredited investor dated June 4,
2003,  initially  matured December 15, 2003 when the holder extended
the  terms  of the  note  through  December  15,  2004.  The note is
non-interest  bearing  and the  holder was  issued  6,000  shares of
common stock as an  origination  fee. An  additional  30,000  common
stock  purchase  warrants  exercisable  at a rate of $0.25 per share                  25,000
were issued in  consideration  for the note  extension.  The note is
convertible  into  shares of  restricted  common  stock at a rate of
$0.25 per share. The note is  collateralized  by a security interest
in proceeds  from the sale of 2003 net  operating  losses  under the
State of New Jersey Tax Transfer Program.

Convertible  Promissory Note to an accredited  investor dated August
8, 2003,  maturing August 8, 2005, bearing no interest.  The note is                  50,000
convertible into restricted  shares of common stock at the option of
the holder at a rate of $0.25 per share.

Convertible  promissory  note  dated  July 3,  2003  originally  due
December  31,  2003,  bearing  interest  at 12% per year  payable in
restricted  common stock,  extended  through  December 31, 2004. The
note is convertible at the option of the holder into common stock at                  50,000
the rate of $0.20 per share.  The note was initially  collateralized
by a  security  interest  in  proceeds  from  the  sale of 2003  net
operating losses under the State of New Jersey Tax Transfer Program.

Two promissory  notes issued to two  accredited  investors in August
2003, maturing February 26, 2004. The notes are non-interest bearing                  60,000
and were  accompanied  by the issuance of 75,000  restricted  shares
each.
                                                                                   1,051,437
Less Discount for Warrants  issued in  association  with  Promissory                (172,854)
Notes:

Total Short Term Debt                                                             $  878,583
                                                                                  ==========

One non-interest bearing Promissory Note dated May 20, 2003 maturing
May 20,  2005  convertible  at the option of the holder  into common              $    5,000
shares at a rate of $0.25/share.

One Promissory Note dated August 11, 2003, maturing August 11, 2005,
bearing  8%  interest  payable  in form of stock  purchase  warrants
valued at $0.25 per share.  The note is convertible at the option of                  25,000
the holder into common  shares at the rate of  $.25/share.  The note
was  accompanied  by the  issuance  of 50,000  3-year  common  stock
purchase  warrants  exercisable at $0.50 per share and is secured in
the form of a first lien on a Company patent.

Ten non-interest bearing convertible notes dated between October 22,
2002 and  December  30,  2002  issued to ten  accredited  investors,
maturing between October 22, 2004 and December 30, 2004, convertible                  78,750
at the  option  of the  holders  into  common  shares at the rate of
$.25/share.

Two promissory  notes issued to two accredited  investors dated July
31, 2002 and maturing on July 26, 2004. The notes are convertible at                  50,000
the option of the holder into common  stock at the rate of $0.25 per
share.

                                                                                     158,750
Less Discount for Warrants  issued in  association  with  Promissory                 (18,532)
Notes
                                                                                     140,218
Less Current Maturities                                                              128,750
Total Long Term Debt                                                              $   11,468
                                                                                  ==========

                                   Year Ended December 31,
                                   -----------------------
                                       2003        2002
State current provision (benefit)   $(230,146)  $(131,538)

State deferred provision (benefit)         --          --

                                    $(230,146)  $(131,538)
                                    =========   =========

In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey Net Operating Loss ("NOL") Carryover and Research and Development Tax Credits ("R&D Credits") to corporate taxpayers in New Jersey. The Company entered into an agreement under which it retained a third party broker to identify a buyer for Millennium's 2001 and 2002 NOL Carryovers. The total tax benefit of this transaction was $230,146 in 2003.

The Company's total deferred tax asset and valuation allowance are as follows:

                                        Year Ended December 31,
                                      -------------------------
                                          2003          2002

Total deferred tax asset, noncurrent  $ 3,952,000   $ 1,981,000

Less valuation allowance               (3,952,000)   (1,981,000)

Net deferred tax asset, noncurrent    $        --   $        --
                                      ===========   ===========

The difference between income tax benefits in the financial statements and the tax benefit computed at the combined state and U. S. Federal statutory rate of 40% are as follows:

                           Year Ended December 31,
                           -----------------------

                                2003    2002

Tax benefit                      40%     40%

Valuation allowance              40%     40%

Effective tax rate               --      --
                               ======  ======

At December 31, 2003, the Company has available approximately $9,880,000 of net operating losses to carryforward and which may be used to reduce future federal taxable income and expire between December 31, 2020 and 2023.

