Annual-Transition Report — Form 10-K Filing Table of Contents
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(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class registered:
Name
of each exchange on which registered:
None
None
Securities
registered under Section 12(g) of the Exchange
Act:
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o
No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o
No x
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
o No o
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). o Yes
o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. 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.
Large
accelerated filer
o
Accelerated
filer
o
Non-accelerated
filer
(Do
not check if a smaller reporting company)
o
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter: $0
We
operate our business through our subsidiary, Bioneutral Laboratories Corporation
USA (“Bioneutral Laboratories”). Bioneutral Laboratories is a specialty chemical
company, organized in 2003 to commercialize a novel combinational
chemistry-based technology which can neutralize harmful environmental
contaminants, toxins and dangerous micro-organisms including bacteria, viruses
and spores.
On
January 30, 2009, we entered into a Share Exchange Agreement with Bioneutral
Laboratories, and the shareholders of BioNeutral Laboratories. Pursuant to the
Share Exchange Agreement, we agreed to issue to the shareholders of BioNeutral
Laboratories 45,000,000 shares of its common stock. As of the Closing Date, we
issued 42,649,500 shares to the shareholders of Bioneutral Laboratories. The
remaining 2,350,500 shares were issued to the preferred shareholders of
Bioneutral Laboratories within 30 days of the Closing Date pursuant to a
mandatory conversion feature of the preferred shares. Additionally, at Closing,
we issued 600,000 shares to six investors who purchased debentures in Bioneutral
Laboratories and agreed to convert those debentures into shares of common stock
per the terms of the Share Exchange Agreement. Additionally, we issued 50,000
shares of common stock to Anslow & Jaclin, LLP as partial compensation for
legal services.
As a
result of the closing of the Share Exchange Transaction, Bioneutral Laboratories
became our subsidiary, and the shareholders of Bioneutral Laboratories acquired
our majority ownership and control. We reviewed Statements of Financial
Accounting Standards (“SFAS”) No. 141 (“SFAS 141”) Business Combinations and
determined that Bioneutral Laboratories was the accounting acquirer and the
entity which would be continuing operations. As a result, the
transaction between Bioneutral Laboratories and us was accounted for as a
reverse acquisition in accordance with SFAS 141.
Business
Overview
We are
specialty chemical company in the State of Nevada to commercialize a novel
combinational chemistry-based technology which can neutralize harmful
environmental contaminants, toxins and dangerous micro-organisms including
bacteria, viruses and spores.
The
formulations, including Ygiene™ and Ogiene™, are eco-friendly and include
natural and common ingredients which are found in baby products and in every day
foods. We are able to combine these widely-used compounds in unique ways to
create products that enhance our cleaning results. Our proprietary platform
technology has been proven effective in surface, water and airborne
applications. Our products include BioNeutralizers and
ChemoNeutralizers. A brief description of our products is
below.
Products
We have
two classes of formulations: (1) antimicrobials (Ygiene™); and (2)
bioneutralizers (Ogiene™). The antimicrobials kill a broad spectrum
of harmful microbes, including virulent gram and bacteria (which cause
staph infections), viruses, yeast, mold, fungi, spores and certain bioterrorism
agents such as anthrax. The bioneutralizers destroy a wide range of
toxic and noxious agents, particulates and their associated odors. Of
particular importance is the neutralization of hydrogen sulfide, carbon dioxide,
sulfur dioxide, formaldehyde and ammonia that are known contributors to foul
odors and/or greenhouse gases.
-1-
Ygiene™, the trade name for
our antimicrobial products, targets and binds to specific surface proteins,
penetrates the microbe’s cellular structure and alters the contents of the
cell. Our studies have verified that the antimicrobial formulation
possesses the effectiveness of chlorine bleach or caustic soda without the
toxicity or danger of use. The formulations have been proven to kill
over 200 microbes, including Methicillin resistant Staphylococus Aureus (MRSA),
multi-drug resistant Pseudomonas Aeruginosa, and E. Coli. The antimicrobials have
been shown to provide large Zones of Inhibition and tests have verified high
potency across a wide spectrum of harmful microbes. Although full
toxicity studies are to be completed early next year, the company believes that
the products are relatively safe to use due to the nature of the components in
the formulations. In addition, the Company's antimicrobial
formulations are “green” in nature and in fact are all environmentally
friendly.
As a
surface disinfectant, Ygiene™’s efficacy exceeded leading commercial brand
antimicrobials. Its antimicrobial properties were more effective
against Anthrax than chlorine dioxide and formaldehyde, and it has a proven
ability to kill a variety of molds, including those associated with “sick
building syndrome”.
Ygiene™
is peroxy based and can deliver more active ingredient than any currently
available anti-microbial. It can kill health threatening spores on contact
inclusive of Black Mold, Anthrax and C. diff.
There are
three categories of Ygiene formulations that are intended to serve a broad range
of markets:
·
Military/first
responders/hospital sterilant/specialty industrial: “kill on
contact” for anthrax and all
micro-organisms.
·
Hospital/health
care/mold/industrial applications: high level disinfection for
hospitals and other health care facilities, eradication of mold and
industrial cleaning in food preparation and other demanding environments.
It will kill organisms in less than 1 minute and will perform to a very
high standard.
·
Consumer products/light
industrial/health care: it can be used in general areas of
the hospital, nursing home, physician or dental office. It is very mild
yet sporacidal, bactericidal and viracidal, and can be used as a superior
skin sanitizer.
Ogiene™, the trade name for
our bioneutralizers, eliminates odors of many chemicals, including hydrogen
sulfide, formaldehyde and ammonia; and is effective against many greenhouse
gases such as carbon dioxide and sulfur dioxide. It can be used for
odor control in a variety of uses and we plan to market this product for hotels,
restaurants, industrial manufacturing, controlled animal feeding operations
(CAFOs) and homes. We believe that Ogiene™ will effectively
neutralize gases that are poisonous and considered Weapons of Mass Destruction
(WMDs).
Ogiene™
formulation interacts with the functional organic or inorganic groups of harmful
gases removing them from the air. It can be used to remove industrial pollution,
environmental contaminants, and protection against chemical weapons of mass
destruction. Ogiene™ is rapidly acting and effective on a wide variety of gases.
In addition, usually no or minimal clean up is required and Ogiene™ is
non-toxic. Ogiene™ is effective in the gas phase – being applied as a fog, mist
or spray – or in the liquid phase – being applied directly to liquid
contaminates. The toxic gases and odors that Ogiene™ can eliminate
include:
·
Formaldehyde
·
Ammonia
and carbon dioxide
·
Sulfur
dioxide/ nitrogen oxide (green house
gases)
·
Cigar
smoke
-2-
The
following illustrates the effectiveness of Ogiene™ on some model
gases:
Gas
Threshold
Smell
Levels
in Test
%
Reduced in 10 seconds
%
Reduced in 1 minute
H2S
2ppb
20-50ppm
50
95
NH3
17ppm
20-50ppm
25
80
SO2
3ppm
50-150ppm
99
100
CO2
na
2000ppm
10
25
Formaldehyde
0.8ppm
17-41ppm
80
99
Acetic
Acid
0.4ppm
17-25ppm
20
60
The chart
below demonstrates the rate of gas removal by Ogiene™:
The chart
above demonstrates that the active ingredients of our product can rapidly treat
a wide variety of gases. Our technology platform provides excellent delivery
capabilities of active ingredients and is more than sufficiently robust to
address the elimination of a broad range of gases. This is important since
household, institutional and industrial odors and irritating gases can be the
result of either a single odoriferous compound or the result of a multiplicity
of odoriferous compounds or components. These odor causing components include
various organic carboxylic acids, aldehydes, ketones, amines, mercaptans,
sulfides, disulfides, esters, etc. In addition, various inorganic compounds such
as ammonia, hydrogen sulfide, sulfur dioxide may add to the complexity of
specific odors.
In
general, the Ygiene™ and Ogiene™ formulations have the following interesting
characteristics/capabilities:
·
Family
of “green” formulations which are lethal to spores, bacteria’s and viruses
at room temperature;
·
Formulation
can be manipulated, depending upon the needs of the market, to address
requirements that can vary:
o
the
kill time from seconds to minutes;
o
the
breadth of kill, and the class of organisms up to the most difficult to
eradicate spores.
-3-
·
The
ingredients, when combined, have lower toxicity and far greater
efficacy;
·
The
formulations are stable, non corrosive, non flammable and water
soluble.
·
The
formulations can be applied as a liquid, wet wipe, spray, mist/fog or
foam/froth and can be applied to air, surface and
water.
Our
Customers
We will
market and sell our products to consumers, commercial and military chemical
firms. We have already been in contact with several potential
customers, including:
·
A
leading international defense and technology company that provides
products for the electronics, aerospace and shipbuilding industries to the
government and commercial customers. This company would
primarily be interested in BioNeutral’s Ygiene™ for its antimicrobial
properties (such as anthrax remediation) and Ogiene™ to neutralize
toxic gases.
·
A
leading manufacturer of cleaners, including laundry and floor care
products, where Ygiene™ could be used in detergents as an antibacterial
and anti-mold agent.
·
A
leading cleaning and maintenance products company where Ygiene™ could be
used as an antibacterial in cleaners and water care
products.
·
A
major cleaning and cleaning products international firm where YgieneTM would be used as a
major product extension for our targeted
markets.
