UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549







FORM 10-Q





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended:JUNE 30, 2009orr
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from: _____________ to _____________





ANPATH GROUP, INC.


(Exact name of registrant as specified in its charter)




DELAWARE
333-123365
20-1602779(State or Other Jurisdiction of Incorporation)
(Commission File Number)
(I.R.S. Employer Identification No.)





116 Morlake Drive, Suite 201 Mooresville, NC 28117


(Address of Principal Executive Office) (Zip Code)





(704) 658-3350


(Registrant’s telephone number, including area code)





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.x  Yes r  NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.Large accelerated filer r

Accelerated filer                       rNon-accelerated filer   r

Smaller reporting company     xIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).r  Yes   x  NoIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.





Class

Outstanding at August 14, 2009Common Stock, $.0001 par value

16,603,654


Table of Contents





INDEX





PAGEPART I
FINANCIAL INFORMATIONItem 1
Financial Statements

3Balance Sheet at June 30, 2009(unaudited) and March 31, 2009 (audited)

3Statements rof Operations for the Three Month Period Ended June 30, 2009 and 2008

4Statements of Cash flows for the three Month Period Ended June 30, 2009 and 2008

5Condensed Notes to the Financial Statements

6Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

17Item 3.
Quantitative and Qualitative Disclosures About Market Risk

22Item 4T.
Controls and Procedures

22PART II.
OTHER INFORMATIONItem 1A.
Risk Factors

22Item 6.
Exhibits

22Signatures

23





Table of Contents





PART I. FINANCIAL INFORMATION




ITEM 1.  FINANCIAL STATEMENTS


ANPATH GROUP, INC


Consolidated Balance Sheets




Three Months Ended

Year EndedJune 30, 2009

March 31, 2009(unaudited)


(audited)ASSETSCURRENT ASSETSCash

$
41,533


$
11,231Accounts receivable, net


33,447



10,241Prepaid expenses


90,004



4,817Inventory


-



22,354TOTAL CURRENT ASSETS


164,984



48,643PROPERTY AND EQUIPMENTFurniture & fixtures


205,694



205,694Machinery & equipment


195,137



195,137Capitalized software


3,210



3,210Less accumulated depreciation


(222,108
)


(205,676
)TOTAL FIXED ASSETS


181,933



198,365OTHER ASSETSTrade secrets


1,026,000



1,026,000Deposits


191,959



198,082TOTAL OTHER ASSETS


1,217,959



1,224,082TOTAL ASSETS

$
1,564,876


$
1,471,090LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIESAccounts payable and accrued expenses

$
415,008


$
395,525Accrued interest payable


174,626



135,570Wages payable


153,339



188,840Current maturities of long-term debt, net of discount


2,176,868



1,484,357TOTAL CURRENT LIABILITIES


2,919,841



2,204,292LONG TERM LIABILITIESNotes payable, net of discount


-



-TOTAL LONG TERM LIABILITIES


-



-TOTAL LIABILITIES


2,919,841



2,204,292COMMITMENTS AND CONTINGENCIES


-



-STOCKHOLDERS' EQUITYPreferred stock, $0.0001 par value; 5,000,000 shares authorized,no shares issued and outstanding


-



-Common stock, $0.0001 par value; 100,000,000 shares authorized,16,503,654 and 16,203,654 shares issued and outstanding


1,650



1,620Additional paid-in capital


29,382,848



28,863,063Accumulated deficit


(30,739,463
)


(29,597,885
)TOTAL STOCKHOLDERS' EQUITY


(1,354,965
)


(733,2020
)TOTAL LIABILITIES ANDSTOCKHOLDERS' EQUITY

$
1,564,876


$
1,471,090





See accompanying condensed notes to interim consolidated financial statements.





3
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ANPATH GROUP, INC


Consolidated Statements of Operations


(Unaudited)





Three Months EndedJune 30,2009


2008REVENUES

$
141,400


$
18,359COST OF SALES


105,503



25,257Gross Profit


35,897



(6,898
)EXPENSESSales


63,118



95,534Product development


66,519



106,604Corporate


141,617



190,680Finance and administrative


125,262



134,364Consultants


116,000



56,875Compensation cost for re-pricing warrants


265,383



-Financing expense


359,437



250,000Total Expenses


1,137,336



834,057LOSS FROM OPERATIONS


(1,101,439
)


(840,955
)OTHER INCOME (EXPENSE)Interest expense


(40,139
)


(26,542
)Other income


-



-Interest income


-



6Impairment of long lived assets


-



-Total Other Income and Expense


(40,139
)


(26,536
)LOSS BEFORE TAXES


(1,141,578
)


(867,491
)INCOME TAX EXPENSE


-



-NET LOSS

$
(1,141,578
)

$
(867,491
)BASIC AND DILUTED NET LOSS PER SHARE

$
(0.07
)

$
(0.06
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,BASIC AND DILUTED


16,300,654



14,250,820





See accompanying condensed notes to interim consolidated financial statements.


4
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ANPATH GROUP, INC


Consolidated Statement of Cash Flows


(Unaudited)





Three Months EndedJune 30,2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(1,141,578
)

$
(867,491
)Depreciation and amortization


16,432



16,696Stock issued for services


86,000



-Stock options granted and warrants issued


39,434



72,110Stock options re-priced for services


265,383



-Discount on note payable


303,185



250,000Adjustments to reconcile net loss to net cash used by operations:Decrease (increase) in accounts receivable


(23,206
)


(2,804
)Decrease (increase) in prepaid expenses


(85,187
)


70,881Decrease (increase) in inventory


22,354



13,514Decrease in trade secrets


-



-Decrease (increase) in deposits


6,123



3,705Increase (decrease)  in accounts payable & accrued expenses


19,483



59,382Increase (decrease) in accrued interest payable


39,056Increase (decrease) in wages payable


(35,501
)


-Increase (decrease) in discount on notes payable


-



-Net cash used by operating activities


(488,022
)


(384,007
)CASH FLOWS FROM INVESTING ACTIVITIESNet cash provided (used) in investing activities


-



-CASH FLOWS FROM FINANCING ACTIVITIESProceeds from notes payable


591,834



-Payment of notes payable


(73,510
)


-Proceeds from the sale of common stock and warrants


-



100,000Proceeds from the re-pricing of warrants


-



-Net cash provided by financing activities


518,324



100,000NET INCREASE (DECREASE) IN CASH


30,302



(284,007
)CASH - Beginning of period


11,231



351,627CASH - End of period

$
41,533


$
67,620SUPPLEMENTAL CASH FLOW DISCLOSURES:Interest expense

$
1,083


$
-Income taxes

$
-


$
-





See accompanying condensed notes to interim consolidated financial statements.




5
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ANPATH GROUP, INC


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2009





Anpath Group, Inc. (hereinafter the “Company”) was incorporated in the State of Delaware on August 26, 2004.  The principal business of the Company is a holding company. The Company’s sole subsidiary is EnviroSystems, Inc. (hereinafter “ESI”) The Company’s name was changed to Anpath Group, Inc
on January 8, 2008 at a special meeting of the shareholders’ of the Company. The Company’s former name was Telecomm Sales Network, Inc. The Company’s headquarters is located in Mooresville, North Carolina. The Company’s year end is March 31.