At December 31, 2003, the Company has available approximately $6,854,000 of net operating losses to carryforward and which may be used to reduce future state taxable income which expire December 31, 2010.

The Company and Millennium file separate tax returns and have different tax years. The Company files on a fiscal year ended July 31; Millennium has a calendar year end.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

INCOME TAX (Continued)

At July 31, 2001, the Company had a net operating loss ("NOL") carryforward of approximately $11,126,000 for tax purposes expiring in the years 2003 through 2021. The Tax Reform Act of 1986 provided for a limitation

on the use of NOL carryforwards, following certain ownership changes. As a result of transactions in the Company's stock during the year ended July 31, 1999 and July 31, 2001, a change in ownership of greater than 50%, as defined, had occurred. Under such circumstances, the potential benefits from utilization of tax carryforwards may be substantially limited or reduced on an annual basis. Accordingly, the Company has not reflected any benefit of such net operating loss carryforward in the deferred tax asset and valuation allowance computation.

EMPLOYMENT AGREEMENTS

Pursuant to an employment agreement, dated April 1, 2001, between Millennium and the Company's President and CEO, Jerry Swon, Mr. Swon is entitled to a base salary of $150,000 per year during the first calendar year of his term of employment; $250,000 per year for the second calendar year of employment; and $300,000 per year for the third calendar year through the end of the term. In the first year of the term, payment of up to 40% of Mr. Swon's base salary shall be deferred until such time as Millennium, in its reasonable judgment, has the financial resources to pay such deferred compensation. In addition to a base salary Millennium shall pay a discretionary bonus, payable annually during each year of the term, at the sole and exclusive discretion of Millennium. Mr. Swon also receives a monthly expense allowance.

Pursuant to an employment agreement, dated April 1, 2001, between Millennium and the Company's Secretary and COO, Bruce Deichl, Mr. Deichl is entitled to a base salary of $150,000 per year per year during the first calendar year of his term of employment; $250,000 per year for the second calendar year of employment; and $300,000 per year for the third calendar year through the end of the term. In the first year of the term payment of up to 40% of Mr. Deichl's base salary shall be deferred until such time as Millennium, in its reasonable judgment, has the financial resources to pay such deferred compensation. In addition to a base salary Millennium shall pay a discretionary bonus, payable annually during each year of the term, at the sole and exclusive discretion of Millennium. Mr. Deichl also receives a monthly expense allowance.

Pursuant to a five year employment agreement, dated May 18, 2001, with Millennium, Carl Germano was appointed Senior Vice President of New Product Development & Research. He is entitled to a base salary of $200,000 per year. In addition to the base salary Millennium will pay Mr. Germano a bonus equal to .008 of the gross proceeds from the sales of RESURGEX(TM) each calendar quarter and a bonus equal to .008 of the gross profits of other Millennium products. He also received options to purchase 26,365.6 shares of D Preferred Stock at $20 per share with 20% vested upon the signing of the employment agreement and the balance vest 20% per year. Mr. Germano also receives a monthly automobile allowance.

Pursuant to a three year employment agreement, dated May 1, 2001, with Millennium, John Swon was appointed Vice President of Business Development. He is entitled to a base annual salary of $50,000 during the first year with 10% annual increases each year thereafter. In addition to the base salary, Millennium will pay Mr. Swon a bonus equal to .01663 of the gross proceeds from the sales of RESURGEX(TM) and a bonus equal to .01663 of the gross profits of other Millennium products. He also received options to purchase 6,250 shares of D Preferred Stock at $20 per share.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

EMPLOYMENT AGREEMENTS (Continued)

Pursuant to a three year employment agreement, dated May 1, 2001, with Millennium, Jerry T. Swon was appointed Assistant Vice President of Marketing and Sales. He is entitled to a base annual salary of $50,000 during the first year with 10% annual increases each year thereafter. In addition to the base salary, Millennium will pay Mr. Swon a bonus equal to .01663 of the gross proceeds from the sales of RESURGEX(TM) and a bonus equal to .01663 of the gross profits of other Millennium products. He also received options to purchase 6,250 shares of D Preferred Stock at $20 per share.

