BioNeutral (BONU) 10-Q 2009 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2009

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

OR

For the transition period from        to

Commission file number 333-153920

BIONEUTRAL GROUP, INC.

(Exact name of small business issuer as specified in its charter)

Nevada	26-0745273
State or other jurisdiction of	(IRS Employer
Incorporation or organization	Identification Number)
211 Warren  Newark, New Jersey	07103
(Address of principal executive offices)	(Zip Code)

(973) 286-2899

(Issuer’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 R    No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer                    £                                                                                                                Accelerated filer                                 £

Non-accelerated filer                       £                                                                                                                 Smaller reporting Company             R

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o   No R

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes £    No £

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of June 24, 2009, 62,314,500 common shares issued and outstanding.

BIONEUTRAL GROUP, INC.

TABLE OF CONTENTS

	Page
Part I — Financial Information	1
Item 1 — Financial Statements	1
Consolidated Balance Sheets as of April 30, 2009 (Unaudited) and October 31, 2008	1
Unaudited Consolidated Statements of Operations for the Three and Six Months Ended April 30, 2009 and April 30, 2008	2
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended April 30, 2009 and April 30, 2008	3
Notes to Consolidated Financial Statements	4
Item 2 — Management’s Discussion and Analysis or Plan of Operation	12
Item 3 — Quantitative and Qualitative Disclosures About Market Risk	15
Item 4T  — Controls and Procedures	15
Part II — Other Information	16
Item 1 — Legal Proceedings	16
Item 1A — Risk Factors	16
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3 — Defaults Upon Senior Securities	16
Item 4 — Submission of Matters to a Vote of Security Holders	16
Item 5 — Other Information	16
Item 6 —Exhibits	16

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

BIONEUTRAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	April 30, 2009 (Unaudited)			October 31, 2008
ASSETS
Current Assets
Cash	$	70,776		$	85,938
Total Current Assets		70,776			85,938
Property & Equipment (Note 4)		1,259			1,457
Patents (Note 5)		11,748,637			7,228,792
Other Assets		1,250			1,250
TOTAL ASSETS	$	11,821,922		$	7,317,437
LIABILITIES & SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts Payable and Accrued Expenses (Note 6)	$	611,385		$	481,981
Warrant Liability (Note 8)		-			1,069,750
Related Party Payable (Note 7)		63,013			88,416
Total Current Liabilities		674,398			1,640,147
TOTAL LIABILITIES		674,398			1,640,147
Minority Interest in Consolidated Subsidiaries (Note 11)		1,426,539			1,024,751
Commitments & Contingencies (Note 12)
Shareholders’ Equity (Note 9)
Preferred Stock, $.00001 par value; 10,000,000 shares authorized, 0 and 279,991 shares issued and outstanding at April 30, 2009 and October 31, 2008, respectively		-			3
Common Stock, $.00001 par value; 200,000,000 shares authorized, 62,314,500 and 22,841,415 shares issued and outstanding at April 30, 2009 and October 31, 2008, respectively		623			228
Deferred Stock Based Compensation		(10,411,371	)		-
Shares to be Issued		25			6
Additional Paid-in Capital		92,579,932			74,097,713
Accumulated Deficit		(72,448,224	)		(69,445,411	)
Total Shareholders' Equity		9,720,985			4,652,539
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	11,821,922		$	7,317,437

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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BIONEUTRAL GROUP, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended April 30,						Six Months Ended April 30,
	2009			2008			2009			2008
Net Sales	$	-		$	-		$	-		$	-
Cost of Sales		-			-			-			-
Gross Profit (Loss)		-			-			-			-
Operating Expenses
Stock Based Compensation		1,002,084			104,022			2,711,999			689,369
Depreciation and Amortization		167,829			137,445			316,530			287,855
Consulting Fees		114,637			3,000			331,247			38,400
Other Operating Expenses		136,550			9,875			304,612			42,118
Total Operating Expenses		1,421,100			254,342			3,664,388			1,057,742
Loss From Operations		(1,421,100	)		(254,342	)		(3,664,388	)		(1,057,742	)
Other Income and Expenses		(925	)		(6,827	)		186			(26,270	)
Loss From Operations Before Minority Interest		(1,422,025	)		(261,169	)		(3,664,202	)		(1,084,012	)
Minority Interest in Subsidiary Net Loss		256,676			47,141			661,389			195,664
Net Loss	$	(1,165,349	)	$	(214,028	)	$	(3,002,813	)	$	(888,348	)
Loss Per Common Share
Basic and Diluted	$	(0.02	)	$	(0.01	)	$	(0.03	)	$	(0.05	)
Weighted Average Shares Used to Compute Basic and Diluted Loss Per Common Share		62,314,500			17,721,415			115,984,641			17,621,359

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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BIONEUTRAL GROUP, INC.

STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED APRIL 30, 2009 AND 2008

(Unaudited)

	2009			2008
CASH USED IN OPERATING ACTIVITIES
Net Loss	$	(3,002,813	)	$	(888,348	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities
Stock Based Compensation		2,711,999			689,369
Depreciation and Amortization		316,530			287,855
Minority Interest in Subsidiary Loss		(661,389	)		(195,664	)
Loss on Sale of Marketable Securities		-			30,804
Changes in Operating Assets and Liabilities
Decrease in Other Current Assets		-			354
Increase in Accounts Payable and Accrued Expenses		129,404			431,300
NET CASH USED IN OPERATING ACTIVITIES		(506,269	)		355,670
CASH USED IN INVESTING ACTIVITIES:
Expenditures for Patentable Technology and Associated Patent Costs		(105,927	)		(386,220	)
NET CASH USED IN FINANCING ACTIVITIES		(105,927	)		(386,220	)
CASH PROVIDED BY FINANCING ACTIVITIES:
Net Proceeds From Issuance of Stock		600,000			-
Proceeds From Related Party Payables		-			31,065
Repayment of Related Party Payables		(2,966	)		-
NET CASH PROVIDED BY FINANCING ACTIVITIES		597,034			31,065
NET (DECREASE) INCREASE IN CASH		(15,162	)		515
BEGINNING CASH		85,938			1,046
ENDING CASH	$	70,776		$	1,561
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash Paid for Interest	$	–		$	-
Cash Paid for Income Taxes	$	–		$	–
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION
Issuance of Common Stock to Cancel Promissory Note Debt	$	20,000		$	-
Issuance of Common Stock and Preferred Stock in Exchange for Intellectual Property Rights	$	4,730,250		$	-

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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BIONEUTRAL GROUP, INC.

FOOTNOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED APRIL 30, 2009 AND 2008

NOTE 1 - NATURE OF BUSINESS

BioNeutral Group, Inc. (the "Company") is a specialty chemical company, organized to commercialize a novel combinational chemistry-based technology which can neutralize harmful environmental contaminants, toxins and dangerous micro-organisms including bacteria, viruses and spores. The formulations include natural and common ingredients which are found in traditional food products. The Company combines these widely-used compounds in various ways to create unique chemical formulations. The Company’s proprietary platform technology has been proven effective in surface, water and airborne applications. The products include BioNeutralizers and ChemoNeutralizers. BioNeutralizers, based on the proprietary Ygiene™ platform formulation, disinfect, decontaminate and sterilize. The Company believes it has the broadest-based, fastest acting, most effective and safest anti microbial known. This class of products has important applications for consumers, healthcare and the military. ChemoNeutralizers, based on the Ogiene™ formula, irreversibly bind chemical contaminants and toxin molecules and render them harmless. Product applications include industrial pollution, environmental contaminants, and protection against chemical weapons of mass destruction.

Financial Statements Presented

On January 30, 2009, the Company entered into a Share Exchange Agreement and agreed to issue 45,000,000 shares of its common stock in exchange for 81.95% of the outstanding common stock and Series A Convertible Preferred Stock, on a combined basis, of Bioneutral Laboratories Corporation USA (“Bioneutral Laboratories”).  This transaction was accounted for as a reverse acquisition. Bioneutral Group, Inc., formerly known as Moonshine Creations, did not have any operations and majority-voting control was transferred to Bioneutral Laboratories.  The transaction also requires a recapitalization of Bioneutral Laboratories. Since Bioneutral Laboratories acquired a controlling voting interest; it was deemed the accounting acquirer, while Bioneutral Group, Inc. was deemed the legal acquirer.

Since the transaction is considered a reverse acquisition and recapitalization, the guidance in SFAS No. 141 does not apply for purposes of presenting pro-forma financial information.

In connection with the reverse acquisition and recapitalization, all share and per share amounts will be retroactively restated.

The historical financial statements of the Company will be those of Bioneutral Laboratories, and of the consolidated entities from January 30, 2009, the date of merger, and subsequent.  The consolidated financial statements for the Company for the six months ended March 31, 2009 and March 31, 2008, include the financial statements of Bioneutral Group, Inc., its 81.95% owned subsidiary, Bioneutral Laboratories, and its two wholly owned subsidiaries, Advanced Bio-Fiber Treatments Corporation and Environmental Commercial Technology Corporation. Intercompany transactions and balances are eliminated in consolidation.