Marketing
Our plan
is to develop a small, highly capable, experienced business team to market,
license, sell and distribute its products to major international companies in
our target industries. These major customers will have the financial
ability, marketing and distribution skills to successfully sell BioNeutral
products efficiently. Current major markets include hotels,
restaurants and hospitals. We anticipate that our major markets will
include the military, power generation, CAFOs, mold remediation, surgical
equipment sterilization and wastewater treatment
facilities. Rapid and sustained revenue growth will require a
combination of technical, marketing and specific application
development.
We will
provide for two marketing initiatives: (1) BioNeutral will engage a
contract manufacturer to produce finished products and then resell them to
BioNeutral’s distributors/customers; and (2) BioNeutral will use a contract
manufacturer to produce the component which will be sold to a customer who will
manufacture the finished products for mass distribution using the customer’s
brand name. It is intended that all products will require the use of
BioNeutral’s registered trademarks of Ogiene™ and Ygiene™. For
narrowly defined applications, the Company intends to offer exclusive
marketing arrangements in which BioNeutral will receive an upfront license fee,
and the licensee will be responsible for agreed-upon sales
requirements.
We plan
to adjust pricing based upon the demand for each product and the value added for
products. We will employ a public relations firm who will assist us
in conveying the message about the unique properties of our products through
specific industry trade journals.
As soon
as the EPA certifies YgieneTM, the Company will commit most
of its resources to application development, marketing and business development
to accelerate commercialization as rapidly as possible.
-4-
Intellectual
Properties
Intellectual
property includes patent application for the formulations, the
manufacturing process, and the trademarks of Ogiene™ and Ygiene™.
In March
2005, the Company filed a non-provisional patent application for the composition
of matter of its formulations, the manufacturing process and a number of
applications. BioNeutral filed a “Continuation in Part” in May 2006
relating to additional formulation technology and another “Continuation in Part”
in May 2007 protecting the recent commercial formulations. A new additional
patent was filed in May 2008 for Ogiene™FE to protect the Formaldehyde
applications.
The
Company believes its patent claims are unique within its chemical composition
space. Prior lab and field tests have verified about 80 potential
applications. As the Company continues to utilize its technology
platform and complement its product offerings, it plans to aggressively protect
its technology and products by filing patent applications.
Regulatory
Approvals
Ogiene™
products do not rely upon antibiotic or pesticide activity, and therefore are
not covered under the Federal Insecticide, Fungicide and Rodenticide Act
(FIFRA). All of the ingredients in Ogiene™ have been approved by the
EPA under the Toxic Substance Control Act (TSCA).
Ygiene™
is a pesticide under FIFRA and will require EPA registration for disinfectant
claims and FDA registration for sterilant claims. The EPA process
typically takes eight to nine months and costs about $100,000. The
FDA sterilant process typically takes 13 to 18 months with an approximate cost
of $400,000. The Company has completed raw material sourcing and manufacturing
scale-up at the contract manufacturer. The formulation has passed
initial EPA screening tests for hard surface disinfectant and mold use and three
batches have been produced for the EPA certification
process. Toxicity studies will be conducted after adequate
financing is achieved with an expected completion by the August
2009. After these independent efficacy and toxicity tests are
completed, the first application for certification will be submitted to the
EPA. Approval is expected by April 2010.
DESCRIPTION
OF PROPERTIES
We are
located at New Jersey Institute of Technology, 211 Warren Street, Newark, NJ07103.
DESCRIPTION
OF LEGAL PROCEEDINGS
There is
no pending litigation against us.
ITEM
1A. RISK FACTORS
RISK
FACTORS
You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment decision
with regard to our securities. The statements contained in or incorporated into
this offering that are not historic facts are forward-looking statements that
are subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward looking statements. If
any of the following risks actually occurs, our business, financial condition or
results of operations could be harmed. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.
Risks
Related to Our Business
We
need to raise additional capital or take other measures in the next few months
in order to continue our operations and the current credit and financial
environment is very uncertain.
Our cash flow projections presently indicate that our current assets and
projected revenues will not be sufficient to fund operations over the coming
twelve months. As such, we will need to raise additional financing or take other
measures within the next few months in order to continue its operations.
However, as a newly formed business, our ability to accurately project revenues
and expenses can be significantly impacted by unforeseen events, developments
and contingencies that cannot be anticipated. As such, there can be
no assurance that management’s plans to raise additional financing will be
successful or sufficient in order to sustain our operations over the coming
twelve months.
-5-
Our
business is subject to numerous risks as an early stage company.
Our
operations are dependent upon us building a successful level of revenues to
sustain our operations and with little history to draw on and limited experience
in this business, our business faces numerous risks to potential success
including but not limited to customer acceptance of our products, competition,
having the human and financial resources to achieve our plans, etc. There is no
assurance that our business will be successful.
We
have limited operating history.
We have
only recently commenced the marketing and sale of our bioneutralizers, odor
controllers and antimicrobial applications. Prospective investors in our
securities have limited operating history on which to base an evaluation of
our future performance. Our prospects must be considered in light of the risks,
expenses, and difficulties frequently encountered by companies in an early stage
of development, particularly companies in new or rapidly evolving markets.
Although we believe that we have developed a model that will be successful,
there can be no assurance that we will be able to achieve or sustain
profitability, or generate sufficient cash flow to meet our capital and
operating expense obligations. As a result, you could lose your entire
investment.
We
may be unable to manage our growth.
We are
planning for rapid growth and intend to aggressively build our company. The
growth in the size and geographic range of our business will place significant
demands on management and our operating systems. Our ability to manage our
growth effectively will depend on our ability to attract additional management
personnel; to develop and improve our operating systems; to hire, train, and
manage an employee base; and to maintain adequate service capacity.
Additionally, the proposed rapid roll-out of our products and operations may
require hiring additional management personnel to oversee procurement and
materials management duties. We will also be required to rapidly expand our
operating systems and processes in order to support the projected increase in
product applications and demand. There can be no assurance that we will be able
to effectively manage growth and build the infrastructure necessary to achieve
its rapid roll-out plan.
Our
success depends on our ability to retain our key personnel.
Our
present and future performance will depend on the continued service of our
senior management personnel, key sales personnel, and consultants. Our key
employees include Stephen Browand, our Chairman and Chief Executive Officer and
Dr. Andy Kielbania, our Chief Scientist. The loss of the services of any of
these individuals could have an adverse effect on us. We currently do not have
long term employment agreements with our officers. We do not maintain any key
man life insurance on any of our key personnel.
We
may not be successful in protecting our intellectual property and proprietary
rights and we may be required to expend significant amounts of money and time in
attempting to protect our intellectual property and proprietary rights and if we
are unable to protect our intellectual property and proprietary rights our
competitive position in the market could suffer.
We have
applied for patents to protect our proprietary technologies relating to our
unique cleaning and odor-removing products. In addition, we currently hold two
registered trademarks pertaining to our intellectual property
rights. If we fail to successfully enforce our intellectual property
rights, our competitive position could suffer, which could harm our operating
results. Patents may not be issued for our patent applications that we may file
in the future or for our patent applications we have filed to date, third
parties may challenge, invalidate or circumvent any patent issued to us,
unauthorized parties could obtain and use information that we regard as
proprietary despite our efforts to protect our proprietary rights, rights
granted under patents issued to us, if any, may not afford us any competitive
advantage, others may independently develop similar technology and protection of
our intellectual property rights may be limited in certain foreign countries. We
may be required to expend significant resources to monitor and police our
intellectual property rights. Any future infringement or other claims or
prosecutions related to our intellectual property could have a material adverse
effect on our business. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management’s attention
and resources, or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us, if at all. We may not be in a position to properly protect our
position or stay ahead of competition in new research and the protecting of the
resulting intellectual property.
-6-
Although
we believe that our products do not and will not infringe upon the patents or
violate the proprietary rights of others, it is possible such infringement or
violation has occurred or may occur which could have a material adverse effect
on our business.
In the
event that products we sell are deemed to infringe upon the patents or other
proprietary rights of third parties, we could be required to modify our products
or obtain a license for the manufacture and/or sale of such products and
services. In such event, we cannot assure you that we would be able to do so in
a timely manner, upon acceptable terms and conditions, or at all, and the
failure to do any of the foregoing could have a material adverse effect upon our
business. Moreover, we cannot assure you that we will have the financial or
other resources necessary to enforce or defend a patent infringement or
proprietary rights violation action. In addition, if our products or proposed
products are deemed to infringe or likely to infringe upon the patents or
proprietary rights of others, we could be subject to injunctive relief and,
under certain circumstances, become liable for damages, which could also have an
adverse effect on our business.
We
may not be able to timely fill orders for our products.
In order
for us to successfully market our products, we must be able to timely fill
orders for our product line. Our ability to timely meet our supply requirements
will depend on numerous factors including our ability to successfully maintain
an effective distribution network and to maintain adequate inventories and our
ability of the Company’s sole supplier to adequately produce the Company’s
products in volumes sufficient to meet demand. Failure of the Company to
adequately supply its products to retailers or of the Company’s supplier to
adequately produce products to meet demand could materially adversely impact the
operations of the Company.
Unavailability
of raw materials used to manufacture our products, increases in the price of the
raw materials, or the necessity of finding alternative raw materials to use in
our products could delay the introduction and market acceptance of our
products.
Our
failure to procure adequate supplies of raw materials could delay the commercial
introduction or shipment and hinder market acceptance of our eco-friendly
cleaning products.