CAPITAL STOCK

a) Preferred Stock

Convertible Series B preferred shares ("Series B") are non-dividend bearing, and are convertible into shares of the Company's common stock at any time at the option of the holder and are subject to adjustment in accordance with certain anti-dilution clauses. Cumulative Series C preferred shares ("Series C") are not convertible but are entitled to cumulative cash dividends at the rate of $.65 per share per annum, payable in each year commencing the year after all the shares of Series B are retired. Convertible Series D preferred shares ("Series D") are non-dividend bearing and are convertible into shares of the Company's common stock at the option of the Company and are subject to adjustment in accordance with certain anti-dilution clauses. Pursuant to the Agreement and Plan of Reorganization with Millennium, 237,049.7 Series D shares were issued in exchange for all outstanding common stock of Millennium. An additional 4,148.8 shares were issued in July 2001 at prices between $24.00 and $36.00 per share to four individual accredited investors.

b) Voting Rights

The holders of Series B and Series C preferred stock have no voting rights. Each share of common stock is entitled to one vote and each share of Series D preferred stock is entitled to 641.215 votes.

c) Dividend Restrictions

No cash dividends may be declared or paid on the Company's common stock if, and as long as, Series B preferred stock is still outstanding or there are dividends in arrears on outstanding shares of Series C preferred stock. No dividends may be declared on Series C shares if, and as long as, any Series B shares are outstanding.

                                            Convertible  Cumulative  Convertible
                                              Series B    Series C     Series D

Number of common shares to be issued upon
  conversion of each preferred share              10           None    641.215

Redemption price and involuntary
  liquidation value per preferred
  shares (if redeemed, ranking would be
  Convertible Series D then ,
  Convertible Series B then

Cumulative Series C) $2.00 $10.00 (1) $ 1.00

(1) Plus any dividend in arrears.

Because the Series B preferred stock had mandatory redemption requirements at the time of its issuance (which are no longer applicable), these shares are stated at redemption value. Series B shares are stated at par value.

OPTIONS AND WARRANTS

The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" (FAS No. 123). Accordingly, no compensation cost for employees has been recognized for the stock options and warrants awarded.

In February 2000, Millennium adopted its 2001 Stock Option Plan ("The 2001 Plan"). The 2001 Plan provides that certain options granted thereunder are intended to qualify as "Incentive Stock Options" (ISO) within the meaning of Section 422A of the United States Internal Revenue Code of 1986, while non-qualified options may also be granted under the Plan. The Plan provided for the grant of options for up to 500,000 shares. The purchase price per common stock deliverable upon exercise of each ISO shall not be less than 100% of the fair market value of the common stock on the date such option is granted. If an ISO is issued to an individual who owns, at the time of grant, more than 10% of the total enhanced voting power of all classes of Millennium's common stock, the exercise price of such option shall be at least 110% of the fair market value of the common stock on the date of grant and the term of the option shall not exceed five years from the date of grant. The purchase price of shares subject to non-qualified stock options shall be determined by a committee established by the Board of Directors with the condition that such prices shall not be less than 85% of the fair market value of the common stock at the time of grant. Millennium had no options issued pursuant to this Plan as of December 31, 2003.

The granting of the following Company stock options was not under a formal stock option plan.

                                                                     December 31, 2003                December 31, 2002
                                                                                 Weighted                           Weighted
                                                                                  Average                           Average
                                                                   Shares        Exercise            Shares         Exercise
                                                                                   Price                              Price
     Options outstanding -
        beginning of year                                         1,538,920          $0.36          1,538,920          $0.36
     Options exercised                                                   --             --                 --             --
     Options granted                                                     --             --                 --             --
     Options cancelled                                                   --             --                 --             --
       Options outstanding -
         end of year                                              1,538,920          $0.36          1,538,920          $0.36
                                                                                     -----                             -----
     Option price at end of year                                                     $ .36                             $ .36

OPTIONS AND WARRANTS, Continued

     Option price range for
       exercised shares                                                 N/A            N/A                N/A            N/A
     Options available for
       grant at end of year                                             N/A            N/A                N/A            N/A

