UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark One)





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended April 30, 2011




or





oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from  to





Commission File Number:  333-149235




BIONEUTRAL GROUP, INC.(Exact name of registrant as specified in its charter)





Nevada
26-0745273(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)





211 Warren Street,  Newark, New Jersey
07103(Address of principal executive offices)
(Zip Code)





(973) 286-2899(Registrant’s telephone number, including area code)(Former name, former address and former fiscal year, if changed since last report)





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 x  No  ̈




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes o     No o


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.  (Check one):




Large accelerated filer  ̈
Accelerated filer oNon-accelerated filer  ̈ (Do not check if a smaller reporting company)
Smaller reporting company x
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes o    No x


table of Contents





BIONEUTRALGROUP, INC.
 TABLE OF CONTENTS
 
 PagePART I - FINANCIAL INFORMATIONItem 1.
Financial Statements.
1Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
13Item 4.
Controls and Procedures.
21PART II - OTHER INFORMATIONItem 1.
Legal Proceedings.
23Item 1A.
Risk Factors.
23Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
23Item 3.
Defaults Upon Senior Securities.
23Item 4.
(Removed and Reserved).
23Item 5.
Other Information.
23Item 6.
Exhibits.
23Signature
24
 
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 PARTI— FINANCIAL INFORMATION
   ITEM1.  FINANCIAL STATEMENTS
 
 BIONEUTRAL GROUP, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
  April 30, 2011

(Unaudited)


October 31, 2010ASSETSCurrent AssetsCash

$
81,981


$
59,395Accounts Receivable


16,620



-Prepaid Expenses


-



5,236Prepaid Expenses-Related Parties


88,766



172,102Total Current Assets


187,367



236,733Property & Equipment - Net


887



993Intellectual Property - Net


10,978,238



11,254,154Other Assets


2,500



2,500TOTAL ASSETS

$
11,168,992


$
11,494,380LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent LiabilitiesAccounts Payable

$
1,368,498


$
1,244,763Accrued Compensation


821,080



725,080Related Party Payables


75,767



70,517Current Liabilities


2,265,345



2,040,360Long Term LiabilitiesConvertible Loans From Unrelated Party


153,020



50,000Convertible Loans From Directors


1,629,916



575,402Convertible Loans From Stockholders


51,000



920,244Total Long Term Liabilities


1,833,936



1,545,646TOTAL LIABILITIES


4,099,281



3,586,006Commitments & ContingenciesEquity:BioNeutral Group, Inc. Stockholders’ EquityCommon Stock, $.00001 Par Value; 200,000,000 shares authorized, 78,181,391 shares and 74,643,115 shares issued and outstanding at April 30, 2011 and October 31, 2010 respectively.


781



746Additional Paid-in Capital


57,815,313



57,099,519Accumulated Deficit


(51,202,111
)


(49,762,192
)Total Bioneutral Group, Inc. Stockholders’ Equity


6,613,983



7,338,073Non controlling Interest


455,651



570,217Preferred Stock, $.001 par value; 5,000,000 shares authorized, with 800,000 designated as follows


-



-Convertible Preferred Stock, Series A, $.001 par value; 800,000 shares authorized, 76,828 and 83,762 shares issued and outstanding at April 30, 2011 and October 31, 2010 respectively.Preference Liquation Value $1,384,827 at April 30, 2011 and $1,509,810 at October 31, 2010 included in Non controlling interest


77



84Total Non controlling Interest


455,728



570,301Total Equity


7,069,711



7,908,374TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
11,168,992


$
11,494,380
 
 See Notes to Condensed Consolidated Financial Statements
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  BIONEUTRAL GROUP, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
 Three Months Ended April 30,

(Unaudited)


Six Months Ended April 30,

(Unaudited)2011


2010


2011


2010Revenues

$
16,612


$
-


$
17,926


$
-Cost of Revenues


12,526



-



13,167



-Gross Profit


4,086



-



4,759



-Operating ExpensesDepreciation and Amortization


176,374



173,651



352,452



346,588Other Selling, General and Administrative Expenses


793,968



942,368



1,135,138



2,247,200Total Operating Expenses


970,342



1,116,019



1,487,590



2,593,788Loss from Operations


(966,256
)


(1,116,019
)


(1,482,831
)


(2,593,788
)Interest Expense


(37,415
)


(20,792
)


(71,654
)


(31,672
)Net Loss Before Income Taxes


(1,003,671
)


(1,136,811
)


(1,554,485
)


(2,625,460
)Provision for Income Taxes


-



-



-



-Net Loss


(1,003,671
)


(1,136,811
)


(1,554,485
)


(2,625,460
)Loss Attributable to Non-controlling Interest


74,026



153,289



114,566



354,021Net Loss Attributable to BioNeutral Group, Inc.

$
(929,645
)

$
(983,522
)

$
(1,439,919
)

$
(2,271,439
)Net Loss Per Common Share - Basic and Diluted

$
(0.01
)

$
(0.02
)

$
(0.02
)

$
(0.04
)Weighted Average Number of Common Shares outstandingBasic and Diluted Loss per Share


76,296,134



60,877,290



76,393,450



60,863,012
  See Notes to Condensed Consolidated Financial Statements
  2
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  BIONEUTRAL GROUP, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
  Six Months Ended April 30,2011


2010Unaudited


UnauditedCASH FLOWS FROM OPERATING ACTIVITIESNet Loss

$
(1,554,485
)

$
(2,625,460
)Adjustments to Reconcile Net Loss To Net Cash Used inOperating ActivitiesStock Based Compensation


83,336



157,632Depreciation and Amortization


352,452



346,588Issuance of Stock related to professional services


398,322



-Interest added to promissory notes


63,290



30,281Changes in Operating Assets and LiabilitiesAccounts receivable


(16,620
)


-Prepaid Expenses


5,236



69,708Accounts Payable and Accrued Expenses


143,305



754,540Related Party Payables- Director


5,250



53,578NET CASH USED IN OPERATING ACTIVITIES


(519,914
)


(1,213,133
)CASH FLOWS FROM INVESTING ACTIVITIESExpenditures for Patentable Technology and Associated Patent Costs


-



(1,654
)NET CASH USED IN INVESTING ACTIVITIES


-



(1,654
)CASH FLOWS FROM FINANCING ACTIVITIESNet Proceeds From Issuance of Stock


317,500



50,000Proceeds from Loan from Stockholder


-



100,000Proceeds from Exchangeable Promissory Notes


225,000



1,250,000NET CASH PROVIDED BY FINANCING ACTIVITIES


542,500



1,400,000NET INCREASE IN CASH


22,586



185,213CASH, BEGINNING OF PERIOD


59,395



139,663CASH, END OF PERIOD

$
81,981


$
324,876SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONSUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATIONNon-cash Intellectual Property Cost Additions

$
76,430


$
104,272Non-cash Accrual of Stock Based Director Fees

$
12,605


$
-
 
 See Notes to Condensed Consolidated Financial Statements
  3
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  BioNeutral Group, Inc.
 
 Notes to the Condensed Consolidated Financial Statements (Unaudited)
 
 Note 1 - Nature of Business & Organization
 
 BioNeutral Group, Inc. (the “Company”) is a specialty chemical corporation seeking to develop and commercialize a novel combinational chemistry-based technology which it believes, in certain circumstances, may neutralize harmful environmental contaminants, toxins and dangerous micro-organisms including bacteria, viruses and spores. The Company currently operates its business through its subsidiary, BioNeutral Laboratories Corporation USA (“BioNeutral Laboratories” or “BioLabs”), a corporation organized in Delaware in 2003. The Company was incorporated in the State of Nevada on April 10, 2007 under the name “Moonshine Creations, Inc.,” and changed its name to “BioNeutral Group, Inc.” on December 22, 2008.
 