We
are dependent on third parties to transport our products, so their failure to
transport our products could adversely affect our earnings, sales and geographic
market.
We will
use third parties for the vast majority of our shipping and transportation
needs. If these parties fail to deliver our products in a timely fashion,
including due to lack of available trucks or drivers, labor stoppages or if
there is an increase in transportation costs, including due to increased fuel
costs, it would have a material adverse effect on our earnings and could reduce
our sales and geographic market.
Our
company is subject to regulation by the Federal Trade Commission with respect to
our environmental marketing claims.
We
advertise our products as eco-friendly and “green” cleaning products and must
conform with the Federal Trade Commission’s Guides for the use of Environmental
Marketing Claims (the “Guides”). In the event Federal Trade Commission (“FTC”)
determined that our products are not in compliance with the Guides and
applicable State law regulations, the FTC may bring enforcement actions against
on the basis that our marketing claims are false or misleading. Such action
could have a material adverse affect on our business operations.
-7-
Risks
Related to Our Corporate Governance and Common Stock
Our
common stock is classified as a “penny stock” as that term is generally defined
in the Securities Exchange Act of 1934 to mean equity securities with a price of
less than $5.00. Our common stock will be subject to rules that
impose sales practice and disclosure requirements on broker-dealers who engage
in certain transactions involving a penny stock.
We are
subject to the penny stock rules adopted by the Securities and Exchange
Commission that require brokers to provide extensive disclosure to its customers
prior to executing trades in penny stocks. These disclosure requirements may
cause a reduction in the trading activity of our Common Stock, which in all
likelihood would make it difficult for our stockholders to sell their
securities.
Rule
3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a
"penny stock," for purposes relevant to us, as any equity security that has a
minimum bid price of less than $5.00 per share or with an exercise price of less
than $5.00 per share, subject to a limited number of exceptions which are not
available to us. It is likely that our shares will be considered to be penny
stocks for the immediately foreseeable future. This classification severely and
adversely affects any market liquidity for our Common Stock.
For any
transaction involving a penny stock, unless exempt, the penny stock rules
require that a broker or dealer approve a person's account for transactions in
penny stocks and the broker or dealer receive from the investor a written
agreement to the transaction setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person's account for
transactions in penny stocks, the broker or dealer must obtain financial
information and investment experience and objectives of the person and make a
reasonable determination that the transactions in penny stocks are suitable for
that person and that that person has sufficient knowledge and experience in
financial matters to be capable of evaluating the risks of transactions in penny
stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the SEC relating to the penny stock market,
which, in highlight form, sets forth:
·
the
basis on which the broker or dealer made the suitability determination,
and
·
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases
of fraud in penny stock transactions.
Finally,
monthly statements have to be sent disclosing recent price information for the
penny stock held in the account and information on the limited market in penny
stocks.
Because
of these regulations, broker-dealers may not wish to engage in the
above-referenced necessary paperwork and disclosures and/or may encounter
difficulties in their attempt to sell shares of our common stock, which may
affect the ability of selling shareholders or other holders to sell
their shares in any secondary market and have the effect of reducing the
level of trading activity in any secondary market. These additional sales
practice and disclosure requirements could impede the sale of our common stock,
if and when our common stock becomes publicly traded. In addition, the liquidity
for our common stock may decrease, with a corresponding decrease in the price of
our common stock. Our common stock are subject to such penny stock rules for the
foreseeable future and our shareholders will, in all likelihood, find it
difficult to sell their common stock.
The
market for penny stock has experienced numerous frauds and abuses which could
adversely impact subscribers of our stock.
We
believe that the market for penny stocks has suffered from patterns of fraud and
abuse. Such patterns include:
·
control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer;
·
manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
·
“boiler
room" practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
·
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
·
wholesale
dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the inevitable
collapse of those prices with consequent investor
losses.
-8-
We
believe that many of these abuses have occurred with respect to the promotion of
low price stock companies that lacked experienced management, adequate financial
resources, an adequate business plan and/or marketable and successful business
or product.
We
are controlled by existing stockholders.
Our
officers, directors and principal stockholders and their affiliates own or
control a majority of the our outstanding common stock. As a result, these
stockholders, if acting together, would be able to effectively control matters
requiring approval by our stockholders, including the election of our Board of
Directors.
Our
certificate of incorporation limits the personal liability of the director of
our company for monetary damages for breach of fiduciary duty as a director,
subject to certain exceptions, to the fullest extent allowed by Nevada law.
Accordingly, except in limited circumstances, our directors will not be liable
to us or our stockholders for breach of their duties.
Some
provisions in our certificate of incorporation and bylaws could delay or prevent
a change in control of our company, even if that change might be beneficial to
our stockholders. Our certificate of incorporation and bylaws contain provisions
that might make acquiring control of us difficult, including provisions limiting
rights to call special meetings of stockholders and regulating the ability of
our stockholders to nominate directors for election at annual meetings of our
stockholders. In addition, our board of directors has the authority, without
further approval of our stockholders, to issue common stock having such rights,
preferences and privileges as the board of directors may determine. Any such
issuance of common stock could, under some circumstances, have the effect of
delaying or preventing a change in control of our Company and might adversely
affect the rights of holders of common stock.
In
addition, we are subject to Nevada statutes regulating business combinations,
takeovers and control share acquisitions, which might also hinder or delay a
change in control of the Company. Anti-takeover provisions in our certificate of
incorporation and bylaws, anti-takeover provisions that could be included in the
common stock when issued and the Nevada statutes regulating business
combinations, takeovers and control share acquisitions can depress the market
price of our securities and can limit the stockholders’ ability to receive a
premium on their shares by discouraging takeover and tender offer bids, even if
such events could be viewed as beneficial by our stockholders.
Upon
consummation of the Share Exchange Agreement, we became subject to the
liabilities of BioNeutral, both known and unknown.
Upon
consummation of the Share Exchange Agreement, we became subject to all
liabilities, claims and obligations of BioNeutral, both known and unknown. It is
possible that BioNeutral is subject to certain liabilities, claims and
obligations unknown to us. If we are subject to any such liabilities or
obligations, our business, financial condition and results of operations could
be materially and adversely affected.
-9-
Our
management team does not have extensive experience in public company matters,
which could impair our ability to comply with legal and regulatory
requirements.
We became
a public company and subject to the applicable reporting requirements under the
securities laws upon consummation of the Share Exchange Agreement. Our
management team has had very limited public company management experience or
responsibilities. This could impair our ability to comply with legal and
regulatory requirements such as the Sarbanes-Oxley Act of 2002 and applicable
federal securities laws including filing required reports and other information
required on a timely basis. There can be no assurance that our management will
be able to implement and affect programs and policies in an effective and timely
manner that adequately respond to increased legal, regulatory compliance and
reporting requirements imposed by such laws and regulations. Our failure to
comply with such laws and regulations could lead to the imposition of fines and
penalties and further result in the deterioration of our business.
Our internal financial reporting
procedures are still being developed and we will need to allocate significant
resources to meet applicable internal financial reporting
standards.
As a
public company we will be required to adopt disclosure controls and procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. We are
taking steps to develop and adopt appropriate disclosure controls and
procedures.
These
efforts require significant time and resources. If we are unable to establish
appropriate internal financial reporting controls and procedures, our reported
financial information may be inaccurate and we will encounter difficulties in
the audit or review of our consolidated financial statements by our independent
auditors, which in turn may have material adverse effects on our ability to
prepare consolidated financial statements in accordance with generally accepted
accounting principles and to comply with our SEC reporting
obligations.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes Oxley Act of 2002 could prevent us from producing reliable
financial reports or identifying fraud. In addition, current and potential
stockholders could lose confidence in our financial reporting, which could have
an adverse effect on our stock price.
We became
subject to Section 404 of the Sarbanes-Oxley Act of 2002 upon consummation of
the Share Exchange Agreement. Effective internal controls are necessary for us
to provide reliable financial reports and effectively prevent fraud, and a lack
of effective controls could preclude us from accomplishing these critical
functions. Commencing with our fiscal year ending October 31, 2009, we will be
required to document and test our internal control procedures in order to
satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, in
connection with, Public Company Accounting Oversight Board (“ PCAOB ”) Auditing
Standard No. 5 (“ AS 5 ”) which requires annual management assessments of the
effectiveness of our internal controls over financial reporting and a report by
our independent registered public accounting firm addressing these assessments.
Although we intend to augment our internal controls procedures and expand our
accounting staff, there is no guarantee that this effort will be
adequate.
During
the course of our testing, we may identify deficiencies which we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404 and AS5. In addition, if we fail
to maintain the adequacy of our internal accounting controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. Failure to
achieve and maintain effective internal controls could cause us to face
regulatory action and also cause investors to lose confidence in our reported
financial information, either of which could have an adverse effect on our stock
price.
-10-
There
are additional requirements and costs associated with becoming a public company
which may prove to be burdensome, especially for a smaller public
company.
As a
result of the Share Exchange Agreement, we became subject to the information and
reporting requirements of the U.S. Securities laws, including the Sarbanes-Oxley
Act. The U.S. Securities laws require, among other things, review, audit and
public reporting of our financial results, business activities, adequacy of
controls and other matters. We cannot assure you that we will be able to comply
with all of these requirements. Our cost of preparing and filing annual and
quarterly reports, proxy statements and other information with the SEC and
furnishing audited reports to stockholders will cause our expenses to be higher
than they would be if the Company had remained privately-held and the
Share Exchange Agreement had not been consummated. Increased costs may be
material and may include the hiring of additional employees and/or the retention
of additional consultants and professionals. Our failure to comply with U.S.