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q.  They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for a complete financial presentation. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary for a fair presentation, have been included in the accompanying unaudited financial statements.  Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.  The Company’s accounting policies and certain other disclosures are set forth in the notes to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended October 31, 2008 as filed with the United States Securities and Exchange Commission on June 22, 2009. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at 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.

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements, prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America, include the assets, liabilities, revenues, expenses and cash flows of the Company and all its subsidiaries. The accompanying consolidated financial statements reflect necessary adjustments not recorded in the books and records of the Company’s subsidiaries to present them in conformity with GAAP.

Subsidiaries	State and Countries Registered In		Percentage of Ownership
Bioneutral Laboratories Corporation USA		Delaware, United States of America		81.95	%
Advanced Bio-Fiber Treatments Corporation		Nevada, United States of America		100.00	%
Environmental Commercial Technology Corporation		Delaware, United States of America		100.00	%

NOTE 3 – GOING CONCERN

The Company’s financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the normal course of business. The Company had cumulative losses of $(72,448,224) as of April 30, 2009 and negative cash flows from operations during the six months ended April 30, 2009 of $(506,269). The ability of the Company to operate as a going concern depends upon its ability to obtain outside sources of working capital. Management is aware of these requirements and is undertaking specific measures to address these liquidity concerns. Notwithstanding the foregoing, there can be no assurance that the Company will be successful in obtaining financing, that it will have sufficient funds to execute its business plan or that it will generate positive operating results. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consisted of the following: 

	April 30, 2009
Computer Hardware	$	4,233
Furniture and Fixtures		1,493
Less: Accumulated Depreciation and Amortization		(4,467	)
	$	1,259

NOTE 5 - PATENTS

The Company has several patents pending on proprietary chemical formulations capable of neutralizing noxious chemicals and eliminating harmful microbes.  The Company capitalized the costs of acquired technology, know-how and trade secrets and identifiable costs incurred to develop, file and defend the Company’s patents and new patent or provisional patent applications.  Patent costs incurred by the Company to date are as follows:

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	April 30, 2009
Valuation of Stock Issued for Patent Rights	$	50,186,989
Direct Labor and Contract Services for Testing and Support		1,309,535
Cost of Equipment and Component Materials		83,198
Professional Fees		305,787
Cash Paid for Patent Rights		100,000
Overhead Allocated		41,135
Travel		25,000
Liabilities Forgiven		(386,817	)
Total Cost		51,664,827
Impairment Loss Previously Recorded on December 31, 2006		(35,068,000	)
Cost, October 31, 2008		16,596,827
Accumulated Amortization		(4,848,190	)
Net Cost, October 31, 2008	$	11,748,637

The Company follows SFAS 142 and amortizes the costs of its patents over the specific useful life of the patents, or 20 years. Amortization expense was $316,332 for the six months ended April 30, 2009.

NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of April 30, 2009:

	April 30, 2009
Accrued Compensation	$	324,500
Other Liabilities		286,885
	$	611,385

NOTE 7 – RELATED PARTY TRANSACTIONS

The Company issued 20,000 shares of the Company’s common stock to a former member of the Company’s Board of Directors to cancel outstanding loans of $20,000 owed to him.  In connection with the stock issuance, the individual also agreed to forgive interest on the loan of approximately $2,200.

NOTE 8 – WARRANT LIABILITY

On January 29, 2009, the Company and Bioneutral Laboratories Limited (“BLL”), an unaffiliated entity, agreed to terminate the September 14, 2005 agreement between the Company and BLL.  The Company and BLL further agreed that the Company would be granted all remaining rights held by BLL to manufacture, market, distribute and sell products and applications utilizing the Company’s technology, know-how and trade secrets in specific geographic locations within Asia, Australasia and the Pacific Islands.  To consummate the transaction, BLL agreed to cancel warrants to purchase 1,500,000 shares of the Company’s common stock, which are classified as warrant liability in the balance sheets and valued at $1,069,750.  Concurrently, the Company issued BLL 600,000 shares of the Company’s common stock valued at $600,000 and 520,000 shares of Convertible Series A Preferred Stock valued at $5,200,000.

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NOTE 9 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue 210,000,000 shares, in aggregate, consisting of 200,000,000 shares of common stock, $0.00001 par value, and 10,000,000 shares of preferred stock, $0.00001 par value. The Company's current Certificate of Incorporation authorizes the Board of Directors (the “Board”) to determine the preferences, limitations and relative rights of any class or series of preferred stock prior to issuance.  Each such class or series must be given distinguishable designated rights prior to issuance. As of April 30, 2009, 0 shares of the Company’s Preferred Stock and 62,314,500 shares of the Company’s common stock were issued and outstanding.