ESI provides infection control products on an international basis through both direct sales and channels of distribution. While ESI’s current focus is on the health care market, products are also sold to transportation, military and industrial/institutional markets. ESI products are manufactured utilizing chemical-emulsion technology,
designed to make the products effective against a broad spectrum of harmful organisms while safe to people, equipment and habitat.




NOTE 1 – BASIS OF PRESENTATION





The foregoing unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim consolidated financial information and with the instructions to Regulation S-K as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not
include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These interim financial statements should be read in conjunction with the annual financial statements of the Company included in its Annual Report on Form 10-K which was filed with the SEC on July 10, 2009. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim statements have been included.  All
such adjustments are, in the opinion of management, of a normal recurring nature.





Operating results for the three month period ending June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending March 31, 2010.





NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





This summary of significant accounting policies is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America, and have been consistently applied in the preparation of the financial statements.





The following are summarized accounting policies considered to be significant by the Company's management:





Accounting Method





The Company's financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and have been consistently applied in the preparation of the consolidated financial statements.





Cash and Cash Equivalents





The Company considers all unrestricted cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired to be cash and cash equivalents for the purposes of the statement of cash flows





Accounts Receivable





Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within thirty days from the invoice date or as specified by the invoice and are stated at the amount billed to the customer. Customer account balances with invoices dated over ninety days or ninety days past the due date are considered
delinquent.





The carrying amount of accounts receivable is reduced by a valuation allowance that reflects management's best estimate of the amount that will not be collected. Management reviews all accounts receivable balances that are considered delinquent and, based on an assessment of current credit worthiness, estimates the portion, if any, of the
balance that will not be collected. In addition, management periodically evaluates the adequacy of the allowance based on the Company's past experience. Allowance for doubtful accounts amounted to $-0- and $1,036 at June 30, 2009 and March 31, 2009, respectively.





6
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ANPATH GROUP, INC CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2009




Earnings Per Share





The Company has adopted Statement of Financial Accounting Standard No. 128 "Earnings per Share" ("SFAS 128"), which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares
outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Although there were common stock equivalents outstanding at June 30, 2009 and March 31, 2009, they were not included in the calculation of earnings per share because their inclusion would have been considered anti-dilutive.





Provision for Taxes





Income taxes are provided based upon the liability method of accounting pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities
and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the "more likely than not" standard imposed by SFAS 109 to allow recognition of such an asset.





At June 30, 2009, the Company had net deferred tax assets calculated at an expected rate of 34% of approximately $10,361,000 (March 31, 2009 - $8,695,000) principally arising from net operating loss carry forwards and stock compensation. As management of the Company cannot determine that it is more likely than not that the Company will
realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset was recorded at June 30, 2009.





The significant components of the deferred tax asset at June 30, 2009 and March 31, 2009 were as follows:





June 30,


March 31,2009


2008Estimated net operating loss carry forward

$
30,474,000


$
29,598,000Deferred tax asset

$
10,361,000


$
10,063,000Deferred tax asset valuation allowance


(10,361,000
)


(10,063,000
)Net deferred tax asset

$
-


$
-





At June 30, 2009, the Company has net operating loss carry forwards of approximately $30,474,000 ($29,598,000 in March 31, 2009), which expire in the years 2023 through 2027. The change in the allowance account from March 31, 2009 to June 30, 2009 was $298,000.





Although we believe that our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our tax provisions. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict.





Fair Value Measurements





SFAS No. 157, Fair Value Measurements ("SFAS 157"), defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements.  On April 1, 2008, the Company adopted the provisions of SFAS No. 157 related to its financial
assets and liabilities measured at fair value on a recurring basis. SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).





7
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ANPATH GROUP, INC CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2009





The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:





Level 1 – Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.





Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that
consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.





Level 3 – Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to the Company's needs.





On April 1, 2008, we adopted SFAS 157. We had no assets or liabilities measured at fair value on a recurring basis. Therefore, the initial adoption of SFAS 157 had no impact on our Consolidated Financial Statements. On December 14, 2008 the FASB issued a proposed FASB staff position ("FSP") that would amend SFAS 157 to delay its
effective date for all non-financial assets and non-financial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis, that is, at least annually. For items within the scope of the proposed FSP the effective date of SFAS 157 would be delayed to fiscal years beginning after November 15, 2008 (fiscal 2010 for the Company) and interim periods within those fiscal years. During February 2008, the FASB confirmed and made effective the FSP. The Company
has chosen not to implement SFAS 157 for non-financial assets and non-financial liabilities at this time.





Fixed Assets





Equipment is recorded at cost. Depreciation and amortization are provided using the straight-line method over the useful lives of the respective assets, typically 3-7 years. Major additions and betterments are capitalized. Upon retirement or disposal, the cost and related accumulated depreciation or amortization is removed from the accounts
and any gain or loss is reflected in operations.





The following table summarizes the Company's fixed assets:





June 30,


March 31,2009


2009Office Equipment

$
51,347


$
51,347Furniture & Fixtures


11,825



11,825Marketing/Trade Show Equipment


2,659



2,659Manufacturing Equipment


195,138



195,138Laboratory Equipment


139,862



139,138Capitalized Software


3,210



3,210404,041



382,230Allowance for Depreciation and amortization


(222,108
)


(205,676
)Fixed Assets, net

$
181,933


$
198,365





Depreciation expense for the Three Months periods ending June 30, 2009 and 2008 was $16,432 and $16,696 respectively.





During the three months ended June 30, 2009 and 2008, depreciation expense in the amount of $-0- and $8,522 was recorded for manufacturing equipment that sat idle and is included as part of Expenses on the Consolidated Statement of Operations.





8
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ANPATH GROUP, INC


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2009





Going Concern





The accompanying financial statements have been prepared assuming the Company will continue as a going concern.





As shown in the financial statements, the Company incurred a net loss for the three months ended June 30, 2009 and 2008, and has an accumulated deficit of $30,474,080 since the inception of the Company. These factors indicate that the Company may be unable to continue in existence. The financial statements do not include any adjustments
related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue existence. The Company anticipates its projected business plan will require a minimum of $1,500,000 to continue operations for the next twelve months.





Impairment of Long Lived Assets





The Company assesses potential impairment of its long lived assets, which include its property and equipment and its identifiable intangibles such as its trade secrets under the guidance of Statement of Financial Standards No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets.” On an annual basis, or
as events and circumstances indicate that an asset may be impaired, the Company assesses potential impairment of its long lived assets. The Company determines impairment by measuring the undisclosed future cash flows generated by the assets, comparing the results to the assets' carrying value and adjusting the assets to the lower of the carrying value to fair value and charging current operations for any measured impairment.





Concentration Risk





Sales to a metropolitan mass transit authority, international distributors and an airline distributor represented approximately 91.7% of our sales for the three months ended June 30, 2009 and sales to one distributor represented approximately 69.28 of our sales for the three months ended June 30, 2008.