 On January 30, 2009, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with BioNeutral Laboratories pursuant to which it agreed to issue to the shareholders of BioNeutral Laboratories 45,000,000 shares of our common stock. Upon completion of this transaction, the former shareholders of BioNeutral Laboratories became the majority stockholders of the Company. Accordingly, the transaction was accounted for as a reverse merger and recapitalization of BioNeutral Group, Inc.
 
 Note 2 – Liquidity and Financial Condition
 
 The Company's unaudited condensed financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has had no significant revenues and has generated losses from operations. In order to continue as a going concern and achieve a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent source of revenues. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish its strategic plan and/or recognize revenue from its intangible assets and eventually attain profitable operations. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. There can be no assurance the Company will be able to continue as a going concern.
 
 At April 30, 2011, the Company had negative working capital of $(2,077,978). For the six months ended April 30, 2011 the Company incurred an operating loss of $(1,554,485) and since inception has accumulated a deficit of $(51,202,111). For the same period in 2010, the Company’s net loss was $(2,625,460).  The Company anticipates it will experience a net loss in fiscal 2011 as it continues to pursue regulatory approvals for the sale and distribution of its products and development of access to global markets.
 
 The Company had $81,981 of cash at April 30, 2011.  Cash used by operations for the six months ended April 30, 2011 was $(519,914). The principal use of funds were for consulting services supporting the development of our business plan, legal and accounting fees in connection with being a public company and daily operations of the business, including rent, travel and laboratory costs.
 
 During the six months ended April 30, 2011, the Company raised $317,500 of cash from the issuance of its capital stock to fund operations and $125,000 from the issuance of convertible loans from its stockholders.  On December 15, 2010 the Company received $100,000 from the issuance of an unsecured promissory note to River Falls Financial Services, LLC.
 
 While the Company has been able to use proceeds from the sale of its shares of common stock to fund a substantial balance of its operating costs, it does not expect that its funds will be sufficient to meet its anticipated needs through May 1, 2012 and it will need to raise additional capital during fiscal 2011 to fund the full costs associated with its growth and development. The Company believes that it will be able to generate sales by the third quarter of 2011 and that it will require approximately $5,000,000 in additional capital from the sale of securities or the issuance of debt in order to achieve its goals. There can be no assurances that it will be successful in raising additional capital on favorable terms if at all. If the Company is unable to secure additional capital, it may be required to curtail its business development initiatives, impair its intellectual property and take additional measures to reduce costs in order to conserve cash.
  4
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  These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Accordingly, the accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 Note 3 - Summary of Significant Accounting Policies
 
 Basis of Presentation
 
 The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements and with Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not contain all the information and footnotes required by GAAP for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries of BioNeutral Services, Inc. and BioLabs.  Environmental Commercial Technology Corp (“ECT”) is a wholly owned subsidiary of BioLabs.  All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to make the financial position of the Company as of April 30, 2011 and the results of operations for the six months ended April 30, 2011 and 2010 and cash flows for the six months ended April 30, 2011 and 2010 not misleading. The unaudited condensed consolidated financial statements for the quarterly periods ended April 30, 2011, and April 30, 2010 should be read in conjunction with the audited financial statements for the years ended October 31, 2010 and 2009 as contained in the Form 10-K filed on February 15, 2011.
 
 Revenue recognition
 
 Sales are recognized when revenue is realized or realizable and has been earned in accordance with Securities and Exchange Staff Accounting Bulletin Topic 13. Most revenue transactions represent sales of our product that is contracted for manufacturing and shipment. The revenue recorded is presented net of sales and other taxes we collect on behalf of governmental authorities and includes shipping and handling costs, which generally are included in the list price to the customer. Our policy is to recognize revenue when title to the product, ownership and risk of loss transfer to the customer, which can be on the date of shipment or the date of receipt by the customer and collectability is reasonably assured.  A provision for payment discounts and product return allowances is recorded as a reduction of sales in the same period that the revenue is recognized.
 
 Inventory
 
 Inventories are stated at the lower of cost or market determined by the first-in, first-out method.  In the normal course of business, when a customer places an order, the Company will place an order for manufacturing with its contract manufacturer.  Once completed, the contract manufacturer will ship directly to the customer.  As such, the Company does not currently store inventoried product at any location.  In addition, the Company does not have significant sales.  If sales were to increase in the future, the Company may decide that the best course of action would be to carry inventory.
  5
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  Non-Controlling Interest
 
 A non-controlling interest was created as a result of the Company’s reorganization and recapitalization with a public shell corporation. The non-controlling interest arose because the Company’s records indicated that initially 14% of the shareholders of the accounting acquirer in the transaction, BioLabs, did not participate in the exchange of their shares of common stock of BioLabs for shares of common stock of the Company. In all material respects, the shares of the Company and the shares of the common stock of BioLabs included in the non-controlling interest represent different legal instruments conveying mirror ownership claims to the same underlying net assets and operations, as reflected in these consolidated financial statements.
 
 Use of Estimates
 
 The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities, share based payment arrangements, deferred taxes and related valuation allowances and estimating the fair value of long-lived assets to assess whether impairment charges may be necessary. Certain of our estimates, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.
 
 Net income (loss) per share
 
 The Company utilizes FASB ASC 260, Earnings per Share,to calculate gain or loss per share. Basic gain or loss per share is computed by dividing the gain or loss available to common stockholders (as the numerator) by the weighted-average number of shares of common stock outstanding (as the denominator). Diluted gain or loss per share is computed similar to basic gain or loss per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if all potential common stock (including common stock equivalents) had all been issued, and if such additional shares of common stock were dilutive. Under FASB ASC 260, if the additional shares of common stock are not dilutive, they are not added to the denominator in the calculation. Where there is a loss, the inclusion of additional shares of common stock is anti-dilutive (since the increased number of shares reduces the per share loss available to common stock holders). The Company incurred a loss for the six months ended April 30, 2011 and 2010 therefore, common stock equivalents have been excluded from the calculation of diluted loss per share.
 
 The following table outlines the common stock equivalents outstanding as of April 30, 2011 and April 30, 2010.
 
 4/30/2011


4/30/2010Convertible Series A Preferred Stock – Non Controlling Interest


768,280



2,799,910768,280



2,799,910
 
 In addition, these shares are currently held by the Non-Controlling interests until such time as they are converted into the Company’s common shares.
 
 Reclassifications
 
 Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements.  These reclassifications have no effect on previously reported loss.
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 Recent Accounting Pronouncements
 
 In March 2010, the FASB issued new accounting guidance, under ASC Topic 605 onRevenue Recognition.  This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved.  Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement.  To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement.  No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement.  The standard is effective for annual periods beginning on or after October 1, 2010.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
 
 In April 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-13, “Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades” (“ASU 2010-13”). ASU 2010-13 addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. FASB ASC Topic 718 was amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade shall not be considered to contain a market, performance or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies for equity classification. The amendments in ASU 2010-13 are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early application permitted. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
 
 In March 2010, the FASB issued ASU No. 2010-11, which is included in the Codification under ASC 815, “Derivatives and Hedging” (“ASC 815”).  This update clarifies the type of embedded credit derivative that is exempt from embedded derivative bifurcation requirements.  Only an embedded credit derivative that is related to the subordination of one financial instrument to another qualifies for the exemption.  This guidance is effective for interim and annual reporting periods beginning January 1, 2010.  The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.
 
 Note 4 - Prepaid Expenses
 
 The Company periodically pays for services supporting its business operations with shares of its common stock. When these services are provided by third parties (i.e. non-employees) and performance extends over more than the current reporting period, a prepaid asset is established at the agreement date for the value of shares issued. The prepaid asset is established in the same period and manner as if cash were paid for the underlying goods or services, pursuant to FASB ASC 505-50-25-4 and 25-6.
 