Stock Based Compensation

During the six months ended April 30, 2009, the Company issued 13,123,370 of the Company’s common stock, valued at $13,123,370 for compensation to consultants, member of the Company’s board of directors, and officers of the Company for services provided to the Company.

NOTE 10 – TAXES

United States of America

Since the Company has had operating losses since inception, there is no provision for corporate income taxes in the United States of America. Therefore, there are no deferred tax amounts as of April 30, 2009 and October 31, 2008, respectively.

Nevada

The Company is incorporated in Nevada but does not conduct business in Nevada. Therefore, the Company is not subject to corporate income tax.

SFAS 109, Accounting for Income Taxes, which requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of “temporary differences” by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.

The Company is not in discussions with any tax authorities whereby any settlements over past due taxes are in progress.

The Company's net deferred tax asset as of April 30, 2009 consisted of the following:

	April 30, 2009
Net operating loss carry forward	$	26,587,000
Valuation allowance		(26,587,000	)
Net deferred tax asset	$	––

The net operating losses generated in the six months ended April 30, 2009 will begin to expire in 2028.  The Company has recorded a full allowance against its deferred tax assets due to the fact that the likelihood of any benefit being derived by the Company in future years is indeterminable as of the date of these consolidated financial statements.

The components of current income tax expense for the six months ended April 30, 2009, consisted of the following:

	April 30, 2009
Current federal tax expense	$	––
Current state tax expense		––
Change in NOL benefits		304,000
Change in valuation allowance		(304,000	)
Income tax expense	$	––

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The following is a reconciliation of the provision for income taxes at the United States federal income tax rate to the income taxes reflected in the statement of operations:

	April 30, 2009
Tax expense (credit) at statutory rate-federal		(35%)
State tax expense net of federal tax		(6%)
Changes in valuation allowance		41%
Tax expense at actual rate		0%

NOTE 11 – MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES

Minority interest represents the minority stockholders’ proportionate share of 18.05% (2008 – 18.05%) of the equity of Bioneutral Laboratories Corporation USA. The Company’s 81.95% controlling interest requires that Bioneutral Laboratories Corporation USA’s operations be included in the Consolidated Financial Statements. The 18.05% (2008 – 18.05%) equity interest of Bioneutral Laboratories that is not owned by the Company is shown as “Minority interests in consolidated subsidiaries” in the financial statements is shown as $1,426,539 and $1,024,751, respectively.

	April 30, 2009		October 31, 2008
Minority Interest in Consolidated Subsidiaries	$	1,426,539	$	1,024,751

NOTE 12 – COMMITMENTS & CONTINGENCIES

Operating Leases

On August 1, 2008, the Company entered into a twelve month lease agreement for its office space in Newark, New Jersey. The following table summarizes the Company’s future minimum lease payments under operating lease agreements for the five years subsequent to April 30, 2009:

Twelve Months Ended:
April 30, 2010		7,948
	$	7,948

Litigation

We may be involved from time to time in ordinary litigation that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against the Company or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

Searchhelp, Inc. Royalty Rights

On February 3, 2004, the Company’s subsidiary, ECT, entered into an agreement with Searchhelp, Inc. (“Searchhelp”).  Searchhelp paid cash and issued shares of its common stock and stock warrants to the Company and ECT in order to acquire a royalty equal to 5% of the gross sales of a product ECT was developing.  The product, which has not been commercially released and has not been approved by the Environmental Protection Agency ("EPA") in the USA, was intended to prevent the growth of mold and fungus.  The agreement with Searchhelp was for a 5 ½ year term.  The Company cannot currently estimate any liability it may have with regard to Searchhelp.  However, should this product eventually be released, the Company would fulfill its obligations under the February 3, 2004 agreement.

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Contingent Share Issuance

­           The Company has an outstanding verbal commitment to its Chief Scientist such that if and when the Company gains approval from the EPA for a product or application which utilizes its patented chemical formulations, the Chief Scientist will immediately be awarded 555,822 shares of the Company’s common stock.  The Company cannot be sure beyond a reasonable doubt that these shares of common stock will ever be awarded.  As such, the Company will not record stock based compensation expense until the issuance of these shares of common stock are actually earned.  The value of such stock based compensation would be measurable on the date the shares of common stock are earned.

NOTE 13 – SUBSEQUENT EVENTS

On March 24, 2009, the Company's subsidiary, Advanced Bio-Fiber Treatments Corp. entered into a non-binding letter of intent to acquire Orient Arts, Inc., a manufacturer of fibers, textiles and finished goods.  As of June 22, 2009, the Company is still in the process of negotiating terms with Orient Arts, Inc. and is unsure whether or not this acquisition will be consummated.