     Warrants outstanding - beginning of year                     4,783,565          $0.55          4,166,416          $0.54
     Warrants exercised                                             651,361           0.15            125,000           0.01
     Warrants granted                                             4,950,592           0.31            742,149           0.56
     Warrants expired                                                    --             --                 --             --

       Warrants outstanding - end of year                         9,082,796          $0.43          4,783,565          $0.55
                                                                                     -----                             -----
     Warrants price range at end of year                                          $0.17 - $3.00                     $.37 - $3.00

     Warrants price for
       exercised shares                                                           $ .01 - $ .17                        $0.01
     Warrants available for
       grant at end of year                                             N/A            N/A                N/A            N/A

                                                                   December 31, 2003             December 31, 2002

                                                               Weighted                      Weighted
                                                               Average        Weighted       Average        Weighted
                                                               Exercise       Average        Exercise       Average
                                                                Price        Fair Value       Price        Fair Value
Weighted average of options and warrants granted
during the year whose exercise price exceeded fair
market value at the date of grant (1)                           $0.61           $0.50          $  --         $  --

Weighted average of options and warrants granted
during the year whose exercise price was less than
fair market value at the date of grant (1)                      $0.24           $0.53          $0.56          1.01

(1) Does not include warrants issued to previous holders of Millennium warrants whose securities have been exchanged for securities of the Company in accordance with the terms of the Merger Agreement.

The following table summarizes information about fixed-price stock options and warrants outstanding at December 31, 2003.

                            Number              Average                                  Number
Range of Exercise       Outstanding at         Remaining            Weighted         Exercisable at         Weighted
      Prices             December 31,         Contractual           Average           December 31,           Average
                             2003                Life            Exercise Price           2003           Exercise Price
  $0.04 - $0.37            6,939,040           2.6 years           $ 0.30              6,939,040           $      0.30

  $0.50 - $0.78            3,518,509           2.5 years             0.55              3,518,509                  0.55

  $2.65 - $3.00              164,167           3.2 years             2.77                164,167                  2.77

                                                                                      10,621,716            10,621,716
                                                                                      ==========           ===========

If the Company had used the fair value based method of accounting for its employee stock options, as prescribed by Statement of Financial Accounting Standards No. 123, compensation cost in net loss for the years ended December 31, 2003 and 2002 would have increased by $0 and $258,706, respectively, resulting in net loss of $4,936,860 and $3,464,125 net of tax, respectively, and loss per share of $.22 and $.21, respectively. The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend, 0%; risk-free interest rate, 5%; expected volatility, 125%; and expected life (in years) of 5.0.

Total compensation cost recognized in the income statement for stock-based employee compensation awards was $607,522 and $16,687 in 2003 and 2002, respectively.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

OPERATING LEASE COMMITMENTS

The Company leases certain office space and equipment under operating leases.

The Company's previous administrative facilities were located in approximately 2,200 square feet of leased office space in Bernardsville, New Jersey, as to which Millennium entered into a 5 year lease, starting January 1, 2001. The lease was for a monthly rent of $5,807 plus allocated expenses and was personally guaranteed by certain officers of the Company. The Company was released from this lease in June, 2003.

On October 2001, the Company signed a 5-year lease commencing in December 2002, for approximately 4,500 square feet of office space in Bernardsville, NJ at a monthly rental of $9,116 through November, 2004 and $9,876 thereafter, plus an allocated portion of certain operating expenses. The lease is personally guaranteed by the Company's Chief Executive Officer Jerry E. Swon.

The following is a schedule of future minimum rental payments (exclusive of allocated expenses) required under operating leases that have initial or non-cancelable lease terms in excess of one year as of December 31, 2003:

   Year Ending December 31,
   ------------------------
             2004                             $110,152
             2005                              118,512
             2006                              118,512
             2007                              108,636
             2008                                    -
Total minimum payments required               $455,812
                                              ========

Rent expense for the Company under operating leases for the years ended December 31, 2003 and 2002 was $167,622 and $69,977, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2003, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement covers restructuring type activities beginning with plans initiated after December 31, 2002. Activities covered by this standard that are entered into after that date will be recorded in accordance with provisions of SFAS No. 146. The adoption of SFAS No. 146 did not have a significant impact on the Company's results of operations or financial position.