 Prepaid Expenses –Related Parties also includes $88,766 and $172,102 as of April 30, 2011 and October 31, 2010, respectively, in share based payments to a company controlled by a former director for consulting services to be provided by the company controlled by said former director. The share based payment is being amortized over a three year period, which commenced in January 2009. For the three months ended April 30, 2011 and April 30, 2010, the Company recognized expense of $41,668, and $41,668, respectively, related to this share based payments which is recorded in “Other Selling, General and Administrative Expenses.”  For the six months ended April 30, 2011 and April 30, 2010, the Company recognized expense of $83,336, and $83,336, respectively, related to this share based payments which is recorded in “Other Selling, General and Administrative Expenses.”
 
 Note 5 – Intellectual Property
 
 The Company has several patent applications pending regarding proprietary chemical formulations that the Company believes are 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 Intellectual Property and new patent or provisional patent applications (collectively “Intellectual Property”) in accordance with FASB ASC 350. Periodic gross carrying amounts and related accumulated amortization were as follows:
 
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  April 30, 2011


October 31, 2010Gross Carrying Amount

$
15,213,710


$
15,137,280Accumulated Amortization

$
(4,235,472
)

$
(3,883,126
)Net Carrying Amount

$
10,978,238


$
11,254,154
 
 The Company follows FASB ASC 350-30-35 and amortizes the costs of its Intellectual Property over the shorter of its specific useful life, or 20 years. The Company is amortizing its Intellectual Property over 20 years,with no anticipated residual value.  Amortization expense for the three months ended April 30, 2011 and 2010 was $176,374 and $173,651,respectively, and amortization expense for the six months ended April 30, 2011 and 2010 was $352,452 and $346,588,respectively.
 
 Estimated amortization expense is as follows
 
 10/31/2011 (Remaining)


357,39010/31/2012


714,78110/31/2013


714,78110/31/2014


714,78110/31/2015


714,781
 
 The Intellectual Property is evaluated annually for recoverability pursuant to FASB ASC 350-30-35-14 and related guidance in ASC 360-10-35-17 thru 35-35.  An impairment loss is recognized if the asset is determined not to be recoverable and its carrying amount exceeds its fair value. During its annual impairment testing, the Company did not identify an impairment loss.
 
 On February 28, 2011, the Company received approval and registration from the Environmental Protection Agency (“EPA”) in response to the Company's regulatory application for its Ygiene®206 formulation.
 
 Note 6 - Related Party Payables
 
 The Company recorded interest on promissory notes entered into with former members of the Board of Directors who resigned their positions with the Company on January 29, 2009.  For the six months ended April 30, 2011 and 2010, the Company recorded interest of $1,036 and $751, respectively.  For the three months ended April 30, 2011 and 2010, the Company recorded interest of $1,036 and $866, respectively.
 
 The Company and its director, Raj Pamani, are parties to a consulting agreement, dated as of June 15, 2008, pursuant to which Mr. Pamani agreed to accept responsibilities and take direction from the Company's board of directors.  Pursuant to the agreement, Pamani Foods LLC agreed to conduct market research and promote networking opportunities for sales of the Company’s products in India and certain Asian countries.  Under this agreement, we were obligated to pay Mr. Pamani $10,000 per month.  The Company and Mr. Pamani collectively agreed to terminate the agreement effective July 31, 2010.  During the three months ended April 30, 2010 the Company paid or credited and expensed $30,000 to Mr. Pamani under this agreement, which was recorded as consulting expense and recorded in a Related Party Payable account.  Mr. Pamani has charged certain personal expenses against the Company's cash account which have been treated by the Company as repayment of the Related Party Payable.
 
 On September 6, 2008, the Company entered into an agreement with Jina Partners Ltd. (“Jina”), an affiliate of Raj Pamani, for consulting services relating to the development of market research and to promote networking opportunities for sales of the Company’s products in the European Union and certain Asian countries. Under this agreement, the Company was obligated to pay Jina $10,000 per month.  The term of this agreement was for two years and expired on September 4, 2010.  During the three months ended April 30, 2010, the Company paid or credited and expensed $30,000 to Jina.
 
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  Note 7 - Stock Based Compensation
 
 The Company issues shares of its common stock to employees and non-employees as compensation for services provided. Stock based compensation related to employees is accounted for in accordance with FASB ASC 718-10 and ASC 505-50 for non-employees. All shares, except those listed below, issued during fiscal years 2010 and 2009 were fully vested upon grant of the shares or no later than the respective year end dates.
 Employees and Board Members
 
 Measurement of compensation cost related to shares of common stock issued to employees is based on the grant date fair value of the shares. Fair value was determined through the use of quoted prices in the trading market for the Company’s shares (OTCBB) or arms-length exchanges of shares for cash in private transactions, in periods that quoted market prices were not available.
 
 On January 14, 2011 the Company issued an annual grant of 85,000 restricted shares of the Company's common stock as compensation to Wayne Stratton, a non-management member of the Board of Directors for services.  The fair market value of the grant issued is $34,000 based on the closing share price of the Company’s stock as of January 14, 2011, the date of his appointment.  Payment will be made in restricted shares of the Company’s common stock, which have not been issued as of April 30, 2011.  The services are to be performed over a 12 month period beginning January 14, 2011.  For the six months ended April 30, 2011, the Company recognized an expense of $10,088 for Directors’ Fees and increased Additional Paid in Capital accordingly.
 
 On April 5, 2011 the Company issued an annual grant of 85,000 restricted shares of the Company's common stock as compensation to Michael Francis, a non-management member of the Board of Directors for services.  The fair market value of the grant issued is $34,850 based on the closing share price of the Company’s stock as of April 5, 2011, the date of his appointment.  Payment will be made in restricted shares of the Company’s common stock, which have not been issued as of April 30, 2011.  The services are to be performed over a 12 month period beginning April 5, 2011.  For the six months ended April 30, 2011, the Company recognized an expense of $2,517 for Directors’ Fees and increased Additional Paid in Capital accordingly.
 
 On February 28, 2011, the Company received approval and registration from the EPA in response to the Company's regulatory application for its Ygiene® 206 formulation.   In conjunction with the recent EPA approval and the verbal agreement entered into, the Chief Scientist earned 555,822 restricted shares of common stock on February 28, 2011.    The value of the stock based compensation is $289,027 which is based on the closing price of the Company’s common stock on February 28, 2011.  The Company issued the shares on April 18, 2011.
 
 Note 8 - Stockholder’s Equity (and Non-Controlling Interest)
 
 Common Stock
 
 During the six months ended April 30, 2011, the Company issued 1,518,450 shares of the Company’s common stock for gross proceeds of $317,500 to various investors.
 
 During the six months ended April 30, 2011, the Company issued 117,500 shares for financial advisory and accounting related services, 96,206 shares for marketing and public relations services and 1,500 shares for laboratory services of $45,525, $50,556 and $600, respectively.   The shares for services were valued and issued at the prevailing quotation prices for the Company's stock at the time of issuance.
 
 During the six months ended April 30, 2011 and in connection with the Share Exchange (as defined below), various non-controlling interests exchanged 1,054,458 shares of BioLabs common stock for the same number of shares of the Company common stock.
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  At the time of the reverse merger, the Company delivered to its transfer agent instructions to issue stock certificates in accordance with the schedule to the share exchange agreement. However, the Company did not receive share exchange consents in respect to all shares issued or receive stock certificates representing shares of BioNeutral Laboratories Corporation USA common stock for cancellation in accordance with the schedule to the share exchange agreement. This resulted in the Company’s records reflecting less common shares as being issued and outstanding than what the transfer agent’s report was reflecting. Previously, the Company disclosed “the adjustment to reconcile transfer agent records” on page 4 of its 2009 Form 10-K  by making  the following disclosure “Our transfer agent's records indicate that as of February 16, 2010, 65,618,604 shares of our common stock were outstanding and there were 111 holders of record of our common stock.  Our records, however, indicate that as of February 16, 2010, there were 60,849,200 shares of our common stock outstanding.  See Part I, Item I of this Annual Report Form 10-K for additional information.”  For the fiscal year ended October 31, 2010, the Company elected to record the difference between the transfer agent’s records and that of the Company.  Although the difference reported in 2009 was 4,769,404 shares, the final reconciled difference as of October 31, 2010 was 4,755,536 shares.  Based on the information currently available, the Company believes the accounting for these shares is final.
 