Securities laws could result in private or governmental legal action against us
and/or our officers and directors, which could have a detrimental effect on our
business and finances, the value of our securities and the ability of our
stockholders to resell their securities.
We became public through the Share
Exchange Agreement and we may not be able to attract the attention of major
brokerage firms.
Additional
risks are associated with our Company becoming public through the Share Exchange
Agreement. For example, security analysts of major brokerage firms may not
provide coverage of us since there is no incentive to brokerage firms to
recommend the purchase of our common stock. In addition, even if we should so
desire, we cannot assure you that brokerage firms will want to conduct any
public offerings on our behalf in the future.
There
will be a limited trading market for our common stock.
It is
anticipated that there will be a limited trading market for the Company’s common
stock on the OTC-BB. The lack of an active market may impair your ability to
sell your shares at the time you wish to sell them or at a price that you
consider reasonable. The lack of an active market may also reduce the fair
market value of our common stock. An inactive market may also impair our
ability to raise capital by selling shares of capital stock and may impair our
ability to acquire other companies or technologies by using common stock as
consideration.
You
may have difficulty trading and obtaining quotations for our common
stock.
The
Company’s common stock may not be actively traded, and the bid and asked prices
for our common stock on the OTC-BB may fluctuate widely. As a result, investors
may find it difficult to dispose of, or to obtain accurate quotations of
the price of, our securities. This severely limits the liquidity of the common
stock, and would likely reduce the market price of our common stock and hamper
our ability to raise additional capital.
The
market price of our common stock may, and is likely to continue to be, highly
volatile and subject to wide fluctuations.
The
market price of the Company’s common stock is likely to be highly volatile and
could be subject to wide fluctuations in response to a number of factors that
are beyond our control, including:
•
dilution
caused by our issuance of additional shares of common stock and other
forms of equity securities in connection with future capital financings to
fund our operations and growth, to attract and retain valuable personnel
and in connection with future strategic partnerships with other
companies;
•
announcements
of new acquisitions or other business initiatives by our
competitors;
•
our
ability to take advantage of new acquisitions or other business
initiatives;
•
fluctuations
in revenue from our biodegradable plastics products;
•
changes
in the market for biodegradable plastics products and/or in the capital
markets generally;
•
changes
in the demand for biodegradable plastics products, including changes
resulting from the introduction or expansion of new biodegradable
products;
•
quarterly
variations in our revenues and operating expenses;
•
changes
in the valuation of similarly situated companies, both in our industry and
in other industries;
changes
in the accounting methods used in or otherwise affecting our
industry;
•
additions
and departures of key personnel;
•
announcements
of technological innovations or new products available to the our
industry;
•
announcements
by relevant governments pertaining to incentives for biodegradable product
development programs;
•
fluctuations
in interest rates and the availability of capital in the capital markets;
and
•
significant
sales of our common stock, including sales by the investors following
registration of the shares of common stock issued in the Offering and/or
future investors in future offerings we expect to make to raise additional
capital.
These and
other factors are largely beyond our control, and the impact of these risks,
singly or in the aggregate, may result in material adverse changes to the market
price of our common stock and/or our results of operations and financial
condition.
Our
operating results may fluctuate significantly, and these fluctuations may cause
our stock price to decline.
Our
operating results will likely vary in the future primarily as the result of
fluctuations in our revenues and operating expenses, expenses that we incur, and
other factors. If our results of operations do not meet the expectations of
current or potential investors, the price of our common stock may
decline.
We
do not expect to pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we
anticipate that we will reinvest any future earnings in the development and
growth of our business. Therefore, investors will not receive any funds unless
they sell their common stock, and stockholders may be unable to sell their
shares on favorable terms or at all. Investors cannot be assured of a positive
return on investment or that they will not lose the entire amount of their
investment in the common stock.
ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Public Market for Common
Stock
Our
common stock has been quoted on the OTC Bulletin Board under the symbol "BONU"
since February 20, 2009. The following table sets forth the range of
quarterly high and sales prices of the common stock as reported for the periods
indicated:
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a “penny stock,” for purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require: (i)
that a broker or dealer approve a person’s account for transactions in penny
stocks and (ii) the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of the
penny stock to be purchased. In order to approve a person’s account for
transactions in penny stocks, the broker or dealer must (i) obtain financial
information and investment experience and objectives of the person; and
(ii) make a reasonable determination that the transactions in penny stocks are
suitable for that person and that person has sufficient knowledge and experience
in financial matters to be capable of evaluating the risks of transactions in
penny stocks. The broker or dealer must also deliver, prior to any transaction
in a penny stock, a disclosure schedule prepared by the Commission relating to
the penny stock market, which, in highlight form, (i) sets forth the basis on
which the broker or dealer made the suitability determination and (ii) that the
broker or dealer received a signed, written agreement from the investor prior to
the transaction. Disclosure also has to be made about the risks of investing in
penny stocks in both public offerings and in secondary trading, and about
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny
stocks.
-12-
Holders
Common
Stock
We are
authorized to issue 200,000,000 shares of common stock, $0.00001 par value per
share. Currently we have 62,314,500 common shares issued and
outstanding.
The
holders of our common stock have equal ratable rights to dividends from funds
legally available if and when declared by our board of directors and are
entitled to share ratably in all of our assets available for distribution to
holders of common stock upon liquidation, dissolution or winding up of our
affairs. Our common stock does not provide the right to a preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions or rights. Our common stock holders are entitled to one
non-cumulative vote per share on all matters on which shareholders may
vote.
All
shares of common stock now outstanding are fully paid for and
non-assessable. We refer you to our Articles of Incorporation, Bylaws
and the applicable statutes of the state of Nevada for a more complete
description of the rights and liabilities of holders of our
securities. All material terms of our common stock have been
addressed in this section.
Holders
of shares of our common stock do not have cumulative voting rights, which means
that the holders of more than 50% of the outstanding shares, voting for the
election of directors, can elect all of the directors to be elected, if they so
choose, and, in that event, the holders of the remaining shares will not be able
to elect any of our directors.
Preferred
Stock
We are
authorized to issue 10,000,000 shares of preferred stock, $0.00001 par value per
share. The terms of the preferred shares are at the discretion of the
board of directors. Currently no preferred shares are issued or
outstanding.
Dividends
We have
not paid any cash dividends to shareholders. The declaration of any
future cash dividends is at the discretion of our board of directors and
depends upon our earnings, if any, our capital requirements and
financial position, our general economic conditions, and other pertinent
conditions. It is our present intention not to pay any cash dividends
in the foreseeable future, but rather to reinvest earnings, if any, in our
business operations.
Warrants
There are
no outstanding warrants to purchase our securities.
Options
There are
no options to purchase our securities issued or outstanding.
Recent Sales of Unregistered
Securities
Pursuant
to the Share Exchange Agreement, on January 30, 2009, we issued 42,649,500
shares of our common stock to the BioNeutral Shareholders in exchange for their
shares of Bioneutral Laboratories. Such securities were not
registered under the Securities Act of 1933. The issuance of these shares was
exempted from registration pursuant to Section 4(2) of the Securities Act of
1933.
-13-
The
remaining 2,350,500 shares were issued to the preferred shareholders of
Bioneutral Laboratories within 30 days of the closing of the Share Exchange
Agreement pursuant to a mandatory conversion feature of the preferred shares.
Such securities were not registered under the Securities Act of 1933. The
issuance of these shares was exempted from registration pursuant to Section 4(2)
of the Securities Act of 1933.
On
January 30, 2009 and as a condition to the Share Exchange, we approved the
conversion of debentures in the aggregate amount of $600,000 into shares of
Common Stock at a conversion rate of $1.00 per share. The 600,000
shares were issued to six investors who each received 100,000 shares of common
stock that are restricted and do not have registration rights. Such
securities were not registered under the Securities Act of 1933. The issuance of
these shares was exempted from registration pursuant to Section 4(2) of the
Securities Act of 1933.
On March13, 2009 and June 8, 2009, we issued 82,585 and 450,000 shares of common stock
to James Crane as compensation pursuant to the terms of consulting
agreements. Such securities were not registered under the Securities
Act of 1933. The issuance of these shares was exempted from registration
pursuant to Section 4(2) of the Securities Act of 1933.
Equity Compensation Plan
Information
The
following table sets forth certain information as of June 24, 2009, with respect
to compensation plans under which our equity securities are authorized for
issuance:
(a)
(b)
(c)
_________________
_________________
_________________
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
Weighted-average
exercise price of outstanding options, warrants and rights
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
Equity
compensation
None
Plans
approved by
Security
holders
Equity
compensation
None
Plans
not approved
By
security holders
Total
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable because we are a smaller reporting company.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS
We make
forward-looking statements in Management’s Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report based on the
beliefs and assumptions of our management and on information currently available
to us. Forward-looking statements include information about our possible or
assumed future results of operations which follow under the headings “Business
and Overview,”“Liquidity and Capital Resources,” and other statements
throughout this report preceded by, followed by or that include the words
“believes,”“expects,”“anticipates,”“intends,”“plans,”“estimates” or similar
expressions.