The Company relied upon a single supplier to provide it with PCMX, which is the biocide used in our chemical emulsion disinfectant products. Although there are other suppliers of this material, a change in suppliers would cause a delay in the production process, which could ultimately affect operating results.





Principles of Consolidation





The consolidated financial statements include the accounts of the Company and its subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation. References herein to the Company include the Company and its subsidiary, unless the context otherwise requires.





Reclassifications





Certain amounts have been reclassified from the prior financial statements for comparative purposes.




9
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ANPATH GROUP, INC
 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2009





Revenue Recognition





Revenue is generally recognized and earned when all of the following criteria are satisfied: a) persuasive evidence of sales arrangements exists; b) delivery has occurred; c) the sales price is fixed or determinable; and d) collectibility is reasonably assured.





Persuasive evidence of an arrangement is demonstrated via a purchase order from our customers. Delivery occurs when title and all risks of ownership are transferred to the purchaser which generally occurs when the products are shipped to the customer. No right of return exists on sales of product except for defective or damaged products.
The sales price to the customer is fixed upon acceptance of purchase order. To assure that collectibility is reasonably assured, credit evaluations are performed on all customers.





Stock Based Compensation





The Company measures compensation cost for its stock based compensation plans under the provisions of Statement of Financial Accounting Standards No. 123(R), “Accounting for Stock Based Compensations.” This statement supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation
guidance. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based
payment transactions. SFAS No. 123(R), "Accounting for Stock-Based Compensation", requires companies to include expenses in net income (loss) and earnings (loss) for each issuance of options and warrants. The Company uses the Black-Scholes option valuation model to value its issuance of options and warrants.





Use of Estimates





The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.





NOTE 3 - INVENTORIES





Inventories consist of raw materials that the Company had manufactured prior to outsourcing manufacturing to our current contract manufacturer. In the three months ended June 30, 2009, the prior raw materials were converted to finished goods in the manufacturing process and sold. At June 30, 2009 we had no inventories on hand. Inventories
consist of the following:





June 30,


March 31,2009


2009Raw material

$
-


$
22,354Finished goods


-



-Allowance for obsolescence


-



-Inventory, net

$
-


$
22,354





10
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ANPATH GROUP, INC


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2009





NOTE 4 - NOTES, LOANS AND CONVERTIBLE DEBT





Notes payable consists of the following:





June 30, 2009


March 31, 20097% note due July 8, 2010 payable to ANPG Lending, LLC

$
1,500,000


$
1,500,0008% notes due April 7, 2010 payable to unrelated individuals


537,500



-6% notes due on or before May 10, 2009 payable to our CEO


93,700



102,2106% notes due on or before February 24, 2009 payable to Arthur Douglas & Associates


85,000



85,0005.95% note due in 10 installments of $5,583 payable to FlatIron Capital


54,334



-6% notes due December 29, 2008 payable to our CFO


6,000



6,00010% note due April 8, 2009 payable to an unrelated individual


-



25,00010% note due June 10, 2009 payable to an unrelated individual


-



20,00010% note due June 24, 2009 payable to an unrelated individual


-



20,000Discount on notes payable


(99,666
)


(273,853
)$
2,176,868


$
1,484,357





Current Year Financing


During the three months ended June 30, 2009 the Company borrowed from various parties the aggregate amount of $537,500. These loans mature on April 7, 2010 and have a mandatory conversion into common stock of the Company on April 7, 2010. These loans bear interest of 8% payable at maturity. Each note is convertible into common stock of
the Company at an initial conversion rate $.50 per share. The actual conversion rate will be based on the previous 20 trading day average price of our common stock. The conversion rate cannot be more than $0.50 or less than $0.20. The loans are initially convertible into 1,075,000 shares of the Company’s common stock. Detachable warrants were also issued with each note giving the holder the right to purchase an aggregate 1,075,000 shares of the Company’s common stock at an exercise rice of $.75 per
share. Subsequently on July 1, 2009, the Company borrowed an additional $357,500 under the same terms of these loans.





In accordance with EITF 00-27, the Company recognized the beneficial conversion feature associated with the notes convertibility into shares and warrants. The total value of warrants was determined using the Black Scholes Option Price Calculation. In employing this model, the following assumptions were used the actual three month T-Bill
rate on the advance dates for the risk-free rate. The actual share price on advance dates; expected volatility of 67.36%, no dividends and a five year horizon in all Black Scholes Option Price calculations. The total value of warrants was $129,000 and the total value of shares was $-0-.





Following the guidance provided by EITF 00-27 the Company allocated proceeds first to the warrants issuable upon conversion of the note. The value of the warrants was recorded on the balance sheet as debt discounts and increases to shareholder’s equity. The debt discounts are being amortized over the remaining life of the convertible
note.





March 31, 2009 Financing


During the year ended March 31, 2009 the Company borrowed from various parties the aggregate amount of $393,210. These loans are due on demand after 90 days and bear interest of 6% to 10% payable at maturity. Each note is convertible into common stock of the Company at a conversion rate of $.20 to $.88 per share. The loans are initially
convertible into 697,966 shares of the Company’s common stock. Detachable warrants were also issued with each note giving the holder the right to purchase an aggregate 512,966 shares of the Company’s common stock at an exercise rice of $.20 to $.88 per share. During the year ended March 31, 2009, $135,000 of these loans were converted into 675,000 shares of common stock. During the three months ended June 30, 2009, $73,510 of these loans were retired.





In accordance with EITF 00-27, the Company recognized the beneficial conversion feature associated with the notes convertibility into shares and warrants. The total value of warrants was determined using the Black Scholes Option Price Calculation. In employing this model, the following assumptions were used the actual three month T-Bill
rate on the advance dates for the risk-free rate. The actual share price on advance dates; expected volatility of 67.36%, no dividends and a five year horizon in all Black Scholes Option Price calculations. The total value of warrants was $122,173 and the total value of shares was $73,142.





Following the guidance provided by EITF 00-27 the Company allocated proceeds first to the warrants issuable upon conversion of the note. The value of the warrants was recorded on the balance sheet as debt discounts and increases to shareholder’s equity. The debt discounts are being amortized over the remaining life of the convertible
note.





11
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ANPATH GROUP, INC
CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009





ANPG Lending, LLC


On January 8, 2008, the Company completed a financing transaction with ANPG Lending, LLC, (the “LLC”) pursuant to the terms of a Loan and Security Agreement by and between the Company and the LLC.  Pursuant to the Loan Agreement, the Company issued to the LLC convertible promissory notes for an aggregate principal
amount of $1,500,000. The Loan Agreement also provides that the LLC may make up to an additional $500,000 in advances to the Company in the discretion of the LLC.  In addition to the Notes, the Company issued to the LLC warrants to purchase up to an aggregate of 750,000 shares of the Company’s common stock.  The Warrants have terms of 5 years and are exercisable at an initial exercise price $0.87 per share, subject to certain anti-dilution adjustments.





Pursuant to the Loan Agreement, the Company granted to the LLC a security interest in the Company’s assets and properties to secure the Company’s obligations under the Notes to the LLC.