 Preferred Stock
 
 Included in stockholder’s equity is Series A Preferred Stock that is convertible into common stock of BioLabs at a rate of 10 shares of common stock for each share of preferred stock.
 
 BioLabs is authorized to issue 5,000,000 shares of preferred stock, $0.001 par value, of which 800,000 shares are designated as Convertible Series A Preferred Stock.  The BioLabs’ Certificate of Incorporation authorizes the Board of Directors 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, 2011 and October 31, 2010, 76,828 and 83,762 shares of the Company’s Series A Preferred Stock were issued and outstanding, respectively.
 
 During the fiscal year ended October 31, 2010 the Company exchanged shares with several of the BioLabs preferred and common stockholders, all of whom exchanged their shares at a ratio of 1 share of preferred stock for 10 shares of common stock and 1 to 1 common exchange, except for four preferred stockholders and common stockholders of BioLabs who were issued an aggregate of 3,598,800 shares of common stock. These four shareholders exchanged their shares at a ratio of 200 shares of common stock for 1 share of preferred stock and a 1 to 1 common share exchange. Although all of the exchanged shares are reflected in the financial statements as issued and outstanding, the issuance of shares to the four holders who exchanged at the higher exchange ratio is subject to dispute.  As a result of the above transaction, the company is disputing the issuance 2,634,730 shares of common stock. A resolution of this dispute is currently being pursued by the Company.  However the exact nature and effect of such a resolution on the financial statements of the Company is not currently known.  Therefore, the Company has no basis to estimate or quantify the effect of a resolution on its financial statements.  In this regard, a prospective resolution could ultimately produce various financial statement effects including, but not limited to a reduction in the Company’s issued and outstanding common stock and an increase to earnings per share or no effect at all.
 
 During the three months ended April 30, 2011, various holders of our preferred shares exchanged 6,934 of Series A Preferred shares into 69,340 shares of common stock at the rate of 10 common shares to one preferred share, in accordance with the term of our preferred share agreement, dated December 12, 2006.
 
 Non-Controlling Interest
 
 In connection with the reverse acquisition disclosed in Note 1, initially approximately 14% of BioLabs’ common shareholders did not participate in the exchange of their shares of BioLabs common stock for shares of common stock of the Company. Those shareholders are recognized as a non-controlling interest in the Company’s condensed consolidated financial statements in accordance with FASB ACS 805-40-25-2. The assets, liabilities and operations underlying the shares of BioLabs and the Company are identical. However, the shares representing ownership of the Company reflect the combined entity after the Share Exchange transaction, while BioLabs shares included in the non-controlling interest held by the non-controlling interest represent ownership of that legal entity.
 
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  Non-Controlling Interest at October 31, 2010

$
570,217Non-Controlling interest Share of Net Loss for the six months ended April 30, 2011

$
(114,566)Non-Controlling Interest at April 30, 2011

$
455,651
 
 The Series A Preferred Stock is not recognized in the Non-Controlling Interest. If the 76,828 shares of preferred stock were fully converted into shares of BioLabs common stock and Preferred Shareholders did not elect to exchange those shares for Company common stock, the Non-Controlling interest would be 9.19% as of April 30, 2011 and  if  83,762 shares of preferred stock were fully converted into shares of BioLabs common stock at October 31, 2010 and Preferred Shareholders did not elect to exchange those shares for Company common stock, the Non-Controlling interest would be 11.84% as of October 31, 2010.
 
 Note 9 - Related Party Transactions
 
 Related Party Transactions During the Three Months Ended April 30, 2011
 
 The Company issued an unsecured promissory note to Michael D. Francis, (“Francis”) a shareholder of the Company, on December 10, 2010, which issuance resulted in gross proceeds to the Company of $75,000.
 
 The Company issued an unsecured promissory note to Herbert Kozlov, (“Kozlov”) a shareholder of the Company, on December 6, 2010, which issuance resulted in gross proceeds to the Company of $50,000.
 
 The Francis and the Kozlov Notes are sometimes referred to herein as the “Shareholder Notes.”  For the three months ended April 30, 2011 the Shareholder Notes resulted in gross proceeds to the Company of $125,000.
 
 Each of the Shareholder Notes bears an 8% annual interest rate, is due and payable in cash on the fifth anniversary of the date of issuance, and upon consummation of a “Qualified Financing” (as defined in the note), will automatically be exchanged for, solely at the Company’s election, either (i) securities on the same terms and conditions as those received by investors in such Qualified Financing based on an assumed exchange rate reflecting the pricing used in such financing or (ii) shares of the Company’s common stock equal to the quotient obtained by dividing (x) the then outstanding principal amount of the note by (y) the lower of (i) $0.69 and (ii) the Fair Market Value (as defined in the note) of one share of the Company’s common stock as of the date of such exchange.  On each three (3) month anniversary of the issuance of the note, all accrued and unpaid interest shall be added to the unpaid principal amount of such note.  The note defines “Qualified Financing” as an investment in securities of the Company (including any financing that includes convertible indebtedness and/or warrants) occurring after the date of issuance of the note by an investor that is not an affiliate of the Company in which the Company receives net proceeds greater than $500,000 (including any additional investment by the holder of the note or by the holder of any other 8% exchangeable promissory note) in the Qualified Financing.
 
 Note 10 – Long Term Liabilities
 
 The Company issued an unsecured promissory note to River Falls Financial Services on December 15, 2010, which issuance resulted in gross proceeds to the Company of $100,000.  The note bears an 8% annual interest rate, is due and payable in cash on the fifth anniversary of the date of issuance, and upon consummation of a “Qualified Financing” (as defined in the note), will automatically be exchanged for, solely at the Company’s election, either (i) securities on the same terms and conditions as those received by investors in such Qualified Financing based on an assumed exchange rate reflecting the pricing used in such financing or (ii) shares of the Company’s common stock equal to the quotient obtained by dividing (x) the then outstanding principal amount of the note by (y) the lower of (i) $0.69 and (ii) the Fair Market Value (as defined in the note) of one share of the Company’s common stock as of the date of such exchange.  On each three (3) month anniversary of the issuance of the note, all accrued and unpaid interest shall be added to the unpaid principal amount of such note.  The note defines “Qualified Financing” as an investment in securities of the Company (including any financing that includes convertible indebtedness and/or warrants) occurring after the date of issuance of the note by an investor that is not an affiliate of the Company in which the Company receives net proceeds greater than $500,000 (including any additional investment by the holder of the note or by the holder of any other 8% exchangeable promissory note) in the Qualified Financing.
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 Note 11 – Commitments & Contingencies
 
 Litigation
 
 On October 1, 2009, the SEC issued a formal order of investigation to the Company regarding possible securities laws violations by us and other persons.  The investigation concerns the process by which the Company became a publicly traded entity, trading in the Company’s shares, and disclosure and promotion of developments in the Company’s business.  The SEC has requested that the Company deliver certain documents to the SEC.  The Company has, and will continue to fully cooperate with the SEC with respect to its investigation.
 
 The Company has incurred, and expects to continue to incur, significant costs in responding to such investigation.  Any adverse findings by the SEC in connection with such investigation could have a material adverse impact on the Company's business, including the Company's ability to continue to operate as a publicly traded company.
 