On May 20, 2009, the Company and its Chief Financial Officer renegotiated the Chief Financial Officer's consulting agreement.  The Chief Financial Officer previously received a total of 82,585 shares of the Company's common stock and was entitled to annual cash compensation of $60,000.  Under the terms of the new consulting agreement, the Chief Financial Officer agreed to accept all compensation solely in the form of the Company's common stock.  A total of 300,000 shares of the Company's common stock valued at $105,000 was vested immediately on May 20, 2009.  In the next twelve months, the Chief Financial Officer can earn an additional 480,000 shares of the Company's common stock, of which 300,000 shares are subject to a twelve month vesting term and an additional 180,000 shares of the Company's common stock are subject to certain contingent events, namely the successful filing of the Company's quarterly and annual reports with the SEC.

On May 27, 2009, the Company received proceeds of $250,000 upon the issuance of 1,000,000 shares of the Company’s common stock from an individual investor.

NOTE 14 – RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which clarifies the principle that fair value should be based on the assumptions that market participants would use when pricing an asset or liability.  It also defines fair value and established a hierarchy that prioritizes the information used to develop assumptions.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The adoption of SFAS No. 157 did not have a material effect on its financial position, results of operations or cash flows.

On February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This standard permits an entity to measure financial instruments and certain other items at estimated fair value. Most of the provisions of SFAS No. 159 are elective; however, the amendment to FASB No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” applies to all entities that own trading and available-for-sale securities. The fair value option created by SFAS 159 permits an entity to measure eligible items at fair value as of specified election dates. The fair value option (a) may generally be applied instrument by instrument, (b) is irrevocable unless a new election date occurs, and (c) must be applied to the entire instrument and not to only a portion of the instrument. SFAS 159 is effective as of the beginning of the first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of the previous fiscal year provided that the entity (i) makes that choice in the first 120 days of that year, (ii) has not yet issued financial statements for any interim period of such year, and (iii) elects to apply the provisions of FASB 157. Management is currently evaluating the impact of SFAS 159, if any, on the Company’s financial statements. The adoption of SFAS No. 159 did not have a material effect on its financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of Accounting Research Bulletin No 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The adoption of SFAS No. 160 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

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In December 2007, the FASB issued SFAS 141R, “Business Combinations” (“SFAS 141R”), which replaces FASB SFAS 141, “Business Combinations”.  This Statement retains the fundamental requirements in SFAS 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141R defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  SFAS 141R will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  SFAS 141R will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.  This compares to the cost allocation method previously required by SFAS No. 141.  SFAS 141R will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, SFAS 141R will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This Statement will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption of this standard is not permitted and the standards are to be applied prospectively only.  Upon adoption of this standard, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of SFAS No. 141R is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which provided a simplified approach for estimating the expected term of a “plain vanilla” option, which is required for application of the Black-Scholes option pricing model (and other models) for valuing share options. At the time, the Staff acknowledged that, for companies choosing not to rely on their own historical option exercise data (i.e., because such data did not provide a reasonable basis for estimating the term), information about exercise patterns with respect to plain vanilla options granted by other companies might not be available in the near term; accordingly, in SAB No. 107, the Staff permitted use of a simplified approach for estimating the term of plain vanilla options granted on or before December 31, 2007. The information concerning exercise behavior that the Staff contemplated would be available by such date has not materialized for many companies. Thus, in SAB No. 110, the Staff continues to allow use of the simplified rule for estimating the expected term of plain vanilla options until such time as the relevant data becomes widely available. The Company does not expect its adoption of SAB No. 110 to have a material impact on its financial position, results of operations or cash flows.

In March 2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.” (“SFAS 161”). SFAS 161 establishes the disclosure requirements for derivative instruments and for hedging activities with the intent to provide financial statement users with an enhanced understanding of the entity’s use of derivative instruments, the accounting of derivative instruments and related hedged items under Statement 133 and its related interpretations, and the effects of these instruments on the entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company does not expect its adoption of SFAS 161 to have a material impact on its financial position, results of operations or cash flows.

In April 2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, “Determination of the Useful Life of Intangible Assets”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the impact of SFAS FSP 142-3, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.

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In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”).  SFAS 162 identifies the sources of accounting principles and the framework for selecting principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States.  This statement is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board’s amendments to AU section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.  The Company is currently evaluating the impact of SFAS 162, but does not expect the adoption of this pronouncement will have a material impact on its financial position, results of operations or cash flows.