-14-
Forward-looking
statements are subject to a number of risks and uncertainties that could cause
actual results to differ materially from those expressed in these
forward-looking statements, including the risks and uncertainties described
below and other factors we describe from time to time in our periodic filings
with the U.S. Securities and Exchange Commission (the “ SEC ”). We therefore
caution you not to rely unduly on any forward-looking statements. The
forward-looking statements in this report speak only as of the date of this
report, and we undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future developments or
otherwise.
Company
Overview
We are a
specialty chemical company organized to commercialize a novel combinational
chemistry-based technology which can neutralize harmful environmental
contaminants, toxins and dangerous micro-organisms including bacteria, viruses
and spores.
The
formulations, including Ygiene™ and Ogiene™, are green and include natural and
common ingredients which are found in baby products and in the foods we eat. We
combine these widely used compounds in unique ways to create enhanced results.
Our proprietary platform technology has been proven effective in surface, water
and airborne applications. Our products include BioNeutralizers and
ChemoNeutralizers.
Activities
in recent years included securing debt and equity-based financing, development,
design and marketing of our cleaning products: (i) the all-purpose cleaner; (ii)
Ogiene – the toxic gas and odor eliminator; and (iii) Ygiene – an antimicrobial.
The Company generated revenues of $2,041,000 in 2004 but has yet to generate
consistent revenue growth or cash flows from operations.
Our
multi-purpose cleaner does not contain any phosphates, abrasives, alkyl phenol
ethoxylates, chlorine or caustic properties. It removes spots and
stains (including, fruits and vegetables, permanent marker, ball point pen ink,
animal fats, dirt and grime, etc.) from surfaces such as countertops, tables,
floors, clothing and vinyl siding. Our Ogiene product is a chemical
neutralizer that eliminates toxic gases and odors. It is water based
and ph buffered to efficiently and effectively eliminate toxic
gases. It is effective in eliminating industrial, institutional,
household and animal odors. It is highly effective against hydrogen
sulfide, ammonia, sulfur dioide and formaldehyde. In addition, Ogiene
can reduce the odor from smoke, pet odors, cooking odors and bathroom
odors. Our third product, Ygiene, is a bioneutralizer that fights
against microbials. It is noncorrosive to ferrous metals and is
easily customizable to specific applications. Ygiene can protect
against bacteria such as E.coli, salmonella and anthrax by killing these
microorganisms quicker than conventional antimicrobials. The Ygiene
family of products can be used as sanitzers, disinfectants, cold sterilants,
consumer grades, hospital grades, industrial grades and military
grades.
Plan
of Operations
During
2009, we intend to begin to produce and offer for resale our multi-purpose
cleaners. Additionally, we expect to enter into contracts with
certain governmental agencies to utilize our Ogiene product to eliminate odors
and toxic gases in contaminated homes that were affected by Hurricane
Katrina. We also intend to continue to develop and obtain regulatory
approval on our Ygiene products.
We
anticipate the sale and distribution of our initial product offering of our
multi-purpose cleaner will begin during the fiscal year of 2009.
We intend
to deliver brand building messages through several marketing and advertising
vehicles, including television, radio, national print, online marketing and
search engine optimization, and retail store promotions.
Results
of Operations
The
following table sets forth the results of the operations of BioNeutral for the
ten months ended October 31, 2008.
Revenues: We last generated revenues
during the year ended December 31, 2004. We are in the process of
planning our initial efforts to commercialize our technology and are currently
awaiting finalized rulings on several of its core patents pending.
Cost of
Sales: We had no
sales and therefore had no cost of sales during the ten months ended October 31,2008.
Gross
Profit: We did
not generate any sales or gross profits during the ten months ended October 31,2008.
Operating
Expenses: For the
ten months ended October 31, 2008, our operating expenses included stock based
compensation of $4,596,740, which was inclusive of a one-time $4,250,000 stock
issuance to a director as well as several other one-time stock issuances for
annual services provided by members of the Board of
Directors. Additionally, we incurred consulting fees of $139,252 and
amortization expense of $484,716, respectively. The consulting fees
consisted of $40,000 in recurring fees charged by an entity controlled by a
member of the Board of Directors for management consulting services rendered,
among other consulting fees charged for business development services, and
general consulting services. Amortization expense was generated as a result of
the amortization of the Company's patent costs. We expect to continue
to incur stock based compensation expense as a result of our minimal cash
reserves and lack of cash flow from operations. Consulting fees will
continue to be incurred but payment of the fees may not be possible unless we
are able to raise additional capital in 2009. Monthly amortization of
our patent costs will continue to increase slightly each month as additional
expenses are incurred to further develop and protect our
technology.
Other Income and
Expenses: We
incurred interest expense of $5,408 during the ten months ended October 31,2008. During 2008, we continued to require short term financing by
members of the Board of Directors, all of which carried interest at a 9%
interest rate.
Net
Loss: For
the ten months ended October 31, 2008, our net loss totaled $5,339,320. We
issued common stock as compensation of approximately $4.6 million to the members
of our Board of Directors.
Liquidity
and Capital Resources
As of
October 31, 2008, we had cash and cash equivalents of $85,938. Net
cash used in operating activities for the ten months ended October 31, 2008 was
$(32,361). We operated in 2008 without a revenue-generating business
model. In 2008, we struggled with cash flow limitations and were
still working to successfully develop our technology, know-how and trade secrets
into commercialized products or applications. Our cash flows from financing
activities totaled $375,265 during the ten months ended October 31, 2008. We
raised funds in 2008 through a private placement for $360,000 and through
various smaller debt financing transactions. Our cash flows used in investing
activities totaled $(268,316). Costs associated with developing and
protecting our patented technology totaled $273,823 during the ten months ended
October 31, 2008. An additional $1,493 was invested in equipment and $7,000 was
received as proceeds from the sale of marketable securities.
-16-
OFF-BALANCE
SHEET ARRANGEMENTS:
We do not
have off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).
ITEM
7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Foreign
Currency Risk
Currently,
we have no exposure to foreign currency risk as all our sales transactions,
assets and liabilities are denominated in the U.S. dollar.
Interest
Rate Risk
Our
exposure to interest rate risk is limited to interest earned from our money
market accounts and our interest expense on short-term and long-term borrowings.
Currently, this exposure is not significant. Substantial increases in short-term
and long-term borrowings to fund growth or make investments, combined with
actual changes in interest rates could adversely affect our future results of
operations.
-17-
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.
Index
to Consolidated financial statements
CONSOLIDATED
BALANCE SHEETS
F–2
CONSOLIDATED
STATEMENTS OF OPERATIONS
F–3
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
F–4
CONSOLIDATED
STATEMENTS OF CASH FLOWS
F–5
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED OCTOBER31, 2008
F–6
INDEPENDENT
AUDITOR’S REPORT
To the
Board of Directors and
Stockholders
of Bioneutral Group, Inc.
We have
audited the accompanying consolidated balance sheet of Bioneutral Laboratories
Corporation USA, Inc. (the “Company”) as of October 31, 2008, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the ten months then ended. The Company’s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Bioneutral Laboratories
Corporation USA, Inc. as of October 31, 2008, and the results of its operations
and its cash flows for the ten months then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, the Company has a working capital deficiency
of approximately $1.6 million as of October 31, 2008, had a net loss of
approximately $5.3 million for the ten months ended October 31, 2008. These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans regarding these matters are described in Note
3. The consolidated financial statements do not include adjustments that might
result from the outcome of this uncertainty.
BioNeutral
Laboratories Corporation USA (the "Company") was incorporated under the laws of
the State of Nevada on April 14, 2003 as BioNeutral Corporation. On
April 16, 2003the Company’s name was changed to BioNeutral Laboratories
Corporation USA. The Company’s technology and original inventions
originated in New Zealand during 2002. During 2003 and 2002, the New
Zealand business, BioNeutral Laboratories Limited (“BLL”) determined it would
license its technology to the Company, which was an independently-owned and
operated business in the United States of America. During 2004, BLL’s
operations became insignificant to the Company’s operations and the first of
several transactions were completed which eventually resulted in the Company
acquiring the technology, know-how and trade secrets, from BLL, on January 29,2009. The Company's fiscal year end is October 31.
The
Company is a specialty chemical company, organized to commercialize a novel
combinational chemistry-based technology which can neutralize harmful
environmental contaminants, toxins and dangerous micro-organisms including
bacteria, viruses and spores. The formulations include
natural and common ingredients which are found in traditional food
products. The Company combines these widely-used compounds in
various ways to create unique chemical formulations.
The
Company’s proprietary platform technology has been proven effective in surface,
water and airborne applications. The products include BioNeutralizers and
ChemoNeutralizers. BioNeutralizers, based on our proprietary Ygiene™ platform
formulation, disinfect, decontaminate and sterilize. BLL believes it has the
broadest-based, fastest acting, most effective and safest anti microbial known.
This class of products has important applications for consumers, healthcare and
the military. ChemoNeutralizers, based on the Ogiene™ formula, irreversibly bind
chemical contaminants and toxin molecules and render them harmless. Product
applications include industrial pollution, environmental contaminants, and
protection against chemical weapons of mass destruction.
On July31, 2004, the Company acquired intellectual property, namely technology,
know-how and trade secrets, from BLL. The company issued BLL a total of
2,227,720 shares of the company’s common stock, valued at $10,456,739 as
consideration for the purchase of the intellectual property. However, as a
condition to this transaction, BLL retained a perpetual license to manufacture,
license and use the technology, know-how and trade secrets. BLL also
retained a perpetual right to sell products utilizing the technology, know-how
and trade secrets for any products and for any application in Asia,
Australasia and the Pacific Islands.