 In April 2005, the Company filed in the US Patent and Trademark Office (the “USPTO”) an application for the registration of the trademarks BioNeutralTM, Ogiene®and Ygiene®, based on its intent to use each of these marks in commerce.  In April 2006, the USPTO issued notices of allowance signifying that each of these trademarks was entitled to registration after timely submission of statements of use, including evidence that such trademarks have been properly used in commerce.  From June through November of 2008, however, the Company’s applications for each of these trademarks were declared abandoned by the USPTO, since the Company inadvertently failed to timely file the appropriate statements of use with respect to each trademark within the six-month period from the date the USPTO issued the respective notices of allowance.  In July 2009, the Company refiled applications for each of these trademarks as well as the Company’s tagline SCIENCE TO SAVE LIVES & PROTECT THE ENVIRONMENT®; however, the Company learned that PURE Bioscience, a company focused on the development and commercialization of bioscience products, had filed application for the registration of the trademarks BioNeutralTM and Ygiene® prior to the Company’s refiling of its applications.  Although the Company has filed with the Trademark Trial and Appeal Board oppositions to PURE Bioscience's applications and intend to pursue such oppositions vigorously, the Company cannot assure you that it will be successful with such opposition on a timely basis, if at all.
 
 Other than the foregoing, the Company is not a party to, and none of the Company’s property is the subject of, any pending legal proceedings other than routine litigation that is incidental to the Company’s business.
 
 Other Contingencies
 
 Approximately 6 million shares issued in the Share Exchange were issued by the then transfer agent to stockholders of BioLabs for whom the Company does not have records as having consented to the Share Exchange. The Company currently holds approximately 91% of the outstanding interests in its subsidiary, BioLabs. The Company did not receive consents to the Share Exchange from all common and preferred shareholders of BioLabs, and the Company has accounted for those shareholders who did not sign consents as holders of the remaining 9% outstanding interests in BioLabs. The Share Exchange consents did not specify the number of shares of BioLabs common stock to be exchanged by the consenting shareholder and did not affirmatively make the representation and warranties to be made by our stockholders as set forth in the Share Exchange. In light of such omissions, there can be no assurances that a shareholder will not challenge the validity of its consent and request a rescission offer in respect of shares of common stock issued to such person. There can also be no assurances that in light of the content of such Shareholder consent, the Company had a basis for a valid private placement of its common stock issued in the Share Exchange, which if such were the case, may negatively affect our status as a publicly traded company.
 
 In addition, the Company believes that the shareholders who consented to the Share Exchange and were issued shares of Company common stock failed to deliver the stock certificates representing their shares of common stock and Series A Preferred Stock of BioLabs and may claim they also have an ownership interest in BioLabs. Although the Company would challenge any such claims, it cannot assure investors that it would prevail, in which case the Company’s percentage ownership interest in BioLabs would decrease.
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  Searchhelp, Inc. Royalty Rights
 
 On February 3, 2004, the Company’s subsidiary, Environmental Commercial Technology, Corp. (“ECT”), entered into an agreement with Searchhelp, Inc. (“Searchhelp”).  Searchhelp paid cash and issued shares of its common stock and stock warrants to ECT in order to acquire a royalty equal to 5% of the gross sales of a product ECT was developing (the “U.S. Product”).  The U.S. Product, which has not been commercially released and has not been approved by the U.S. Environmental Protection Agency ("EPA"), was intended to prevent the growth of mold and fungus.  The Company has determined that for reasons based on the underlying science, the U.S. Product cannot be approved by the EPA.  As a result, the U.S. Product is not commercially viable for the production of revenue.  The agreement with Searchhelp was for a 5 1⁄2 year term, commencing on the first quarter in which the royalty payments to Searchhelp have aggregated to $50,000.  The U.S. Product has not produced revenue and therefore the Company is under no obligation to make royalty payments.  With respect to the consideration paid in the form of cash and issued shares by Searchhelp to ECT, repayment is contingent to the extent that the Company has materially modified the underlying license agreements.  The Company has not modified the underlying license agreements, and as such, is under no obligation to return the consideration of cash and shares.  Accordingly, no liability has been recorded.  The Company reached these conclusions based on recent internal review of the underlying agreements and products related thereto.
 
 Note 12 - Subsequent Events:
 
 Subsequent events have been evaluated through the date the financial statements were issued.  All appropriate subsequent event disclosure, if any, have been made in the notes to the consolidated financial statements.
 
 During the month ended May 31, 2011, the Company issued 114,300 shares for legal and accounting related services, 11,430 shares for marketing and public relations services and 10,000 shares for laboratory services of $40,005, $4,001 and $2,700, respectively.   The shares for services were valued and issued at the prevailing quotation prices for the Company's stock at the time of issuance.
 
 ITEM2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
 The following discussion and analysis of the condensed consolidated financial condition and results of operations of BioNeutral Group, Inc. (the “Company,” “we” or “us”) should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere herein.  In the following discussions, most percentages and dollar amounts have been rounded to aid presentation, and accordingly, all amounts are approximations.
 
 Forward-Looking Information
 
 This Quarterly Report on Form 10-Q contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
 
 All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential,” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:
 
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  •
our inability to raise capital;
 
 •
our failure to obtain the necessary regulatory approvals for our products;
 
 •
the results of the current Securities and Exchange Commission (the "SEC") investigation of our Company;
 
 •
the inability to obtain or retain customer acceptance of our products;
 
 •
the failure of the market for our products to develop;
 
 •
our inability to protect our intellectual property;
 
 •
our inability to manage any growth;
 
 •
the effects of competition from a wide variety of local, regional, national and other providers of products similar to our products;
 
 •
changes in laws and regulations, including tax and securities laws and regulations and laws and regulations promulgated by the U.S. Environmental Protection Agency (the "EPA"), the U.S. Food & Drug Administration (the "FDA") and the U.S. Federal Trade Commission.
 
 •
changes in accounting policies, rules and practices;
 
 •
changes in technology or products, which may be more difficult or costly, or less effective than anticipated; and
 
 •
the other factors listed under “Risk Factors” in the Company’s Form 10-K for the fiscal year ended October 31, 2010 and other filings with the SEC.
 
 All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or the date of the document incorporated by reference into this report.  We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs and projections in good faith and we believe they have a reasonable basis.  However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
 
 Recent Developments
 
 On May 26, 2011 Stephen Holt resigned from the Company’s Board of Directors without disagreement. For his services rendered the Company has agreed to issue Mr. Holt 35,000 shares of its common stock.
 
 On May 3, 2011 the Company announced that it has signed on to introduce its all new EPA-approved Ygiene® 206 hospital-grade disinfectant technology to the infection control professionals attending the 38th Annual APIC Conference (Association for Professionals in Infection Control and Epidemiology). Ygiene® is BioNeutral's latest weapon against hospital-acquired infections (HAIs), an ongoing and potential threat in the health care industry.  This year's APIC conference will be held on June 27th through June 29th, 2011 in Baltimore, MD. Recognized as the largest annual gathering of infection preventionists in the world, APIC brings together the leaders in clinical infection prevention in an interactive and educational forum. Infection preventionists are given an unprecedented opportunity to learn and engage with experts from across the global healthcare industry.
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  Also on May 3, 2011, the Company announced that the Community Health Network of South Florida (CHI) will introduce Ygiene® to its Product Review Committee for evaluation and potential use among its network of facilities. CHI currently operates seven (7) state-of-the-art primary care centers and twenty-seven (27) school-based programs. Upon approval by the by the Review Committee, the Company anticipates to receive orders for purchase from the CHI.
 
 On April 20, 2011 in advance of the Florida’s state approval, the Company received its first municipal vendor approvals from Miami-Dade, Broward and Palm Beach counties. These first municipal approvals will allow the Company to sell directly to the corresponding municipal agencies as well as to compete in the Request For Proposal (RFP) competitive bidding process.
 
 Local United States contract manufacturing has been contracted for covering both the Ygiene® and Ogiene® technology platforms. In the month of April 2011 the initial 1000 gallon shipment of Ogiene® products was recently manufactured and shipped to Kentucky in advance of initial orders, and the first official manufacturing run of Ygiene® 206 Hospital Grade disinfectant commenced production.
 
 The Company also continued to make significant progress for its Ogiene® odor neutralizer and multipurpose cleaning unregulated product line, securing three new trial orders from Indiana-based Oakland City University, Kentucky-based Grayson County Fiscal Court House, and Exceptional Teens and Adults (ETA), which is a structured program providing care and support to teens and adults that have been diagnosed with intellectual or developmental disabilities.
 