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market For That Asset Is Not Active” (“FSP FAS 157-3”), with an immediate effective date, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends FAS 157 to clarify the application of fair value in inactive markets and allows for the use of management’s internal assumptions about future cash flows with appropriately risk-adjusted discount rates when relevant observable market data does not exist.  The objective of FAS 157 has not changed and continues to be the determination of the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date.  The adoption of FSP FAS 157-3 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

In November 2008, the Emerging Issues Task Force (EITF) reached consensus on Issue No. 08-6, Equity Method Investment Accounting Considerations (EITF 08-6), which clarifies the accounting for certain transactions and impairment considerations involving equity method investments. The intent of EITF 08-6 is to provide guidance on (i) determining the initial carrying value of an equity method investment, (ii) performing an impairment assessment of an underlying indefinite-lived intangible asset of an equity method investment, (iii) accounting for an equity method investee’s issuance of shares, and (iv) accounting for a change in an investment from the equity method to the cost method. EITF 08-6 is effective on January 1, 2009, and is to be applied prospectively. The adoption of EITF 08-6 is not expected to have a material impact on the Company’s financial position or results of operations.

In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, Disclosures by Public Entities (Enterprises) About Transfers of Financial Assets and Interest in Variable Interest Entities (FSP 140-4). FSP 140-4 requires additional disclosure about transfers of financial assets and an enterprise’s involvement with variable interest entities. FSP 140-4 was effective for the first reporting period ending after December 15, 2008. The adoption of FSP 140-4 did not have a significant impact on the Company’s consolidated financial statements and disclosures.

In April 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 141(R)-1 (“FAS 141(R)-1”), Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies. FAS 141(R)-1 amends and clarifies FASB Statement No. 141 (revised 2007), Business Combinations, to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This FSP is effective for assets or liabilities arising from contingencies in business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Management of the Company can not determine at this time what effect the adoption of FAS 141(R)-1 will have on its future consolidated results of operations and financial condition.

Other accounting standards have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR RESULTS OF OPERATIONS.

 This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as “believe,” “may,” “could,” “will,” “intend,” “expect,” “anticipate,” “plan,” and similar expressions to identify forward-looking statements, including statements regarding our ability to continue to create innovative technology products, our ability to continue to generate new business based on our sales and marketing efforts, referrals and existing relationships, our financing strategy and ability to access the capital markets and other risks discussed in our Risk Factor section included in our Form 10-K for the year ended October 31, 2008, as filed with the Securities and Exchange Commission on January 7, 2009. Although we believe the expectations expressed in the forward-looking statements included in this Form 10-Q are based on reasonable assumptions within the bounds of our knowledge of our business, a number of factors could cause our actual results to differ materially from those expressed in any forward-looking statements. We cannot assure you that the results or developments expected or anticipated by us will be realized or, even if substantially realized, that those results or developments will result in the expected consequences for us or affect us, our business or our operations in the way we expect. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

Company Overview

Company Structure

We operate our business through our subsidiary, Bioneutral Laboratories Corporation USA (“Bioneutral Laboratories”). Bioneutral Laboratories is a specialty chemical company, organized in 2003 to commercialize a novel combinational chemistry-based technology which can neutralize harmful environmental contaminants, toxins and dangerous micro-organisms including bacteria, viruses and spores.

On January 30, 2009, we entered into a Share Exchange Agreement with Bioneutral Laboratories, and the shareholders of BioNeutral Laboratories. This transaction was accounted for as a reverse acquisition. Bioneutral Group, Inc., formerly known as Moonshine Creations, did not have any operations and majority-voting control was transferred to Bioneutral Laboratories.  The transaction also requires a recapitalization of Bioneutral Laboratories. Since Bioneutral Laboratories acquired a controlling voting interest; it was deemed the accounting acquirer, while Bioneutral Group, Inc. was deemed the legal acquirer.

Since the transaction is considered a reverse acquisition and recapitalization, the guidance in SFAS No. 141 does not apply for purposes of presenting pro-forma financial information.

In connection with the reverse acquisition and recapitalization, all share and per share amounts will be retroactively restated.

The historical financial statements of the Company will be those of Bioneutral Laboratories, and of the consolidated entities from January 30, 2009, the date of merger, and subsequent.  The consolidated financial statements for the Company for the six months ended March 31, 2009 and March 31, 2008, include the financial statements of Bioneutral Group, Inc., its 81.95% owned subsidiary, Bioneutral Laboratories, and its two wholly owned subsidiaries, Advanced Bio-Fiber Treatments Corporation and Environmental Commercial Technology Corporation. Intercompany transactions and balances are eliminated in consolidation.

Pursuant to the Share Exchange Agreement, we agreed to issue to the shareholders of BioNeutral Laboratories 45,000,000 shares of its common stock. As of the Closing Date, we issued 42,649,500 shares to the shareholders of Bioneutral Laboratories.  The remaining 2,350,500 shares were issued to the preferred shareholders of Bioneutral Laboratories within 30 days of the Closing Date pursuant to a mandatory conversion feature of the preferred shares.  Additionally, at Closing, we issued 600,000 shares to six investors who purchased debentures in Bioneutral Laboratories and agreed to convert those debentures into shares of common stock per the terms of the Share Exchange Agreement.  Additionally, we issued 50,000 shares of common stock to Anslow & Jaclin, LLP as partial compensation for legal services. 