On
September 14, 2005, the Company and BLL agreed to terminate the July 31, 2004
agreement between the Company and BLL. The Company and BLL further
agreed that the Company would grant BLL perpetual rights to sell products and
applications utilizing the Company’s technology, know-how and trade secrets in
specific geographic locations within Asia, Australasia and the Pacific Islands
but not including countries such as the People’s Republic of China and
Japan. The Company also granted BLL the right to import manufactured
products and applications utilizing the Company’s technology, know-how and trade
secrets, from countries in which BLL does not hold any specific rights to
manufacture, sell or market such products or other applications.
BLL
received the following as consideration for the cancellation of the July 31,2004 agreement and the assignment of additional patent rights related to
countries such as the People’s Republic of China and Japan:
1.
7,000,000
shares of the Company’s common stock valued at
$35,000,000
2.
A
Stock Warrant to purchase 25,000 shares of the Company’s Convertible
Series A Preferred Stock with an exercise price of $7.21, valued at
$1,069,750
3.
A
Stock Warrant to purchase 500,000 shares of the Company’s common stock at
the price per share equal to 100% of the price per share of the first
“arm’s length” financing subsequent to September 14, 2005 which results in
gross proceeds to the Company of over
$1,000,000
4.
A
Stock Warrant to purchase 750,000 shares of the Company’s common stock at
the price per share Equal to 130% of the price per share of the first
“arm’s length” financing subsequent to September 14, 2005 which results in
gross proceeds to the Company of over
$1,000,000
5.
As
a condition to entering in to this transaction, BLL agreed to forgive
$386,817 in debts owed by the Company to BLL for services and goods
incurred by BLL in prior years on behalf of the
Company.
F-6
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements, prepared in accordance with generally
accepted accounting principles (“GAAP”) in the United States of America, include
the assets, liabilities, revenues, expenses and cash flows of the Company and
all its subsidiaries. The accompanying consolidated financial statements reflect
necessary adjustments not recorded in the books and records of the Company’s
subsidiaries to present them in conformity with GAAP.
Environmental
Commercial Technology Corporation (“ECT”) was organized in 2004 to develop
business opportunities related to the control and eradication of mold and
fungus. ECT entered into a contract with one customer and generated
$2,041,000 in revenues in 2004 but is a dormant entity at this
time.
Cash
and Cash Equivalents
For
purposes of the consolidated balance sheets and cash flow statements, the
Company considers all highly liquid investments with original maturities of
three months or less at time of purchase to be cash equivalents.
Marketable
Securities
The
Company’s short-term investments are classified as available-for-sale at the
respective balance sheet dates. The Company accounts for its investments at fair
value in accordance with SFAS 115. The investments classified as
available-for-sale are recorded at fair value based upon quoted market prices,
and any material temporary difference between the cost and fair value of an
investment is presented as a separate component of accumulated other
comprehensive income (loss.) Unrealized losses are charged against “Other income
(expense)” when a decline in fair value is determined to be other
than-temporary. The Company considers several factors to determine whether a
loss is other-than-temporary. These factors include but are not limited to:
(i) the extent to which the fair value is less than cost basis,
(ii) the financial condition and near term prospects of the issuer,
(iii) the length of time a security is in an unrealized loss position and
(iv) the Company’s ability to hold the security for a period of time
sufficient to allow for any anticipated recovery in fair value. The Company’s
ongoing consideration of these factors could result in additional impairment
charges in the future, which could adversely affect its results of operation.
There were no impairment charges recorded on the Company’s
investments during the ten months ended October 31, 2008. The specific
identification method is used to determine the realized gains and losses on
investments.
Concentrations
of Credit Risk
Cash
includes cash on hand and demand deposits in accounts maintained at banks within
the United States of America. Certain financial instruments, which
subject the Company to concentration of credit risk, consist of
cash. The Company maintains cash balances at financial institutions
which, from time to time, may exceed Federal Deposit Insurance Corporation
insured limits. Total cash in banks at October 31, 2008 amounted to
$85,938. The Company has not experienced any losses with regard to its bank
accounts and believes it is not exposed to any risks on its cash in bank
accounts.
Property
and Equipment
Property
and equipment is located at the Company’s office in Newark, New Jersey and is
recorded at cost less accumulated depreciation. Depreciation and amortization is
calculated using the straight-line method over the expected useful life of the
asset, after the asset is placed in service. The Company generally uses the
following depreciable lives for its major classifications of property and
equipment:
Description
Useful
Lives
Furniture
and Fixture
7
years
Computer
hardware
3
years
F-7
Valuation
of Long-Lived Assets
Long-lived
tangible assets and definite-lived intangible assets are reviewed for possible
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company uses an
estimate of undiscounted future net cash flows of the assets over the remaining
useful lives in determining whether the carrying value of the assets is
recoverable. If the carrying values of the assets exceed the expected future
cash flows of the assets, the Company recognizes an impairment loss equal to the
difference between the carrying values of the assets and their estimated fair
values. Impairment of long-lived assets is assessed at the lowest levels for
which there are identifiable cash flows that are independent from other groups
of assets. The evaluation of long-lived assets requires the Company to use
estimates of future cash flows. However, actual cash flows may differ from the
estimated future cash flows used in these impairment tests. As of October 31,2008, management does not believe any of the Company’s assets were
impaired.
Fair
Value Measurements
Effective
January 1, 2008, we adopted SFAS 157, Fair Value Measurements (SFAS 157). SFAS
157 clarifies the definition of fair value, prescribes methods for measuring
fair value, and establishes a fair value hierarchy to classify the inputs used
in measuring fair value as follows:
Level
1-Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
Level
2-Inputs are unadjusted quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other then quoted prices that are
observable, and inputs derived from or corroborated by observable market
data.
Level
3-Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.
The
adoption of SFAS No. 157 did not have a material impact on our fair value
measurements.
The
following tables present our assets and liabilities that are measured at fair
value on a recurring basis and are categorized using the fair value hierarchy.
The fair value hierarchy has three levels based on the reliability of the inputs
used to determine fair value.
The
Company held marketable securities during 2007 and 2006. The Company
sold its remaining holdings in its marketable securities in early
2008. As a result, no marketable securities were held by the Company
as of October 31, 2008.
Goodwill
and Intangible Assets
The
Company adopted SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and
Other Intangible Assets, effective June 2001 and revised in December,
2007. SFAS No. 141 requires the use of the purchase method of accounting for any
business combinations initiated after June 30, 2002, and further clarifies the
criteria to recognize intangible assets separately from goodwill. Under SFAS No.
142, goodwill and indefinite−life intangible assets are no longer amortized but
are reviewed for impairment annually.
Comprehensive
Income
Accumulated
other comprehensive income represents unrealized gains and losses on marketable
securities held by the Company, which are included in the consolidated statement
of shareholders’ equity.
Revenue
Recognition
The
Company records revenues when the following fundamental criteria are met: (i)
persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the price to the customer is fixed or
determinable and (iv) collection of the resulting receivable is reasonably
assured. Revenues are recorded in accordance with Staff Accounting
Bulletin ("SAB") No. 104, as issued by the United States Securities and Exchange
Commission (“SAB 104”). The Company is still contemplating various business
plans but anticipates recognizing revenues in 2009.
F-8
The
Company negotiates contracts with its customers, which may include revenue
arrangements with multiple deliverables, as outlined by Emerging Issues Task
Force No. 00-21 ("EITF 00-21"). The Company’s accounting policies are defined
such that each deliverable under a contract is accounted for separately.
Historically, the Company has not entered into contracts with its customers that
provided for multiple deliverables.
Stock-Based
Compensation
The
Company does not have a formal stock option plan. However, the Company offered
some of our employees stock-based compensation in the form of stock warrants and
shares of our common stock. Prior to July 1, 2005, we accounted for those
stock-based compensation awards using the recognition and measurement principles
of the intrinsic value method of Accounting Principles Board (“APB”) Opinion No.
25, Accounting for Stock
Issued to Employees, and its related interpretations, and applied the
disclosure-only provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Under the intrinsic value method, we recognized
compensation expense on the date of grant only if the current market price of
the underlying stock on the grant date exceeded the exercise price of the
stock-based award.
In
December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment (“SFAS
123(R)”), which revises SFAS 123 (R) and supersedes APB Opinion No. 25. SFAS No.
123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the consolidated financial
statements based on their fair values beginning with the first interim or annual
period after June 15, 2005. Subsequent to the effective date, the pro forma
disclosures previously permitted under SFAS 123 (R) are no longer an alternative
to financial statement recognition.
In March
2005, the Staff of the SEC issued SAB No. 107, Share-Based Payment. SAB No.
107 expresses the view of the SEC Staff regarding the interaction between SFAS
123 (R) and certain SEC rules and regulations and provides the SEC Staff’s views
regarding the valuation of share-based payment arrangements for public
companies. The SEC Staff believes the guidance in SAB No. 107 will assist public
companies in their initial implementation of SFAS 123 (R) beginning with the
first interim or annual period of the first fiscal year that begins after June15, 2005.
Effective
July 1, 2005, we adopted SFAS 123 (R) using the modified prospective method.