As a condition to obtaining the Financing, the Company entered into a Securities Repurchase Agreement by and between the Company, the LLC and the Singer Children’s Management Trust (the “Trust”) pursuant to which the Company repurchased from the Trust 250,000 shares of the Company’s common stock and warrants
to purchase up to an aggregate of 750,000 shares of the Company’s common stock at an exercise price of $2.50 per share for an aggregate purchase price of $625,000.  The Company used $625,000 from the LLC to pay the purchase price for the Securities and used $30,000 to pay the lenders legal expenses of the transaction. Pursuant to the Repurchase Agreement, the Company issued to the LLC three additional Warrants to purchase up to an aggregate of 750,000 shares of our common stock. The Warrants have terms
of 5 years and are exercisable at an initial exercise price $0.87 per share, subject to certain anti-dilution adjustments.  The warrants can be exercised using a cashless exercise exchange and will automatically be exercised at the termination of the term if the price of the Company’s common stock on such date is above $0.87 per share, subject to certain adjustments.





As a result of the foregoing transactions, the Company was able to obtain net proceeds of approximately $845,000 to be used for general working capital purposes.





The Notes are due and payable on July 8, 2009.  The Notes bear interest at a rate of 7% per annum and interest accrues and is payable on the maturity date of the Notes.  The Notes are convertible into shares of common stock of the Company at an initial conversion price of $0.87.  The conversion price is subject to certain
anti-dilution adjustments.





In accordance with EITF 00-27, the Company recognized the beneficial conversion feature associated with the notes convertibility into shares and warrants. The total value of warrants was determined using the Black Scholes Option Price Calculation. In employing this model, the following assumptions were used the actual three month T-Bill
rate on the advance dates for the risk-free rate; the actual share price on advance dates; expected volatility of 63%, no dividends and a five year horizon in all Black Scholes Option Price calculations. The total value of warrants was $778,500 and the total value of shares was $721,500.





Following the guidance provided by EITF 00-27 the Company allocated proceeds first to the warrants issuable upon conversion of the note. The value of the warrants was recorded on the balance sheet as debt discounts and increases to shareholder’s equity. The debt discounts are being amortized over the remaining life of the convertible
note. The value of warrants in excess of the actual debt advance amounts were expensed as financing fees.





Forbearance Agreement with ANPG Lending, LLC


On June 26, 2009 the Company agreed to reduce the exercise price of the 1,500,000 warrants outstanding to ANPG Lending LLC to $0.20 in exchange for ANPG Lending LLC agreeing to extend the maturity date of the loans aggregating $1,500,000 from July 8, 2009 to September 8, 2009.





NOTE 5 - COMMITMENTS AND CONTINGENCIES





Operating Leases





The Company has formal operating leases for all of its office and laboratory space. During the three months ended June 30, 2009 the Company renegotiated its office lease in Mooresville, NC. The Company agreed to a monthly lease payment of $5,900 through September 30, 2009. The Company has also entered into a new three year office lease
agreement to begin October 1, 2009 for an office/warehouse combination in Mooresville, NC. Lease payments under the new office lease will be $2,695 per month for the first year and increases 3% for each subsequent year.





Rent expense relating to operating spaces leased was approximately $11,681 and $21,640 for the three months ended June 30, 2009 and 2008, respectively.





Payments Due by PeriodContractual Obligations

Total


Less than 1 year


1-3 years


4-5 years

After 5 yearsOffice Lease

$
117,660


$
41,955


$
75,705


$
-

$
-Total Contractual Cash Obligations

$
117,660


$
41,995


$
75,705


$
-

$
-




12
 Table of Contents





ANPATH GROUP, INC
 CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2009




NOTE 6 - PREFERRED STOCK AND COMMON STOCK





Preferred Stock





As of June 30, 2009, no preferred stock has been issued by the Company.





Common Stock





On October 1, 2008, the Company entered into a consulting agreement with Arthur Douglas and Associates, Inc for investment relations services. The Company agreed to pay compensation to Arthur Douglas and Associates, Inc of 100,000 shares of restricted common stock per month for a period of 12 months. During the quarter ended June 30, 2009,
the Company issued 300,000 shares of restricted common stock valued at $86,000 to Arthur Douglas and Associates.





NOTE 7 - STOCK PURCHASE WARRANTS





The following is a summary of all common stock warrant activity during the year ended March 31, 2009 and the three months ended June 30, 2009:





Number of
Shares Under Warrants


Exercise Price
Per Share


Weighted
Average
Exercise PriceWarrants issued and exercisable at: March 31, 2008


7,940,342


$
.87-5.00


$
2.25Warrants issued


626,600



0.20-0.88



1.97Warrants expired


(248,928
)


5.00



5.00Warrants exercised


(675,000
)


0.20



0.20Warrants issued and exercisable at: March 31, 2009


7,643,014


$
0.20-5.00


$
2.25Warrants issued


1,075,000



0.75



0.75Warrants expired


(3,914
)


5.00



5.00Warrants exercised


-



-



-Warrants issued and exercisable at: June 30, 2009


8,714,100


$
0.20-5.00


$
1.45





The following represents additional information related to common stock warrants outstanding and exercisable at June 30, 2009:





Outstanding and ExercisableRange of Exercise Price


Number of
Shares Under
Warrants

Weighted
Average
Remaining
Contract Life in
Years

Weighted
Average
Exercise Price$
0.20 – 2.50



2,762,500

0.72

$
1.28$
0.20



250,000

2.50


0.20$
0.20 – 2.70



4,113,636

3.23


1.94$
0.20 - 0.88



1,587,964

4.63


.67Total



8,714,100

2.67

$
1.45





The Company used the Black-Scholes option price calculation to value the warrants issued during the three months ended June 30, 2009 and the year ending March 31, 2009 using the following assumptions: risk-free rate of 0.25-4.50%; volatility of 63% to 67; zero dividend yield; the actual exercise term of the warrants issued and the
exercise price of warrants issued.





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ANPATH GROUP, INC
CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009




NOTE 8 - EQUITY COMPENSATION PLAN





The Company has two stock option plans: (a) the 2006 Stock Incentive Plan and (b) the 2004 Equity Compensation Plan which both have been approved by both the Board of Directors and the shareholders. An aggregate amount of common stock that may be awarded and purchased under the Plans is 3,700,000 shares of the Company's common stock.





The exercise price for incentive stock options granted under the 2006 and 2004 Plans may not be less than the fair market value of the common stock on the date the option is granted, except for options granted to 10% stockholders which must have an exercise price of not less than 110% of the fair market value of the common stock on the
date the option is granted. The exercise price for non-statutory options is determined by the Compensation Committee of our Board of Directors. Incentive stock options granted under the plans have a maximum term of ten years, except for grants to 10% stockholders which are subject to a maximum term of five years. The term of non-statutory stock options is determined by the Compensation Committee of our Board of Directors. Options granted under the plans are not transferable, except by will and the laws of descent
and distribution.