 

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Our consolidated financial statements for the six months ended April 30, 2009 and April 30, 2008, include the financial statements of us, Bioneutral Laboratories, and two wholly owned subsidiaries of Bioneutral Laboratories, Advanced Bio-Fiber Treatments Corporation and Environmental Commercial Technology Corporation. Intercompany transactions and balances are eliminated in consolidation.

Business Overview

We began operations in 2003 as a privately held company. We combine widely used compounds, including Ygiene™ and Ogiene™, in unique ways to create enhanced results. The formulations, including, Ygiene™ and Ogiene™, are green and include natural and common ingredients which are found in baby products and in the foods we eat. Our proprietary platform technology has been proven effective in surface, water and airborne applications. Our products include BioNeutralizers and ChemoNeutralizers.

Activities in recent years included securing debt and equity-based financing, development, design and marketing of our cleaning products: (i) the all-purpose cleaner; (ii) Ogiene – the toxic gas and odor eliminator; and (iii) Ygiene – an antimicrobial. The Company generated revenues of $2,041,000 in 2004 but has yet to generate consistent revenue growth or cash flows from operations.

The multi-purpose cleaner does not contain any phosphates, abrasives, alkyl phenol ethoxylates, chlorine or caustic properties. It removes spots and stains (including, fruits and vegetables, permanent marker, ball point pen ink, animal fats, dirt and grime, etc.) from surfaces such as countertops, tables, floors, clothing and vinyl siding. The Ogiene product is a chemical neutralizer that eliminates toxic gases and odors. It is water based and ph buffered to efficiently and effectively eliminate toxic gases. It is effective in eliminating industrial, institutional, household and animal odors. It is highly effective against hydrogen sulfide, ammonia, sulfur dioide and formaldehyde. In addition, Ogiene can reduce the odor from smoke, pet odors, cooking odors and bathroom odors. Our third product, Ygiene, is a bioneutralizer that fights against microbials. It is noncorrosive to ferrous metals and is easily customizable to specific applications. Ygiene can protect against bacteria such as E.coli, salmonella and anthrax by killing these microorganisms quicker than conventional antimicrobials. The Ygiene family of products can be used as sanitzers, disinfectants, cold sterilants, consumer grades, hospital grades, industrial grades and military grades.

Plan of Operations

During 2009, we intend to begin to produce and offer for resale our multi-purpose cleaners. Additionally, we expect to enter into contracts with certain governmental agencies to utilize our Ogiene product to eliminate odors and toxic gases in contaminated homes that were affected by Hurricane Katrina. We also intend to continue to develop and obtain regulatory approval on our Ygiene products.

We anticipate the sale and distribution of our initial product offering of our multi-purpose cleaner will begin during the fiscal year of 2009.

We intend to deliver brand building messages through several marketing and advertising vehicles, including television, radio, national print, online marketing and search engine optimization, and retail store promotions.

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Results of Operations

The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars. 

	Six months Ended April 30
	2009			2008
Revenues	$	–		$	–
Costs of Sales		–			–
Gross Profit		–			–
Total Operating Expenses		3,664,388			1,057,742
Loss From Operations		(3,664,202	)		(1,084,012	)
Net Loss	$	(3,002,813	)	$	(888,348	)

For the Six Months Ended April 30, 2009 Compared to the Six Months Ended April 2008

SALES AND COSTS OF GOODS SOLD: Sales and costs of good sold for the six months ended April 30, 2009 were $0 as compared to $0 for the six months ended April 30, 2008. We did not generate any sales in 2009 or 2008, respectively.

OPERATING EXPENSES: Operating expenses for the six months ended April 30, 2009 amounted to $3,664,388 as compared to $1,057,742 for the six months ended April 30, 2008. Operating expenses in 2009 consisted of $2,711,999 in stock based compensation, $316,530 in depreciation and amortization of patent costs and $331,247 in consulting fees, among others.  Operating expenses in 2008 consisted of $689,369 in stock based compensation, $287,855 in depreciation and amortization of patent costs and $38,400 in consulting fees, among others.  The Company does not have a significant amount of cash.  As a result, management expects to continue to provide compensation in the form of shares of common stock until our cash flows or cash balances are sufficient to sustain operations.  Amortization related to patent costs should remain consistent over time and will likely increase slightly each month as additional costs are incurred to develop and protect our patents and any new potential patentable claims. Consulting fees may continue to be incurred but payment could possibly be deferred until such time as we have cash or cash flow to sustain operations.