In April 2003, the FASB issued SFAS Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities", which amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. Most provisions of this Statement should be applied prospectively. The adoption of this statement is not expected to have a significant impact on the Company's results of operations or financial position.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

NEW ACCOUNTING PRONOUNCEMENTS (continued)

In May 2003, the FASB issued SFAS Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities, if applicable. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The adoption of this statement is not expected to have a significant impact on the Company's results of operations or financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The adoption of FIN 46 did not have a significant impact on the Company' results of operations or financial position.

RELATED PARTY TRANSACTIONS

On January 11, 2001 Millennium entered into an Investment and Assignment Agreement with David Miller, a founding shareholder of the Company. Pursuant to the agreement, Mr. Miller assigned to Millennium all of his rights, title and interest to all formulations, material and technologies made, invented or developed by him which relate in any way to nutraceutical supplements and also granted Millennium the exclusive right to patent and trademark any such inventions. In consideration of the assignment, Millennium issued 2,671,729 shares of its common stock to Mr. Miller and granted to him a perpetual royalty equal to 3.33% of the gross sales of RESURGEX(TM) AND PROSURGEX(TM) and 3.3% of the gross profit from the sale of any additional products of Millennium. No royalties have been paid so far, however, the royalties have been accrued in the books of the Company.

On January 11, 2001 Millennium entered into Royalty and Investment Agreements with Jane Swon (spouse of Jerry E. Swon) and P. Elayne Wishart (spouse of Bruce Deichl). Pursuant to such agreements, Ms. Swon and Ms. Wishart were each issued 4,007,594 shares of Millennium common stock for consideration of $25,000 each. In addition, Ms. Swon and Ms. Wishart each paid Millennium $25,000 for a perpetual royalty pursuant to which they are each entitled to 3.3% of the gross sales of RESURGEX(TM) and PROSURGEX(TM) and 3.3% of the gross profit from the sale of any additional products. No royalties have been paid so far, however, the royalties have been accrued in the books of the Company. The $50,000 consideration is being amortized over 10 years to additional paid-in-capital.

Millennium retained the services of David Miller, a principal stockholder, pursuant to a consulting agreement, dated May 1, 2001 to advise and assist it on sales, marketing and the development of its customer base and products. The term of the agreement is for three years commencing on May 1, 2001 unless terminated as provided for in the agreement. Mr. Miller is to receive an annual compensation of $48,000 and received options to purchase 200,380 shares of common stock.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

RELATED PARTY TRANSACTIONS (continued)

On October 30, 2002, the board of directors of the Company approved a resolution pursuant to which the exercise price of warrants for the purchase of a total 533,332 shares of the common stock of the Company, held by four directors, was reduced from $3.00 to $0.50.

Between September 6, 2002 and December 28, 2002 a corporate entity owned by P. Elayne Wishart (spouse of Bruce Deichl) extended loans evidenced by promissory notes totaling $142,500 to the Company. The notes all matured in six months and carried an interest rate of 10% per annum and were accompanied by the issuance of 284,085 restricted common shares for origination fees. Four such notes aggregating $72,500 matured in March, 2003 and were extended for an additional six months twice at the same interest rate. In conjunction with the extension an additional 113,733 shares were issued along with 13,110 shares in lieu of $3,750 interest accrued on some of the original notes. One note for $70,000 matured in June, 2003 and was extended for an additional six months at the same interest rate. In conjunction with the extension an additional 106,606 shares were issued along with 10,606 shares in lieu of $3,500 interest accrued. The same note for $70,000 matured in December 2003 and was extended for an additional six months at the same interest rate. In conjunction with the extension an additional 106,606 shares were issued, along with 10,606 shares in lieu of $3,500 interest accrued. At December 31, 2003, $123,060 of such loans were outstanding which are secured by an interest in certain patents of the Company and any unemcumbered assets of the Company. The Company has also granted as security an assignment of certain licensing agreements. In addition there were certain operating expenses paid by Millennium and charged back to this entity in the amounts of $19,491 and $63,495 for the years ended December 31, 2003 and 2002, respectively.

The Company participates in the Tax Transfer Program of New Jersey, a program that allows technology and biotechnology companies to sell their New Jersey operating losses. The Company is engaged in a contract with Tax Transfer Corp. of New Jersey, a corporate entity owned by P. Elayne Wishart (spouse of Bruce Deichl), where Tax Transfer Corp. is a coordinator for this transaction.