Under the Plans during the three months ended June 30, 2009 and the year ended March 31, 2009, the Company granted 1,390,000 and 42,000 stock options to employees and directors. The options were granted with an exercise prices $0.63-0.24 and will fully vest from one to four years of service. The options were valued using the fair value
method as prescribed by SFAS No. 123 (R), resulting in a total value associated with these options for the three months ended June 30, 2009 and the year ended March 31, 2009 of $187,655 and $15,000. Pursuant to SFAS No. 123(R), this amount will be accrued to compensation expense over the expected service term as vested. The accrued compensation expense related to these options for the three months ended June 30, 2009 and 2008 is $39,434 and $72,110 and has been expensed in the three months ended June 30, 2009
and 2008, respectively pursuant to the application of SFAS No. 123(R), and credited to additional paid-in capital.





As of June 30, 2009 there were 920,000 remaining options available to be issued in the 2006 Stock Incentive Plan and the 2004 Equity Compensation Plan.





The following is a summary of all common stock option activity during the year ended March 31, 2009 and the three months ended June 30, 2009:





Shares Under
Options
Outstanding


Weighted
Average
Exercise PriceOptions outstanding at March 31, 2008


2,676,455


$
2.73Options granted


42,000



0.63Options expired


(1,169,903
)


3.01Options exercised


-



-Options outstanding at March 31, 2009


1,548,552



2.49Options granted


1,390,000



0.24Options expired


-



-Options exercised


-



-Options outstanding at June 30, 2009


2,938,552


$
1.42





Options
Exercisable


Weighted
Average
Exercise Price
per ShareOptions exercisable at March 31, 2009


1,548,552


$
2.49Options exercisable at June 30, 2009


1,416,052


$
2.52


14
 Table of Contents





ANPATH GROUP, INC


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2009





The following represents additional information related to common stock options outstanding and exercisable at June 30, 2009:





Range
of
Exercise
Price


Number
Outstanding at
June 30,
2009


Weighted
Average
Remaining
Contractual
Life
Years


Weighted
Average
Exercise
Price
(Total
Shares)


Number
Exercisable
At
June 30,
2009


Weighted
Average
Exercise
Price
(Exercisable
Shares)$
3.40



63,854



5.34


$
3.40



63,854


$
3.40$
5.00



72,333



1.39


$
5.00



72,333


$
5.00$
1.61 - 2.95



22,365



6.96


$
2.06



22,365


$
2.06$
2.00 - 2.85



1,390,000



4.05


$
2.32



1,257,500


$
2.32$
0.24



1,390,000



9.84


$
0.24



-


$
-$
0.63 - 5.00



2,938,552



6.77


$
1.42



1,416,052


$
2.52





Total compensation cost related to non-vested stock options as of June 30, 2009 and March 31, 2009 was $326,322 and $178,101, respectively.





Weighted average period of non-vested stock options was 9.60 years as of June 30, 2009.





The Company used the Black-Scholes option price calculation to value the options granted in the three months ended June 30, 2009 and the year ended March 31, 2009 using the following assumptions: risk-free rate of 1% to 4.5%; volatility of 63% to 67%; zero dividend yield; half the actual term and exercise price of options granted.








NOTE 9 – RELATED PARTY TRANSACTIONS





Our CFO, and a member of our Board of Directors, is a 5% owner and CFO of Mastodon Ventures, Inc. Mastodon provides office space and incidentals for our CFO at no cost to the Company. On April 20, 2009 the Company paid Mastodon $30,000 for consulting services in connection with advising the Company in financing matters.





15
 Table of Contents





ANPATH GROUP, INC


CONDENSED NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS


June 30, 2009





During the year ended March 31, 2009, the Company’s CEO, made loans to the Company in the amount of $102,210.  The loans are due on demand after 90 days and bear interest at 6%. In addition, the Company issued to the CEO five year warrants to purchase up to an aggregate of 116,146 shares of the Company’s common stock
at an exercise price of $0.88 per share. During the three months ended June 30, 2009, the Company paid $8,510 to the CEO in repayment of these loans and $150 in accrued interest. At June 30, 2009 the balance owed to the CEO on these loans was $93,700 plus accrued interest of $4,213.





On September 30, 2008, the Company’s CFO, made a loan to the Company in the amounts of $6,000.  The loan is due on demand after 90 days and bear interest at 6%. In addition, the Company issued to the CFO a five year warrant to purchase up to an aggregate of 6,818 shares of the Company’s common stock at an exercise
price of $0.88 per share. At June 30, 2009 the balance owed to the CFO on this loan was $6,000 plus accrued interest of $273.





At June 30, 2009 the CEO and CFO have deferred their salaries in the amount $87,083 and $52,506, respectively.





NOTE 10 – SUBSEQUENT EVENT





On July 1, 2009 the Company borrowed from various parties the aggregate amount of $357,500. These loans mature on June 30, 2010 and have a mandatory conversion into common stock of the Company on June 30, 2010. These loans bear interest of 8% payable at maturity. Each note is convertible into common stock of the Company at an initial conversion
rate $.50 per share. The actual conversion rate will be based on the previous 20 trading day average price of our common stock. The conversion rate cannot be more than $0.50 or less than $0.20. The loans are initially convertible into 715,000 shares of the Company’s common stock. Detachable warrants were also issued with each note giving the holder the right to purchase an aggregate 715,000 shares of the Company’s common stock at an exercise rice of $.75 per share.





16
 Table of Contents





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





This Report contains certain financial information and statements regarding our operations and financial prospects of a forward-looking nature. Although these statements accurately reflect management’s current understanding and beliefs, we caution you that certain important factors may affect our actual results and could cause such
results to differ materially from any forward-looking statements which may be deemed to be made in this Report. For this purpose, any statements contained in this Report which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may”, “intend”, “expect”, “believe”, “anticipate”, “could”, “estimate”, “plan”, or “continue”
or the negative variations of these words or comparable terminology are intended to identify forward-looking statements. There can be no assurance of any kind that such forward-looking information and statements in any way reflect our actual future operations and/or financial results, and any of such information and statements should not be relied upon either in whole or in part in any decision to invest in the shares. Many of the factors, which could cause actual results to differ from forward looking statements,
are outside our control. These factors include, but are not limited to, the factors discussed under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and incorporated herein by reference.





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





General





Anpath Group, Inc. (“Anpath”, the “Company”, “we”
or “us”) through our wholly-owned subsidiary EnviroSystems, Inc. (“ESI”), produces disinfecting, sanitizing and cleaning products designed to help prevent the spread of infectious microorganisms, while minimizing the harmful effects to people, application surfaces and the environment.  We believe that the ability
to destroy a wide-range of disease-causing microorganisms combined with a favorable profile for health and environmental effects makes our products ideal for use in a wide range of applications/markets that are in need of disinfection/cleaning products that are safe to use and non-toxic.





We are directed by our mission to “Provide a healthier today and a safer tomorrow through knowledgeable people and innovative infection prevention, decontamination, and health science technologies, products, and services.”  We intend to utilize our technology and resources to develop products that reduce biological
risks without introducing the attendant chemical risks that are so prevalent today.