NET LOSS: Net loss for the six months ended April 30, 2009 was $3,002,813 as compared to $888,348 for the six months ended April 30, 2008 due to the reasons set forth above.  Additionally, the minority interest portion of the Company’s subsidiary losses totaled $661,389 and $195,664 for the six months ended April 30, 2009 and 2008, respectively, and is treated as a reduction of the Company’s net loss for each period presented.

BASIC AND DILUTED INCOME PER SHARE: Our basic and diluted net loss per share was $(0.03) and $(0.05) for the six months ended April 30, 2009 and April 30, 2008, respectively.

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LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 2009, our current assets were $70,776 and current liabilities were $674,398. Cash and cash equivalents totaled $70,776 as of April 30, 2009. Our Shareholders' deficit at April 30, 2009 was $72,448,224. We had cash (used in) provided by operating activities for the six months ended April 30, 2009 and 2008 of ($506,269) and $355,670, respectively. We had net cash used in investing activities of $105,927 and $386,220 for the six months ended April 30, 2009 and 2008, respectively. We had net cash provided by financing activities of $597,034 and $31,065 for the six months ended April 30, 2009 and 2008, respectively.

We are operating from a cash flow deficit funded by the issuance of debt and the sale of equity, including funding provided by the Company's Board of Directors, as necessary. Without the continued availability of external funding, we would have to materially curtail our operations and our current plans for expansion. We intend to continue funding our operations through the sale of additional equity and/or issuance of debt, though there can be no guarantee that we will be successful in our efforts.

MATERIAL TRENDS AND UNCERTAINTIES

Should our cash flow shortfalls continue, and should we be unsuccessful in raising capital, it will have an adverse impact on our business, which in turn will have an adverse impact on our financial condition and results of operations. While we are actively assessing our cash flow needs and pursuing multiple avenues of financing and cash flow generation, there can be no assurance that our activities will be successful. If our fundraising efforts are not successful, it is likely that we will not be able to meet our obligations as they come due.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 4T.  CONTROLS AND PROCEDURES

a)  Evaluation of Disclosure Controls. Our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our fiscal quarter ended April 30, 2009 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on his evaluation, the CEO concluded that our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules based on the material weakness described below:

1.   Management's conclusion is based on, among other things, the audit adjustments recorded for fiscal years 2007 and 2006, and for the lack of segregation of duties and responsibilities within the Organization.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

(b)  Changes in internal control over financial reporting.  In order to rectify our ineffective disclosure controls and procedures, we are developing a plan to ensure that all information will be recorded, processed, summarized and reported accurately, and as of the date of this report, we have taken the following steps to address the above-referenced material weaknesses in our internal control over financial reporting:

1.	We will continue to educate our management personnel to comply with the disclosure requirements of Securities Exchange Act of 1934 and Regulation S-K; and
2.	We will increase management oversight of accounting and reporting functions in the future.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We may be involved in litigation, negotiation and settlement matters that may occur in our day-to-day operations. Management does not believe the implication of this type of litigation will have a material impact on our financial statements.

ITEM 1A.  RISK FACTORS

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Pursuant to the Share Exchange Agreement, on January 30, 2009, we issued 42,649,500 shares of our common stock to the BioNeutral Shareholders in exchange for their shares of Bioneutral Laboratories.   Such securities were not registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

The remaining 2,350,500 shares were issued to the preferred shareholders of Bioneutral Laboratories within 30 days of the closing of the Share Exchange Agreement  pursuant to a mandatory conversion feature of the preferred shares. Such securities were not registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

On January 30, 2009 and as a condition to the Share Exchange, we approved the conversion of debentures in the aggregate amount of $600,000 into shares of Common Stock at a conversion rate of $1.00 per share.  The 600,000 shares were issued to six investors who each received 100,000 shares of common stock that are restricted and do not have registration rights.   Such securities were not registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

On March 13, 2009 and June 8, 2009, we issued 82,585 and 450,000 shares of common stock to James Crane as compensation pursuant to the terms of consulting agreements.  Such securities were not registered under the Securities Act of 1933. The issuance of these shares was exempted from registration pursuant to Section 4(2) of the Securities Act of 1933.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibits.
No.	Description
31.1	Certification of Stephen Browand pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of James T. Crane pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Stephen Browand  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of James T. Crane pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BIONEUTRAL GROUP, INC. (Registrant)
Date: June 24, 2009	By:	/s/ Stephen Browand
		Stephen Browand Chief Executive Officer
Date: June 24, 2009	By:	/s/ James T. Crane
		James T. Crane Principal Accounting Officer

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