Under this method, compensation cost recognized during 2006 includes: (1)
compensation cost for the portions of all share-based payments granted prior to,
but not yet vested as of July 1, 2005, based on the grant date fair value
estimated in accordance with the original provisions of FASB Statement No. 123
amortized on a straight-line basis over the options’ remaining vesting period
beginning July 1, 2005, and (2) compensation cost for all share-based payments
granted subsequent to July 1, 2005, based on the grant-date fair value estimated
in accordance with the provisions of SFAS 123 (R) amortized on a straight-line
basis over the options’ requisite service period.
Advertising
Advertising
costs are expensed as incurred.
Income
Taxes
Income
taxes are accounted for under the asset and liability method in accordance with
SFAS No. 109 Accounting for
Income Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
In July,
2006, the FASB issued FASB Interpretations No. 48, Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109 (“FIN 48”), which
clarifies the accounting for uncertainty in tax positions taken or expected to
be taken in a return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 became effective as of January 1, 2007
and had no impact on the Company’s consolidated financial
statements.
The
charge for taxation is based on the results for the year as adjusted for items,
which are non-assessable or disallowed. It is calculated using tax rates that
have been enacted or substantively enacted by the balance sheet
date.
F-9
Deferred
tax is accounted for using the balance sheet liability method in respect of
temporary differences arising from differences between the carrying amount of
assets and liabilities in the consolidated financial statements and the
corresponding tax basis used in the computation of assessable tax profit. In
principle, deferred tax liabilities are recognized for all taxable temporary
differences, and deferred tax assets are recognized to the extent that it is
probably that taxable profit will be available against which deductible
temporary differences can be utilized.
Deferred
tax is calculated using tax rates that are expected to apply to the period when
the asset is realized or the liability is settled. Deferred tax is charged or
credited in the income statement, except when it is related to items credited or
charged directly to equity, in which case the deferred tax is also dealt with in
equity.
Deferred
tax assets and liabilities are offset when they related to income taxes levied
by the same taxation authority and the Company intends to settle its current tax
assets and liabilities on a net basis.
Net
Earnings (Loss) Per Share
The
Company utilizes SFAS No. 128, 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 common shares 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 common shares that would have been outstanding if all potential
common stock (including common stock equivalents) had all been issued, and if
such additional common shares were dilutive. Under SFAS No. 128, if the
additional common shares are dilutive, they are not added to the denominator in
the calculation. Where there is a loss, the inclusion of additional common
shares is anti-dilutive (since the increased number of shares reduces the per
share loss available to common stock holders). For the ten months ended October
31, when the Company incurred a loss, 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 October31, 2008.
Warrants
to Purchase Convertible Series A Preferred Stock
250,000
Warrants
to Purchase Common Stock
1,250,000
Convertible
Series A Preferred Stock
2,799,910
4,299,910
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America 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 date of the consolidated financial statements, as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. Estimates and assumptions are periodically
reviewed and the effects of revisions are reflected in the consolidated
financial statements in the period they are determined to be
necessary. The consolidated financial statements include some amounts
that are based on management’s best estimates and
judgments. Significant estimates include the stock based
compensation, warrant liabilities, depreciation, amortization, useful lives of
fixed assets and intangible assets, and tax liabilities. These estimates may be
adjusted as more current information becomes available, and any future
adjustments could be significant in nature to the consolidated financial
statements taken as a whole.
NOTE 3
– GOING CONCERN
The
Company’s consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the normal course of business. The
Company had cumulative losses of $(69,445,441) as of October 31, 2008 and
negative cash flows from operations during the ten months ended October 31, 2008
of $(32,361). The ability of the Company to operate as a going concern depends
upon its ability to obtain outside sources of working capital. Management is
aware of these requirements and is undertaking specific measures to address
these liquidity concerns. Notwithstanding the foregoing, there can be no
assurance that the Company will be successful in obtaining financing, that it
will have sufficient funds to execute its business plan or that it will generate
positive operating results. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern
F-10
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
The
Company has several patents pending on proprietary chemical formulations capable
of neutralizing noxious chemicals and eliminating harmful
microbes. The Company capitalized the costs of acquired technology,
know-how and trade secrets and identifiable costs incurred to develop, file and
defend the Company’s patents and new patent or provisional patent
applications. Patent costs incurred by the Company to date are as
follows:
During
March of 2008, a members of the Company’s Board of Directors advanced funds to
the Company totaling $3,000. Repayment terms were not defined at the
time. The loan is classified as related party payables in the balance
sheets and carried interest at 9% per annum. For the ten months ended
October 31, 2008, the Company recorded $5,408 of interest expense associated
with all of the related party loans, respectively.
On
September 30, 2008, the Company’s Chief Scientist, Dr. Andrew Kielbania, agreed
to convert $260,000 in accrued but unpaid compensation into 260,000 shares of
the Company’s common stock.
An entity
controlled by a member of the Company’s Board of Directors billed the Company
and was paid a total of $40,000 during the ten months ended October 31,2008.
NOTE
8 – WARRANT LIABILITY
On
September 14, 2005, BLL received Stock Warrants to purchase the Company’s
preferred stock and common stock as consideration for the cancellation of the
July 31, 2004 agreement and the assignment of additional patent rights related
to countries such as the People’s Republic of China and Japan.
BLL
received a Stock Warrant to purchase 25,000 shares of the Company’s Convertible
Series A Preferred Stock with an exercise price of $7.21, valued at $1,069,750,
expiring on September 14, 2009. This Stock Warrant was valued and
accounted for in accordance with Statements of Financial Accountants Standards
(“SFAS”) No. 150 (“SFAS 150”). SFAS 150 requires that the Company
determine the fair value of the Stock Warrant on the date of issuance by
determining the fair market value of the underlying stock less the exercise
price of the Stock Warrant. The Company recorded a corresponding
liability and offset to equity for the fair value of the Stock
Warrant. Subsequent changes in terms with regard to the Stock Warrant
could require an adjustment to the fair value of the Stock
Warrant. Otherwise, the liability is carried on the balance sheets,
classified as a warrant liability, until exercise or expiration.
BLL
received a Stock Warrant to purchase 500,000 shares of the Company’s common
stock at the price per share equal to 100% of the price per share of the first
“arm’s length” financing subsequent to September 14, 2005 which results in gross
proceeds to the Company of over $1,000,000. The Company determined
the Stock Warrant should be accounted for in accordance with SFAS
150. The Company determined that the Stock Warrant was effectively
priced at fair market value. As a result, the Stock Warrant had no
value to the holder and a liability was not necessary to record.
BLL
received a Stock Warrant to purchase 750,000 shares of the Company’s common
stock at the price per share Equal to 130% of the price per share of the first
“arm’s length” financing subsequent to September 14, 2005 which results in gross
proceeds to the Company of over $1,000,000. The Company determined
the Stock Warrant should be accounted for in accordance with SFAS
150. The Company determined that the Stock Warrant was effectively
priced above fair market value. As a result, the Stock Warrant had no
value to the holder and a liability was not necessary to record.
NOTE
9 - STOCKHOLDERS’ EQUITY
Bioneutral
Laboratories Corporation USA is authorized to issue 50,000,000 shares, in
aggregate, consisting of 45,000,000 shares of common stock, $0.001 par value,
and 5,000,000 shares of preferred stock, $0.001 par value, of which 800,000
shares of preferred stock are designated as Convertble Series A Preferred Stock.
The Company's current Certificate of Incorporation authorizes the Board of
Directors (the “Board”) to determine the preferences, limitations and relative
rights of any class or series of preferred stock prior to
issuance. Each such class or series must be given distinguishable
designated rights prior to issuance. As of October 31, 2008, 279,991 shares of
the Company’s Series A Preferred Stock and 22,841,415 shares of the Company’s
common stock were issued and outstanding.
On
December 21, 2006, the Company filed a certificate of designation with the State
of Nevada to designate the terms associated with the Company's Convertible
Series A Preferred Stock.
Through
the date of this report, the rights and preferences of the Company’s common
stock and preferred stock are identified below:
Common
stock:
1.
Authorized
shares are 45,000,000
2.
Voting
rights are equal to one vote per share of
stock
3.
Par
value of $0.001
F-12
Preferred
Stock:
1.
Authorized
shares are 4,200,000
2.
Voting
rights are not designated at this
time
3.
Par
value of $0.001
Convertible
Series A Preferred Stock:
1.
Authorized
shares are 800,000
2.
Voting
rights of each share of Convertible Series A Preferred Stock are equal to
1,000 shares of common stock.
3.
Each
share of Convertible Series A Preferred Stock is convertible into 10
shares of common stock.
4.
Liquidation
preference equal to 250% of the stated value, of $7.21 of the
shares
5.
No
dividends are issuable to any shareholders who rank junior to the
shares
6.
Upon
an initial public offering or if and when a significant trading market
develops and other parameters occur in relation to the Company's common
stock, each share could be mandatorily converted into 10 shares of common
stock
7.
Par
value of $0.001
Stock Based
Compensation
During
the ten months ended October 31, 2008, the Company issued 4,722,222 shares of
the Company’s common stock, valued at $4,250,000 for compensation to a member of
the Company’s board of directors, for services provided to the
Company. An additional 385,267 shares of the Company's common stock,
valued at $346,740, were awarded to the members of the Company's Board of
Directors for services provided during the ten months ended October 31,2008.
NOTE
10 – TAXES
United
States of America
Since the
Company has had operating losses since inception, there is no provision for
corporate income taxes in the United States of America. Therefore,
there are no deferred tax amounts as of October 31, 2008, respectively.
Nevada
The
Company is incorporated in Nevada but does not conduct business in Nevada.