During the quarter ended September 30, 2003, two officers of the Company agreed to convert an aggregate $501,632 in accrued and unpaid salaries into 1,929,478 restricted common shares. During the quarter ended December 31, 2003, an officer of the Company agreed to convert an aggregate of $89,594 in accrued and unpaid salaries into 255,983 restricted common shares.

CONVERTIBLE NOTES

At December 31, 2003 the Company had an aggregate of $441,750 payable in twenty-one convertible notes of which $336,750 are non-interest bearing, $55,000 bear interest at 8% per annum, and $50,000 bear interest at 12% per annum. These notes are due between July 15, 2004 and December 30, 2004. The terms of the Company's convertible notes generally provide that the holder of the note is entitled, at its option at any time on or before the maturity date, to convert all or a portion of the principal amount into shares of common stock of the Company at a fixed price. The holding period for the shares would be one year from the funding of the convertible note.

The Company follows EITF 98-5 in accounting for convertible notes with "beneficial conversion features" (i.e., the notes may be converted into common stock at the lower of a fixed rate at the commitment date or a fixed discount to the market price of the underlying common stock at the conversion date). Because the Company's convertible notes contained a beneficial conversion feature on the date of issuance, the Company measured and recognized the intrinsic value of the beneficial conversion feature of the convertible notes when the convertible notes were issued. During the years ended December 31, 2003 and 2002, interest expense of $108,014 and $155,400, respectively, was recognized as the intrinsic value of the beneficial conversion feature of the convertible notes that were issued during such periods.

Millennium Biotechnologies Group, Inc. and Subsidiary Notes to Consolidated Financial Statements

MAJOR VENDORS

For the sourcing of raw materials, procurement of inherent specialty ingredients, manufacture of bulk product; quality control and testing; and contact research assistance, the Company has retained the services of one vendor.

COMMITMENTS

On July 25, 2001, Millennium entered into an exclusive limited patent sublicense and distribution agreement with Isocell SA, a French company, which owns the rights to certain specialty ingredients. Pursuant to the License Agreement, Millennium is granted an exclusive sublicense to promote and distribute this product for use as a dietary supplement or functional food in certain defined medical market channels of distribution in North America involving direct sales of nutraceutical products to physicians for resale to their patients or through physician prescription for Medicaid/Medicare reimbursement for nutritional supplements.

The License Agreement provides for the sale of the product to Millennium at stated unit prices subject to volume discounts. The term of the agreement is for five years, provided that Isocell may cancel the license (or make it non-exclusive) in the event that Millennium purchases of the product do not meet scheduled minimum quotas for any calendar quarter during the term. In such event, Millennium may avoid termination of the license by paying 50% of the prescribed purchase minimum. Payments of $277,283 were made under the terms of this agreement for the year ended December 31, 2003 and are included in selling, general and administrative expenses. As of December 31, 2003 the Company has no outstanding minimum purchase commitments under this Agreement.

LITIGATION

As of December 31, 2003, the Company is a plaintiff in an action concerning the Company's refusal to issue 110,000 shares of common stock and 110,000 common stock purchase warrants to the successor of a consultant as consideration. The shares and warrants are in dispute given that the services were not performed as a result of his death.

SUBSEQUENT EVENTS

During the first quarter of 2004 the Company had obtained equity capital totaling $478,000 through new private placement transactions with fourteen accredited investors. The Company issued an aggregate of 1,028,500 shares of common stock in consideration for the capital.

The Company obtained an additional $100,000 in working capital through the extension of a 12% Senior Senior Secured Promissory Note held by an accredited investor. In consideration for the extension, the Company reduced the execution price of 300,000 common stock purchase warrants issued to the investor from $0.78 per share, to $0.45 per share. The investor was also issued 60,000 shares of restricted common stock in consideration for the extension.

The Company entered into a factoring agreement for select accounts receivable in the first quarter of 2004 in order to generate additional working capital. The terms of the factoring agreement are: (i) 2.25% fee for the first 30 days a factored invoice is outstanding; and (ii) 0.075% for each day after the initial 30 day period until the invoice is outstanding for 150 days. The Company is obligated to repurchase the receivable after this 150 day period.