It is this focus on developing safe infection prevention technologies that we believe will position us in the forefront of the industry at a time when there is rapidly growing awareness of the critical need to prevent biological risks — both natural and man-made.





Our headquarters is located at 116 Morlake Drive, Suite 201, Mooresville, North Carolina 28117. Our telephone number is (704) 658-3350.





Primary Technology Platform





We have developed and have trade secret rights to what we believe to be a unique and proprietary Parachlorometaxylenol (more commonly known as PCMX) based chemical emulsion biocide technology platform.  PCMX has been widely used as an antimicrobial in surgical hand and skin scrubs.  Based on this technology, we have
developed a portfolio of efficacious disinfectants/sanitizers/cleaners that achieve bio-decontamination without using toxic & corrosive chemicals.  Our PCMX chemical emulsion biocides have the following characteristics:





●
They kill a wide range of infectious microorganism, including MRSA;





●
They minimize harmful effects to people and do not cause skin, eye, pulmonary, oral or dermal irritation;





●
They are non-corrosive (EnviroTru®/EnviroTru® 1453 are included in the Boeing Qualified Products List (QPL) and conform with AMS-1452A, 1453 & D6-7127 Aircraft Corrosion
Specifications); and





In addition to the foregoing benefits, we also believe that our proprietary PCMX chemical emulsion biocide technology will act as a barrier to competition.





17
 Table of Contents





Product Categories





We believe that the concept of an easy-to-use and effective line of decontaminants that fits with a favorable environmental profile offers us a unique opportunity to differentiate our products in multiple infection prevention markets. It is our intention to use the unique characteristics of our chemical emulsion technology to build
acceptance of our decontaminants as an alternative which is significantly different from other biocidal products that currently dominate the marketplace.  We are exploiting our technology platform to establish a broad product portfolio in the following categories:





●
Surface care products - disinfectants, sanitizers and cleaners (including wipes);





●
Animal care products - skin and hoof care treatment and animal shampoo;





●
Personal care products – antimicrobial hand soaps, hand sanitizers and facial scrubs (including wipes); and





●
Geo-Biocides – biocides for use in the oil and gas industry.





Surface Care Products





We believe that convenience, safety, the effect on air quality and environmental responsibility are increasingly playing a greater role in the buying decision for surface cleaners/disinfectants. We believe that consumers in general have become more health conscious and at the same time have grown more concerned about the effect that
traditional cleaners/disinfectants have on internal and external environments.  Often consumers are required to settle for a trade-off between effectiveness and environmental friendliness.  We believe that our surface care products will provide consumers with products that are both efficacious and safe for the environment.





Our surface care products include the following.





●
EnviroTru®Disinfectant & Cleaner Deodorizer,which is a multi-purpose,
ready-to-use disinfectant, sanitizer and deodorizing cleaner for use on hard surfaces. EnviroTru® is effective against numerous organisms without causing any adverse effects to surfaces, humans or the environment. EnviroTru® is registered by the Environmental Protection Agency (EPA) and meets EPA requirements for Toxicity Category IV (minimal effects
noted, no precautionary or first aid statements required; no harmful dermal, ocular, inhalation or ingestion effects). EnviroTru® also conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for non-corrosion and materials compatibility. EnviroTru® has no special handling requirements, does not require protective clothing, gloves or special
ventilation and is non-flammable.





EnviroTru® is also effective for use in animal housing facilities, including veterinary clinics, farms, equine farms, kennels, livestock houses, swine houses, poultry houses and laboratories.  When used as directed, EnviroTru® will
clean, deodorize and disinfect veterinary feeding and watering equipment, utensils, instruments, cages, kennels, stables, catteries, etc.





●
EnviroTru®1453Disinfectant
& Cleaner Deodorizer, whichis a multi-purpose, ready-to-use disinfectant, sanitizer and deodorizing cleaner for use on aircraft hard surfaces, including exterior and interior surfaces such as cabins, toilets, sinks, faucets, counter tops and luggage compartments. EnviroTru®1453 conforms to AMS 1452A, AMS 1453 and Boeing D6-7127 specifications for non-corrosion
and materials compatibility. EnviroTru®1453 is registered by the Environmental Protection Agency (EPA) and meets EPA requirements for Toxicity Category IV (minimal effects noted, no precautionary or first aid statements required; no harmful dermal, ocular, inhalation or ingestion effects).  EnviroTru®1453 has no special handling requirements,
does not require protective clothing, gloves or special ventilation and is non-flammable.





●
SurfaceTruTMDeodorizing Cleaner, which is a powerful, multi-purpose cleaner
and deodorizer that’s safe for use on a variety of surfaces.  SurfaceTruTM is effective for removing dirt and grime and is gentle to application surfaces, safe for the user and friendly to the environment. It has no special handling requirements, does not require protective clothing, gloves or special ventilation and is non-flammable.





●
SurfaceTruTMCleaning & Deodorizing Wipes, which are powerful cleaning and deodorizing wipes that are packaged in
their own individual foil wrappers for easy portability. Each wipe opens to a large, 9” x 8” durable cloth with a smooth finish that can be conveniently used on a variety of surfaces. SurfaceTruTM Wipes can be carried with you for use when an immediate need for an effective, yet gentle cleaner arises.





●
Electrostatic Sprayers.   In addition to the foregoing products, we also market electrostatic sprayers produced by Electrostatic Spraying Systems, Inc. (“ESS”) which may be used to apply our liquid
surface care products to the target surfaces. Electrostatic sprayers provide superior spray coverage by more effectively dispensing solutions compared to conventional sprayers; tests have demonstrated 4-10 times better coverage. Electrostatic sprayers operate by producing highly charged spray droplets using a unique embedded induction electrode design. This induction charging results in spray droplets that have a force of attraction that is 75 times that of gravity. This means droplets will reverse direction
and move upwards, against gravity, to coat hidden surfaces, and wrap around objects resulting in complete, even coverage of the target. When using an electrostatic sprayer it is possible to deliver ESI’s liquid disinfectants and cleaners to difficult to reach locations that may harbor disease-causing microorganisms.





18
 Table of Contents





In October 2008, we announced that ESI entered into a prime distributor agreement with ESS.  Using ESS electrostatic sprayers in conjunction with our EnviroTru® Disinfectant Cleaner creates an electrostatically charged decontamination system
which provides an efficient system to quickly administer EnviroTru® Disinfectant Cleaner to large areas, difficult to reach spaces, or to high-traffic areas that require frequent treatment. This system substantially improves the bio-availability of EnviroTru®.  The result is reduced manpower costs and simultaneously improved coverage,
reducing the threat of disease-causing microorganisms.  In summary, the system offers an extremely efficient, cost-effective way to realize the advantages of EnviroTru®.





Future Surface Care Products





We are conducting research and development and are planning to reintroduce a hospital grade disinfectant product to replace one of our earlier products called EcoTru®.  The reformulated disinfectant is expected to demonstrate through testing that it will effectively kill numerous bacteria, fungi, and viruses, including MRSA,
Hepatitis B and C, HIV, herpes and influenza. Likewise, in addition to being highly effective as a disinfectant, our reformulated hospital grade product is expected to occupy a unique position in the market place, combining this microbial effectiveness in a disinfectant product which will also have a favorable profile for health and environmental effects.