 On April 5, 2011, the Board of Directors (the "Board") of the Company elected Michael D. Francis as a director of the Company. Mr. Francis' appointment to the Board became effective immediately.  As a non-management member of the Board, in remuneration for his services, Mr. Francis will receive an annual grant of 85,000 restricted shares of the Company's common stock. Further, Mr. Francis entered into the Company's form of Director Indemnification Agreement, pursuant to which the Company agreed to indemnify Mr. Francis from certain expenses, including reasonable attorney's fees, incurred by Mr. Francis as a result of serving on the Board (and/or a committee of the Board), subject to certain exclusions for certain delineated matters.
 
 On March 25, 2011 the Company announced the appointment of Dr. Stephen Holt, M.D., Ph.D, a Distinguished Professor of Medicine (Emeritus) and a medical practitioner in New York State, as the Company's Vice Chairman of the Board and Independent Director. Dr. Holt is an independent consultant to the pharmaceutical and dietary supplement industry, and a Board-certified Internist and Sub-Specialist in the United States, Canada, United Kingdom and European Union.
 
 On March 15, 2011 the Company announced that it has entered into global sales and distribution agreement with Raymond Associates LLC, a Service Connected Certified Disabled Veteran-Owned Business and executive management consulting firm. Under the terms of the agreement, Raymond Associates will represent BioNeutral's Military-Grade, patent-pending antimicrobial product YgieneTM to the homeland security and government sectors in the Middle East, the United Kingdom and the United States.  As a result of this agreement, the Company expects to secure new orders and government contracts for our YgieneTM Military-Grade, which can quickly neutralize a wide variety of on-the-surface, biological contaminants and extremely dangerous microorganisms.
 
 On March 1, 2011 the Company’s wholly owned subsidiary, BioNeutral Services, Inc., was approved by the Commissioner of Kentucky's Department for Business Development (the “Department”) for an economic incentive package.  The package provides incentives for companies to relocate and expand their operations into the Commonwealth of Kentucky by agreeing to reimburse certain start up costs and lease expenses for office space.  In addition, there are certain Kentucky based tax incentives which are contingent upon employment by the Company within the Commonwealth of Kentucky.  The estimated total value of these incentives is approximately $250,000 to $300,000 and was received in writing from the Department.
 
 On February 28, 2011, the Company received approval and registration from the EPA in response to the Company's regulatory application for its Ygiene®206 formulation.  The recent EPA approval will allow the Company to market certain formulations of its Ygiene® professional disinfectant product, subject to prior approval by each state in which the Company intends to distribute the product.  Following EPA approval, the Company has made the determination that at this time the Company's resources are best spent pursuing domestic marketing and distribution opportunities. The high level of investment necessary to achieve meaningful international sales could compromise the company's ability to pursue sales opportunities in its home market and therefore the Company has currently postponed further international efforts. If however international opportunities do arise the Company will assess them on a case by case basis.
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  On February 3, 2011, the Company formed BioNeutral Services, Inc., a wholly owned subsidiary of BioNeutral Group, Inc.  BioNeutral Services will market and distribute a family of BioNeutral products that represent a new generation of specialty anti-microbial disinfectants, cleaning agents and neutralizers of odors and harmful gases. The company, based in Kentucky, is a specialty cleaning solutions company servicing the healthcare industry and providing environmentally friendly solutions to everyday care. Fatal hospital acquired infections and harmful bacteria are a serious problem in the healthcare industry today. BioNeutral has identified a solution which eliminates the main causes of these life threatening issues by treating the environment around the patient. In addition to reducing fatalities, the use of the products is expected to reduce healthcare cost.
 
 Prior to February 3, 2011, the Company has been in discussions with the Kentucky Hospital Association (“KHA”) in order to qualify as an applicant to become an Affinity Partner of the KHA.    The Affinity Partner Program provides opportunities for Kentucky hospitals to identify and evaluate pre-screened potential suppliers, consultants and other resources.  As an Affinity Partner the KHA may endorse for use certain of the Company’s products in certain health care settings.  The Company believes that achieving affinity partner status would enhance its marketing efforts in Kentucky.  In order to receive such status the Company must submit an Affinity Partner Program Application (the “KHA Application”).  Upon submission of the KHA Application, the KHA will perform certain processes of review and evaluation of the applicant and its products subject to a final scoring based on the KHA’s criteria.  Upon completion of their review and evaluations, the KHA will then recommend or decline the applicant based on the scoring related to their criteria.  If the product receives Affinity Partner status, a formal license agreement is entered into which allows the product to be marketed and advertised using certain marks and logos of the KHA.  A subscription fee would be due at that time as well.  The Company desires to achieve Affinity Partner status.  Currently however, the Company has not submitted the KHA Application and there is no contractual arrangement between KHA and the Company. Our affiliation is currently limited to us being approved to apply to be an affinity partner.
 
 The Company has also entered into negotiations with the KHA through its subsidiary Kentucky Hospital Services Corporation LLC "KHSC" to introduce BioNetural’s Ogiene® and Ygiene® products into its member hospital association.  This arrangement would be contractual in the future, since it is currently contemplated to be in the form of a shared commission agreement to market the products.
 
 The negotiations for the affinity partner status and the contractual agreement to market the Company’s products were initiated at approximately the same points in time.
  Company Overview
 
 We are life science specialty technology corporation that has developed  a novel combinational chemistry-based technology which we believe can, in certain circumstances, neutralize harmful environmental contaminants, toxins and dangerous micro-organisms including bacteria, viruses and spores.  We are focused on developing and commercializing two classes of product formulations: (1) anti­microbials, which are formulations designed to kill certain harmful microscopic living organisms, and (2) bioneutralizer, which are formulations designed to destroy certain agents that are noxious and harmful to health and/or the environment.  We have not marketed any of our products and have not generated any meaningful product revenue to date.
 
 We currently are focused on the commercialization of two classes of product formulations, antimicrobials and bioneutralizer.  We refer to our anti­microbial formulations as our Ygiene® products and our bioneutralizer formulations as our Ogiene® products.  Our Ygiene® products are being developed to kill certain harmful microbes, including virulent gram and bacteria (which cause staph infections), viruses, yeast, mold, fungi, spores and/or certain bioterrorism agents, such as anthrax.  Our Ogiene®products are being developed to eliminate or reduce odors of many chemicals such as hydrogen sulfide, formaldehyde and ammonia, and to reduce certain greenhouse gases such as carbon dioxide and sulfur dioxide.
 
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  The marketing and sale in the United States and foreign countries of some of our current products and the products we may develop in the future are and may be subject to U.S. and foreign governmental regulations, respectively, which vary substantially from country to country.  The marketing and sale of our Ygiene®products in the United States, is subject to EPA registration and in some cases, FDA clearance, and we cannot market and sell any of such products in the United States until such registration or clearance is obtained.  We do not believe the marketing sale of our Ogiene® products are subject to EPA registration or FDA clearance.  We have not sold any of our Ygiene®or Ogiene®products to date.  We currently are focusing our efforts and resources on obtaining the registrations, clearances and approvals necessary to market and sell our Ygiene® products in the United States; however, we cannot assure you that we will be have the financial resources to do so or that such registrations, clearances and approvals will be obtained on a timely basis, if at all.
 