Animal Care Products





We believe that the microorganism killing properties of our products, combined with their safety profile, make them ideally suited for use as a topical treatment for skin ailments caused by microorganisms.  We have worked to develop products for use on animals and have focused initially on the equine market with the introduction
of EquineTru®Skin and Hoof Treatment.  EquineTru® Skin & Hoof Treatment is an antiseptic that may be used to rapidly, safely and effectively treat common skin and hoof conditions caused by microorganisms
without irritating a horse’s skin or drying out its hoofs.  The active ingredient used in EquineTru® Skin and Hoof Treatment, PCMX, has been widely used as an antimicrobial in surgical hand and skin scrubs and it is successfully used as a topical antiseptic for skin and mucous membranes.  It is also used as a fungicide in a variety of applications.  EquineTru® Skin and Hoof Treatment has been reviewed and cleared for market by the Center for Veterinary Medicine (CVM),
a division of the U.S. Food and Drug Administration (FDA). Its use is permitted for United States Equestrian Federation (USEF) and Fédération Equestre Internationale (FEI) regulated competitions.





Future Animal Care Product Considerations





We are working on developing several variations of EquineTru® Skin and Hoof Treatment for specific application, an animal shampoo and skin treatments for household pets.





Personal Care Products





Personal care products such as antimicrobial hand soaps and hand sanitizers, have traditionally been purchased by hospitals and health clinics.  However, due to an increased awareness of germs and transmission of disease, individual consumers as well as institutional buyers such as health clubs, schools, restaurants and grocery
stores are increasingly purchasing these products.  These consumers, however, appear to have little understanding of the benefits and/or adverse consequences of the products they choose.





In response to what we believe will be an increasing market for these products, we are developing our KeraTruTMPersonal
Care line of products which will include hand sanitizers and antimicrobial soaps.  Our KeraTruTM personal care line of products are safe and include several alcohol free products and we believe that they are more than or as effective as the leading brands.





Geo Biocides





In response to requests from members of the oil & gas industry for a non-toxic but effective disinfectant to replace toxic biocides used in hydraulic fracturing, we developedGeoTruTM Concentrate designed to be used as a “down-hole”
biocide in the oil & gas industry.  GeoTruTM Concentrate is a surfactant-based anionic chemistry with extended shelf life that is effective when used under aerobic or anaerobic conditions.  It is active over a wide pH range and is non-oxidizing and nonreactive with other down-hole chemistries and designed to be used particularly in hydraulic fracturing.





Results of Operations





Three Months Ended June 30, 2009 compared to Three Months Ended June 30, 2008





Revenues.  Our revenues for the three months ended June 30, 2009 and 2008 were $141,400 and $18,359, respectively.  This is an increase of $123,041. This increase is directly attributive to repeat orders from our distributors and increased market demand, particularly
within the airline industry and a general concern related to pandemics. Our products initially become available for sale in September 2008.





19
 Table of Contents





Revenues from the sales of SurfaceTru® Cleaning & Deodorizing Wipes for the three months ended June 30, 2009 and 2008 were $320 and $13,808. Revenues from the sales of EnviroTru® and
EnviroTru 1453®for the three months ended June 30, 2009 and 2008 were $121,035 and $3,960. Revenues from the sales of the Electro-Static Sprayer for the three months ended June 30, 2009 and 2008 $19,200 and $-0-. The Electro-Static Sprayer was not available for sale in the prior year. Revenues from the sales of EquineTru® for the three months ended June 30, 2009 and 2008 were $845 and $591.





Revenues for the three months ended June 30, 2009 and 2008 were composed of the following:




Three Months Ended June 30,Products

2009


2008Electro-Static Sprayer


13.59
%


-SurfaceTru® Cleaning & Deodorizing Wipes


0.23
%


75.21
%EnviroTru®and EnviroTru 1453®


85.60
%


21.57
%EquineTru®


0.60
%


3.22
%





Cost of Sales. Cost of sales for the three months ended June 30, 2009 and 2008 were $105,503 and $25,257, respectively, an increase of $80,246.  As a percentage of revenues, for the three months ended June 30, 2009 and 2008, cost of sales represented 74.61% and 137.57% of
revenues, respectively.  Cost of sales includes an additional $22,354 and $13,514 in raw materials that the Company provided to our contract manufacture. This material was produced prior to our current contract manufacturing contract. Under our current contract our manufacturer is to provide all raw materials cost. Cost of sales adjusted for these additional amounts for the three months ended June 30, 2009 and 2008 would be $83,149 and $11,743 and represents 58.80% and 63.96% of revenues, respectively.
At June 30, 2009 the Company did not have any further raw materials on hand.





Operating Expenses. Total operating expenses for the three months ended June 30, 2009 and 2008 were $1,137,336 and $834,057, respectively, an increase of $303,279 or 36%.  Individual components of the change in operating expenses are as follows:





●
Sales expense decrease of $32,416 or 33.93% for the three months ended June 30, 2009 and 2008


●
Product development expense decrease of $40,085 or 37.60% for the three months ended June 30, 2009 and 2008


●
Corporate expense decrease of $49,603 or 25.73% for the three months ended June 30, 2009 and 2008


●
Finance and administrative expense decrease of $9,102 or 6.77% for the three months ended June 30, 2009 and 2008


●
Consultant expense increase of $61,125 or 107.47% for the three months ended June 30, 2009 and 2008


●
Compensation cost for re-pricing warrants expense increase of $265,383 for the three months ended June 30, 2009 and 2008


●
Financing expense increase of $109,437 or 43.78% for the three months ended June 30, 2009 and 2008




Sales. The decrease in sales expense for the three months ended June 30, 2009 compared to 2008 is attributed to a decrease of one employee and associated benefits of $13,303, a reduction of office lease cost of $5,816, and an effort to reduce and control travel and trade show
expenses by the department of $4,763. Various other cost had a net decrease of $8,534 for the three months ended June 30, 2009 compared to 2008.





Product Developement. The decrease in product development expenses for the three months ended June 30, 2009 compared to 2008 is attributed to a decrease of one employee and associated benefits of $23,220 and a reduction of product testing cost of $12,950. Various other cost
had a net decrease of $4,915 for the three months ended June 30, 2009 compared to 2008.





Corporate. The decrease in corporate expense for the three months ended June 30, 2009 compared to 2008 is attributed to a decrease in legal fees of $8,247, a decrease in office lease cost of $8,924, a decrease in insurance cost of $11,087 and a decrease in compensation cost
of options awards of $21,475. Various other cost had a net increase of $130 for the three months ended June 30, 2009 compared to 2008.





Finance and Administrative. The decrease in finance and administrative expenses for the three months ended June 30, 2009 compared to 2008 is attributed to a decrease in professional fees of $10,485.  Various other cost had a net decrease of $1,383 for the three months
ended June 30, 2009 compared to 2008.





Consulting.Consultants are usually compensated through the issuance of restricted stock or the issuance of common stock warrants. Consulting cost increased to $116,000 for the three months ended June 30, 2009 as compared to $56,875 for the three months ended June 30,
2008, an increase of $61,125 or 107.47%. Restricted stock was issued in the three months ended June 30, 2009 and 2008 in the amounts of $86,000 and $-0-. A portion of the decrease is attributed to the intrinsic cost of issuing Stock warrants which are calculated using the Black-Scholes Option pricing model. Expenses related to the Black-Scholes valuation method in the three months ended June 30, 2009 and 2008 amounted to $-0- and $56,875, respectively, a decrease of $56,875.  In the three months ended
June 30, 2009 and 2008 we paid cash compensation of $30,000 and $-0-, respectively.





Compensation Cost for Re-Pricing Warrants. Compensation Cost for Re-Pricing Warrants increased to $$265,383 for the three months ended June 30, 2009as compared to $-0- for three months ended June 30, 2008, an increase of $265,383. We did not re-price warrants in the three
months ended June 30, 2008.





Financing Expense.Financing cost increased to $359,437 from $250,000 for the three months ended June 30, 2009 and 2008, an increase of $109,437 or 43.78%. The increase is attributed to additional financing with convertible debt and detachable warrants.





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Liquidity and Capital Resources





For the three months ended June 30, 2009, we used net cash of $488,022 in operating activities, compared with $384,007 of net cash used in operating activities for the three months ended June 30, 2008, in comparison to the same period in the prior year, this is an increase in net cash used in operating activities of $104,015 from the prior.





We had net cash provided by financing activities of $518,324 for the three months ended June 30, 2009 compared with $100,000 provided by financing activities for the three months ended June 30, 2008. Cash provided by financing activities for the three months ended June 30, 2009, includes $591,834 from the issuance of note payables and the
payment of notes payables of $73,510. Cash provided by financing activities for the three months ended June 30, 2008 includes $100,000 from the exercise of warrants.





At June 30, 2009 and March 31, 2009, we had cash and cash equivalents available in the amounts of $41,533 and $11,231, an increase of $30,302.





Subsequent to June 30, 2009 we are actively seeking to raise up to $4,000,000 in a private placement of our common stock.




Contractual Obligations





We have entered into a lease agreement for an office lease beginning October 1, 2009. The office lease requires us to pay $99,960 over a three year period beginning. We have an option to extend this lease for an additional year. The office is located in Mooresville, NC.





Our current office lease requires us to pay $5,900 per month through September 30, 2009.





Effective August 1, 2006, EnviroSystems, Inc., our wholly owned subsidiary, which we refer to as ESI, entered into a manufacturing agreement with Minntech Corporation, a Minnesota corporation pursuant to which Minntech has agreed to be the exclusive U.S. manufacturer of EnviroSystems' liquid products.





The Manufacturing Agreement provides the terms and conditions pursuant to which Minntech will manufacture and supply to ESI all of ESI's requirements for its products.  Manufacturing of products commenced in September 2008. The Manufacturing Agreement has a term of three years commencing after the first shipment of commercial
quantities of the Product by Minntech to ESI, provides for automatic one year renewals if not terminated by one of the parties. The Manufacturing Agreement may be terminated by either party upon 90 days prior written notice.





Payments Due by PeriodContractual Obligations

Total


Less than 1 year


1-3 years


4-5 years


After 5 yearsOffice Lease

$
117,660


$
41,955


$
75,705


$
-


$
-Total Contractual Cash Obligations

$
117,660


$
41,955


$
75,705


$
-


$
-





CRITICAL ACCOUNTING POLICIES AND ESTIMATES





Management's discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements. These statements have been prepared in accordance with generally accepted accounting principles in the United States of America. All inter-company balances and transactions have been eliminated in consolidation.





Use of estimates in preparation of financial statements





The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, based on historical experience, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following critical accounting policies rely upon assumptions, judgments and estimates and were used in the preparation
of our consolidated financial statements:





Trade Secret





The recorded value of the Company’s trade secret relating to the formula/formulation of ESI’s products at the time acquired by the Company was based upon the valuation of an independent appraiser. In accordance with SFAS No. 142, the Company has determined that its trade secret has an indefinite life. Accordingly, it is not
subject to amortization, but is subject to the Company’s annual assessment of prospective impairment. As of June 30, 2009 and March 31, 2009 no impairment of this trade secret was deemed necessary.


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Impairment of Long Lived Assets





We assess potential impairment of our long lived assets, which include our property and equipment and our identifiable intangibles such as our trade secrets under the guidance of Statement of Financial Standards No. 144Accounting for the Impairment or Disposal of Long Lived
Assets.   Once annually, or as events and circumstances indicate that an asset may be impaired, we assess potential impairment of our long lived assets. We determine impairment by measuring the undisclosed future cash flows generated by the assets, comparing the results to the assets' carrying value and adjusting the assets to the lower of the carrying value to fair value and charging currant operations for any measured impairment.





Revenue Recognition





Revenue is generally recognized and earned when all of the following criteria are satisfied: a) persuasive evidence of sales arrangements exists; b) delivery has occurred; c) the sales price is fixed or determinable, and d) collectibility is reasonably assured.





Persuasive evidence of an arrangement is demonstrated via a purchase order from our customers. Delivery occurs when title and all risks of ownership are transferred to the purchaser which generally occurs when the products are shipped to the customer. No right of return exists on sales of product except for defective or damaged products.
The sales price to the customer is fixed upon acceptance of purchase order. To assure that collectibility is reasonably assured we perform ongoing credit evaluations of all of our customers.





Contingent Liability





In accordance with Statement of Financial Accounting Standards Interpretation No. 14, we may have certain contingent liabilities with respect to material existing or potential claims, lawsuits and other proceedings. We accrue liabilities when it is probable that future cost will be incurred and such cost can be measured.





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.





ITEM 4T. CONTROLS AND PROCEDURES





(a) Disclosure Controls and Procedures.





In connection with the preparation of this Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (Exchange Act)).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. 
Based on such evaluation, and in light of the previously identified material weakness in internal control over financial reporting, as of March 31, 2009, relating to the lack of appropriate accounting policies and related procedures described in the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2009, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2009, the Company’s disclosure controls and procedures were ineffective.





(b) Changes to Internal Control Over Financial Reporting.





There have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2009, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.





PART II. OTHER INFORMATION





Item 1A. Risk Factors





There have been no material changes to the Risk Factors described in Part I, Item 1A-Risk Factors in our annual report on Form 10-K for the fiscal year ended March 31, 2009.





Item 6. Exhibits





Exhibit 31.1

Certification of the CEO Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2

Certificate of the CFO Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1

Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.


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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.





Anpath Group, Inc.August 14, 2009
By:/s/ J. Lloyd BreedloveJ. Lloyd Breedlove
President, Chief Executive Officer (Principal Executive Officer)
















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EXHIBIT INDEX








Exhibit 31.1

Certification of the CEO Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 31.2

Certificate of the CFO Pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, asAdopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Exhibit 32.1

Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.







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