 Plan of Operation
 
 Our strategic plan for our fiscal year ending October 31, 2011 is focused on leveraging developments in the United States and the European Union for our Ygiene®professional disinfectant product. The Company  received  approval and registration from the EPA for its hospital and industrial grade line of products to be used as high level disinfectant and sterilants.
  The Company also formed BioNeutral Services, Inc., a wholly owned subsidiary of BioNeutral Group, Inc. BioNeutral Services Inc., will market and distribute a family of BioNeutral products that represent a new generation of specialty anti-microbial disinfectants, cleaning agents and neutralizers of odors and harmful gases. The company, based inKentucky, is a specialty cleaning solutions, company servicing the healthcare industry and providing environmentally friendly solutions to everyday care. Fatal hospital acquired infections and harmful bacteria are a serious problem in the healthcare industry today. BioNeutral has identified a solution which eliminates the main causes of these life threatening issues by treating the environment around the patient. In addition to reducing fatalities, the use of the products is expected to reduce healthcare cost.
  Currently, we are focusing our efforts on the commercialization of a Ygiene®formulation for hospital and industrial application.  We are developing our Ogiene®products to potentially eliminate or reduce odors of many chemicals such as hydrogen sulfide, formaldehyde and ammonia, and to reduce certain green­house gases such as carbon dioxide and sulfur dioxide.  Our Ogiene®formulations are designed to interact with the functional organic or inorganic groups of harmful gases and reduce or eliminate them.
 
 We believe that our products can offer a superior solution that addresses needs not currently being met in the marketplace for combating bacteria, viral and spore based threats. We further believe that our products can provide a distinct advantage when distinguishing them from those that are currently in use in our targeted markets. In addition, our core product is flexible and adaptable for multiple applications.  Industry or use specific modifications made by our professional scientist allow our products to be readily customized to the demands of multiple unique markets.
 
 We are emphasizing these strategic advantages as part of our brand development efforts to overcome competitive barriers to entry in markets that are driven by large, established organizations.  The markets for our Ogiene®and Ygiene®products and each of their potential channels are highly competitive. We have a number of competitors that vary in size and scope and breadth of products offered.  Such competitors include some of the largest corporations in the world, and we believe substantially all of our competitors have greater financial resources than we do, including in the areas of sales, marketing, and branding and product development.  We expect to face additional competition from other competitors in the future.
 
 Because Ogiene®and Ygiene®are new formulations enhanced from our initial base formulas, our success will depend, in part, upon our ability to achieve market share at the expense of existing, established and future products in our relevant target markets. Even if our Ogiene®and Ygiene®formulations may have technological competitive advantages over competing products, we or potential distributors, will need to invest significant resources in order to attempt to displace traditional technologies sold by what are in many cases well-known international industry leaders.  Alternatively, we may pursue strategies in selective markets of encouraging existing competitors to incorporate our products into their existing brands, thereby reducing the proportion of end-use revenues that would accrue to us.  To the extent that we were to grant any existing competitor exclusivity to any field and/or territory, we would risk having our technology marketed in a manner that may be less than optimal for us.  We recognize that innovative marketing methods may be required in order to establish our products, and that such methods may not be successful.
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  The Company has authorized Steve Campus of the Campus Group and J-Man Distributors to exclusively represent BioNetural’s Odor Eliminator and its Multi Purpose Cleaner to a major home shopping cable network.
 
 In a second agreement, BioNeutral announced that J-Man Distributors has concluded an exclusive commercial agreement with Planned Companies, under which Planned Companies will exclusively use BioNetural’s AutoNeutralTM product to clean and deodorize the automobiles of an international car sharing company that it contractually provides cleaning services for in the New York metro area.
 
 Results of Operations
 
 Comparison of Results of Operations for the three months ended April 30, 2011 and for the three months ended April 30, 2010.
 
 Revenues: During the three months ended April 30, 2011, the Company generated revenues of $16,612 as compared to revenues of $0 for three months ended April 30, 2010 from the Ogiene®product line as an initial product sample shipment to Kentucky. Our efforts have been focused on sales and marketing of our non regulated Ogiene® product line as well the sale of our Ygiene®formulation for hospital and industrial applications. Additionally, we are continuing our efforts to obtain the regulatory approvals required for the sale and distribution in the United States of our Ygiene®formulation.
 
 Operating Expenses:  Our operating expenses consist of compensation of our executive and scientific staff, consulting expenses supporting development of, and regulatory approvals for, our products, legal and accounting services, and non-cash amortization of our intellectual property.
 
 Total operating expenses for the three months ended April 30, 2011 were $970,342 as compared to $1,116,019 for the three months ended April 30, 2010. This variance is explained in more detail in the three subsequent paragraphs below.
 
 Selling, general & administrative (“SG&A”) expenses of $793,968 for the three months ended April 30, 2011 included $397,245 of consulting fees which included $289,027 of stock based compensation to the Company’s Chief Scientist for obtaining the EPA approval Ygiene®206, $67,286 of travel and entertainment expenses and $57,747 of investor relations and promotional expenses.  SG&A for the three months ended April 30, 2010 were $811,321 which included $94,281 of consulting fees, $43,926 of travel and entertainment expenses and $71,252 of investor relations and promotional expenses.
 
 For the three months ended April 30, 2010, approximately $77,667, respectively, of non-cash stock based compensation expense was reported in SG&A for services to non-employees, principally for business development agreements entered into with entities responsible for advancing our market access in North America, Asia and the European Union.  SG&A costs for the three months ended April 30, 2010 that were paid or payable in cash include approximately $84,000 related to our agreement with the Chertoff Group, L.L.C. and approximately $60,000 to a director and a company with which such director is affiliated under agreements we have with the director and his affiliated company. There were no expenses related to the agreement with the Chertoff Group or the director and a company with which such director is affiliated in the same period for 2011, since these agreements were terminated in 2010.
 
 SG&A costs include legal and accounting expenses for the three months ended April 30, 2011 that were approximately $182,566 a decrease $(396,288) over amounts for three months ended April 30, 2010 which were approximately $578,854. The decrease primarily reflects costs incurred in responding to the SEC investigation to the interim financial statements for the three months ended April 30, 2010 and the preparation of our Annual Report on Form 10-K for the fiscal year ended October 31, 2009.
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  Amortization & depreciation increased to $176,374 for the three months ended April 30, 2011 from the $173,651 reported for the same three months in 2010, as a result of the increased investment in our intellectual property.
 
 Net Loss:  We experienced a net loss from operations before consideration of our Non-Controlling interest of $1,003,671 for the three months ended April 30, 2011. The discussion of operating expenses identifies the elements of the net loss.  For the same period in 2010, our net loss was $1,136,811.  We anticipate we will experience a net loss in fiscal 2011 as we continue to pursue regulatory approvals for the sale and distribution of our products and development of access to global markets.
 
 Comparison of Results of Operations for the six months ended April 30, 2011 and for the six months ended April 30, 2010.
 
 Revenues: During the six months ended April 30,  2011, the Company generated revenues of $17,926 as compared to revenues of $0 for six months ended April 30,  2010 from the Ogiene®product line as an initial product sample shipment to Kentucky. Our efforts have been focused on sales and marketing of our non regulated Ogiene® product line as well the sale of our Ygiene®formulation for hospital and industrial application in Germany, the UK and France where the product has been registered for marketing and sale. Additionally, we are continuing our efforts to obtain the regulatory approvals required for the sale and distribution in the United States of our Ygiene®formulation.
 
 Operating Expenses:  Our operating expenses consist of compensation of our executive and scientific staff, consulting expenses supporting development of, and regulatory approvals for, our products, legal and accounting services, and non-cash amortization of our intellectual property.
 
 Total operating expenses for the six months ended April 30, 2011 were $1,487,590 as compared to $2,593,788 for the six months ended April 30, 2010. This variance is explained in more detail in the three subsequent paragraphs below.
 
 Selling, general & administrative (“SG&A”) expenses of $1,135,138 for the six months ended April 30, 2011 included $478,832 of consulting fees which included $289,027 of stock based compensation to the Company’s Chief Scientist for obtaining the EPA approval Ygiene®206 , $108,660 of travel and entertainment expenses and $127,486 of investor relations and promotional expenses.  SG&A for the six months ended April 30, 2010 were $2,247,200 which included $358,656 of consulting fees, $120,083 of travel and entertainment expenses and $151,633 of investor relations and promotional expenses.
 
 For the six months ended April 30, 2010, approximately $157,632  of non-cash stock based compensation expense was reported for amortization of amounts paid for services to non-employees, principally for business development agreements entered into with entities responsible for advancing our market access in North America, Asia and the European Union.
 
 SG&A costs for the six months ended April 30, 2010 that were paid or payable in cash include approximately $206,208 related to our agreement with the Chertoff Group, L.L.C. and approximately $120,000 to a director and a company with which such director is affiliated under agreements we have with the director and his affiliated company. There were no expenses related to the agreement with the Chertoff Group or the director and a company with which such director is affiliated in the same period for 2011, since these agreements were terminated in 2010.
 
 Total legal and accounting expenses for the six months ended April 30, 2011 were approximately $269,927, compared to $1,198,656 for the same period in 2010. The expenses in 2010 reflect costs incurred in responding to the SEC investigation (see note 12 to the interim financial statements for the six months ended April 30, 2010) and the preparation of our Annual Report on Form 10-K for the fiscal year ended October 31, 2009 and our Quarterly Report on Form 10-Q for the quarter ended January 31, 2010.
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  Amortization & depreciation increased to $352,452 for the six months ended April 30, 2011 from the $346,588 reported for the same six months in 2010, as a result of the increased investment in our intellectual property.
 
 Net Loss:  We experienced a net loss from operations before consideration of our Non-Controlling interest of $1,554,485 for the six months ended April 30, 2011. The discussion of operating expenses identifies the elements of the net loss.  For the same period in 2010, our net loss was $2,625,460.  We anticipate we will experience a net loss in fiscal 2011 as we continue to pursue regulatory approvals for the sale and distribution of our products and development of access to global markets.
 
 Liquidity and Capital Resources
 
 We had $81,981 of cash at April 30, 2011.  Cash used by operations for the three months ended April 30, 2011 was $(519,914). The principal use of funds were for consulting services supporting the development of our business plan, legal and accounting fees in connection with becoming a public company and daily operations of the business, including rent, travel and laboratory costs.
 
 For the six months Ended April 30, 2011, we raised $317,500 of cash from the issuance of our capital stock to fund operations.  We received $225,000 from the issuance of convertible debentures.
 
 For the three months Ended April 30, 2010, we raised $750,000 from the issuance of convertible debentures.
 
 We are not currently generating significant revenues and rely on raising new capital to fund our ongoing operations and development of our strategic business objectives. While we have been able to use proceeds from the sale of our shares of common stock to fund a substantial balance of our operating costs, we do not expect that our funds will be sufficient to meet our anticipated needs through August 1, 2011 and we will need to raise additional capital during fiscal 2011 to fund the full costs associated with our growth and development. The Company believes that we will be able to generate sales by the third three months of 2011 and that we will require approximately $5,000,000 in additional capital in order to achieve our goals. There can be no assurances that we will be successful in raising additional capital on favorable terms if at all. If the Company is unable to secure additional capital, it may be required to curtail its business development initiatives, impair its intellectual property and take additional measures to reduce cost in order to conserve cash.
 
 In conjunction with our 2010 audit, we performed our annual impairment testing during January 2011. In this analysis, we determined that the current carrying value of our Intellectual Property is approximately $11,254,000.
 
 We computed the Intellectual Property value using a discounted cash model. In our discounted cash flow analysis, we prepared a ten year forecast of our expected earnings to derive an explicit stream of expected free cash flows through October 31, 2021. We developed our revenue and direct variable costs forecast based on a variety of factors including our current and anticipated sales pipeline, knowledge of our business and industry, general economic conditions in the marketplace and expectations of market opportunity with respect to the specific types of advertising services we provide. Our operating expenses are generally fixed and predictable; however, we increased our budgeted operating expenses by an amount that we believe is approximately equal to theoretical lease costs we would incur had our parent company not provided us with facilities that are not a component of operating costs in our goodwill reporting unit. We computed the present value of our explicit year cash flows using discount rates ranging from approximately 16% to 18% with various target financing structures during the course of computing our weighted average cost of capital. We specifically considered a range of assumptions for both equity and debt financings; such as risk free interest rate, market risk premium, small cap premium, company specific premium and sensitivity premium. After having determined the amount of our explicit year cash flows, we assumed that the Company would experience a long-term growth rate in free cash flows of 2% per annum thereafter. The range of Intellectual Property values we derived using the above noted discount amounted to $12,983,000, which exceeds the carrying value of our Intellectual Property by $1,729,000.
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  Off-Balance Sheet Arrangements
 
 We do not have any off-balance sheet arrangements.
 
 ITEM4.  CONTROLS AND PROCEDURES
 
 Evaluation of disclosure controls and procedures
 
 Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act, as of April 30, 2011.  Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are not effective as of April 30, 2011 due to material weaknesses as identified below to ensure that all information required to be disclosed 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 and is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
 Our principal executive officer and principal financial officer reached a similar conclusion based on their evaluation of our disclosure controls and procedures as of October 31, 2010. Although our principal executive officer and principal financial officer believe that progress has been made with respect to our disclosure controls and procedures during the past year, the following areas continue to be identified as requiring further improvement:
  ·
There is insufficient supervision and review by our corporate management, particularly relating to transactions relating to equity and debt instruments.
 
 ·
There is an insufficient level of monitoring and oversight controls for review and recording of stock issuances, agreements and contracts, including insufficient documentation and review of the selection and application of GAAP to significant non-routine transactions.
 
 ·
There are insufficient corporate governance policies. Our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.
 
 ·
We currently have insufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to gather, analyze and report information relative to the financial statements in a timely manner, including insufficient documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions. In addition, the limited size of our accounting function makes it impractical to achieve an optimum segregation of duties.
 
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  Our size (a Chief Executive Officer and a Chief Science Officer) dictates that most policies are self policing and adjusted on an ad-hoc basis as required so formal policies are essentially not formed and recorded.  We believe that our weaknesses in internal control over financial reporting and disclosure controls relate in part to the fact that we are an emerging business with limited personnel and resources.
 
 In order to help improve our disclosure controls and procedures, the Company has engaged a chief financial advisor and added a Board member with financial and accounting expertise and prior corporate board experience. The Company intends to form an audit committee to further assist with improving its disclosure controls and procedures.  Management and the Board of Directors believe that the Company must allocate additional human and financial resources to address these matters.
 
 We are committed to improving our financial organization.  As part of this commitment, we intend to continue to educate our management personnel to comply with GAAP and the SEC’s disclosure requirements and to increase management oversight of accounting and reporting functions in the future.  The Company intends to continue making necessary changes until its material weaknesses are remediated.
 
 Changes in Internal Controls over Financial Reporting
 
 Other than those mentioned above, there have been no changes in our internal controls over financial reporting that occurred during our last fiscal three months to which this Quarterly Report on Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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  PARTII — OTHER INFORMATION
 
 ITEM1. LEGAL PROCEEDINGS
 
 None.
 
 ITEM1A.  RISK FACTORS
 
 Not Applicable.
 
 ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
 
 During the six months ended April 30, 2011, the Company issued 1,518,450 shares of the Company’s common stock for gross proceeds of $317,500 to various investors.
 
 The Company issued 117,500 shares for financial advisory and accounting related services, 96,206 shares for marketing and public relations services and 1,500 shares for laboratory services of $45,525, $50,556 and $600, respectively.
 
 All of such shares were issued pursuant to an exemption from registration under the Securities Act by virtue of Section 4(2) of the Securities Act.
 
 ITEM3.  DEFAULTS UPON SENIOR SECURITIES.
 
 None.
 
 ITEM4.  (REMOVED AND RESERVED).
 
 
 ITEM5.  OTHER INFORMATION.
 
 None.
 
 ITEM6. EXHIBITS
 
 The following exhibits are filed with this Quarterly Report on Form 10-Q:
 
 Exhibit No.

Description31.1

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
 ________________________
 *  Filed herewith.
 
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  SIGNATURE
 
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 BIONEUTRAL GROUP, INC.June 14, 2011
By:
/s/ Stephen BrowandStephen BrowandChief Executive Officer

(Principal Executive Officer, Principal Financial

Officer and Principal Accounting Officer)
 
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