Therefore, the Company is not subject to corporate income tax.
SFAS 109,
Accounting for Income
Taxes, which requires the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of “temporary differences” by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities.
The
Company is not in discussions with any tax authorities whereby any settlements
over past due taxes are in progress.
The
Company's net deferred tax asset as of October 31, 2008 consisted of the
following:
The net
operating losses generated in the ten months ended October 31, 2008 will begin
to expire in 2028. The Company has recorded a full allowance against
its deferred tax assets due to the fact that the likelihood of any benefit being
derived by the Company in future years is indeterminable as of the date of these
consolidated financial statements.
F-13
The
components of current income tax expense for the ten months ended October31, 2008, consisted of the following:
The
following is a reconciliation of the provision for income taxes at the United
States federal income tax rate to the income taxes reflected in the statement of
operations:
On August1, 2008, the Company entered into a twelve month lease agreement for its office
space in Newark, New Jersey. The following table summarizes the Company’s future
minimum lease payments under operating lease agreements for the five years
subsequent to October 31, 2008:
We may be
involved from time to time in ordinary litigation that will not have a material
effect on our operations or finances. We are not aware of any pending or
threatened litigation against the Company or our officers and directors in their
capacity as such that could have a material impact on our operations or
finances.
Searchhelp, Inc. Royalty
Rights
On
February 3, 2004, the Company’s subsidiary, ECT, entered into an agreement with
Searchhelp, Inc. (“Searchhelp”). Searchhelp paid cash and issued
shares of its common stock and stock warrants to the Company and ECT in order to
acquire a royalty equal to 5% of the gross sales of a product ECT was
developing. The product, which has not been commercially released and
has not been approved by the Environmental Protection Agency ("EPA") in the USA,
was intended to prevent the growth of mold and fungus. The agreement
with Searchhelp was for a 5 ½ year term. The Company cannot currently
estimate any liability it may have with regard to
Searchhelp. However, should this product eventually be released, the
Company would fulfill its obligations under the February 3, 2004
agreement.
Contingent Share
Issuance
The
Company has an outstanding verbal commitment to its Chief Scientist such that if
and when the Company gains approval from the EPA for a product or application
which utilizes its patented chemical formulations, the Chief Scientist will
immediately be awarded 555,822 shares of the Company’s common
stock. The Company cannot be sure beyond a reasonable doubt that
these shares of common stock will ever be awarded. As such, the
Company will not record stock based compensation expense until the issuance of
these shares of common stock are actually earned. The value of such
stock based compensation would be measurable on the date the shares of common
stock are earned.
NOTE
12 – SUBSEQUENT EVENTS
On
November 28, 2008the Company signed a term sheet to consummate a reverse
acquisition with Moonshine Creations, Inc., an issuer traded on the
Over-the-Counter Bulletin Board (“OTCBB”) in the United States of America,
whereby the Company was the surviving entity. The Company closed the
transaction on January 30, 2009, whereby Moonshine Creations, now known as
Bioneutral Group, Inc. acquired 81.95% of the outstanding shares of the
Company’s outstanding common stock and preferred stock, on a combined
basis.. Bioneutral Group, Inc.’s common stock trades on
the OTCBB under the symbol “BONU.”
F-14
In
December, 2008 and January, 2009, the Company issued six debentures to various
unaffiliated individuals and entities for $600,000 in gross
proceeds. The debentures carried interest at 10% per annum and were
due in full in 90 days from the issuance date. The debentures had a
mandatory conversion mechanism such that if the Company completed a reverse
acquisition, or share exchange transaction between the Company and a
publicly-traded company listed on the OTCBB, and completed a private placement
offering of an aggregate of $500,000 or more, then the debenture would
automatically convert at the per share price as agreed to in the private
placement offering. The debentures were converted to 600,000 shares
of the Company’s common stock as of January 30, 2009.
On
December 22, 2008, the Company's Board of Directors approved a 30-for-1 forward
stock split of our common stock.
On
January 29, 2009 the following transactions or events occurred:
The
Company and BLL agreed to terminate the September 14, 2005 agreement
between the Company and BLL. The Company and BLL further agreed that
the Company would be granted all remaining rights held by BLL to manufacture,
market, distribute and sell products and applications utilizing the Company’s
technology, know-how and trade secrets in specific geographic locations within
Asia, Australasia and the Pacific Islands. To consummate the
transaction, BLL agreed to cancel warrants to purchase 1,500,000 shares of the
Company’s common stock, which are classified as warrant liability in the balance
sheets and valued at $1,069,750. Concurrently, the Company issued BLL
600,000 shares of the Company’s common stock valued at $600,000 and 520,000
shares of Convertible Series A Preferred Stock valued at
$5,200,000.
The
Company issued 11,300,000 shares of the Company’s common stock valued at
$11,300,000 to five entities under contracts for a term of three years to
develop distribution channels for the Company’s products and applications in
Japan, Australia, New Zealand, South Korea, Taiwan, the People’s Republic of
China, India and throughout Europe.
The
Company issued 750,000 shares of the Company’s common stock valued at $750,000
to two entities to perform business development services within the
environmental market in the USA.
The
Company issued 750,000 fully vested shares of the Company’s common stock valued
at $750,000 to Stephen Browand, its Chief Executive Officer. Mr.
Browand does not currently receive any cash compensation.
The
Company hired James Crane as its Chief Financial Officer. Mr. Crane’s
contract was for a term of one year. His compensation is set at $60,000 for the
term of the contract. He also received a fully vested stock award of
75,000 shares of the Company’s common stock and a further stock award of 75,000
shares of the Company’s common stock which will be subject to a vesting schedule
of one year.
The
Company issued 416,090 shares of the Company’s common stock valued at $416,090
as compensation to the Company’s members of the Board of Directors for the year
ended December 31, 2008. Members of the Board of Directors who also
serve as officers were not separately compensated for service on the Board of
Directors.
The
Company issued 30,000 shares of the Company’s common stock in a private
placement with an unaffiliated investor for total proceeds of
$30,000.
The
Company’s Chief Financial Officer purchased $10,000 shares of the Company’s
common stock for gross proceeds of $10,000.
The
Company issued 20,000 shares of the Company’s common stock to a former member of
the Company’s Board of Directors to cancel outstanding loans of $20,000 owed to
him. In connection with the stock issuance, the individual also
agreed to forgive interest on the loan of approximately $2,200.
The
majority of the shareholders of both common stock and Convertible Series A
Preferred Stock, consistent with the requirements of the current certificate of
designation for the Convertible Series A Preferred Stock, voted to change the
certificate of designation and thereby eliminated the preemptive and special
voting rights previously designated and provided the Company with additional
mandatory conversion terms such that the Convertible Series A Preferred Stock
would convert to common stock upon the closing of the reverse acquisition on
January 30, 2009. The Convertible Series A Preferred Stock was converted to
779,991 shares of the Company’s common stock.
Jack
Jacobs, Telly Zacharaides, and Harold Unger resigned from the Board of
Directors.
On March13, 2009, the Company formed a new subsidiary, Advanced Bio-Fiber Treatments
Corp, a Nevada corporation. The new subsidiary will focus on developing business
in the textile industry.
On March24, 2009, the Company's subsidiary, Advanced Bio-Fiber Treatments Corp. entered
into a non-binding letter of intent to acquire Orient Arts, Inc., a manufacturer
of fibers, textiles and finished goods. The Company is still in the
process of negotiating terms with Orient Arts, Inc. and is unsure whether or not
this acquisition will be consummated.
F-15
On May20, 2009, the Company and its Chief Financial Officer renegotiated the Chief
Financial Officer's consulting agreement. The Chief Financial Officer
previously received a total of 82,585 shares of the Company's common stock and
was entitled to annual cash compensation of $60,000. Under the terms
of the new consulting agreement, the Chief Financial Officer agreed to accept
all compensation solely in the form of the Company's common stock. A
total of 300,000 shares of the Company's common stock valued at $105,000 was
vested immediately on May 20, 2009. In the next twelve months, the
Chief Financial Officer can earn an additional 480,000 shares of the Company's
common stock, of which 300,000 shares are subject to a twelve month vesting term
and an additional 180,000 shares of the Company's common stock are subject to
certain contingent events, namely the successful filing of the Company's
quarterly and annual reports with the SEC.
NOTE
13 - RECENTLY ISSUED ACCOUNTING STANDARDS
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which
clarifies the principle that fair value should be based on the assumptions that
market participants would use when pricing an asset or liability. It
also defines fair value and established a hierarchy that prioritizes the
information used to develop assumptions. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,2007. The adoption of SFAS No. 157 did not have a material effect on
its financial position, results of operations or cash flows.
On
February 15, 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — Including an Amendment of FASB
Statement No. 115” (“SFAS 159”). This standard permits an entity to measure
financial instruments and certain other items at estimated fair value. Most of
the provisions of SFAS No. 159 are elective; however, the amendment to FASB No.
115, “Accounting for Certain Investments in Debt and Equity Securities,” applies
to all entities that own trading and available-for-sale securities. The fair
value option created by SFAS 159 permits an entity to measure eligible items at
fair value as of specified election dates. The fair value option (a) may
generally be applied instrument by instrument, (b) is irrevocable unless a new
election date occurs, and (c) must be applied to the entire instrument and not
to only a portion of the instrument. SFAS 159 is effective as of the beginning
of the first fiscal year that begins after November 15, 2007. Early adoption is
permitted as of the beginning of the previous fiscal year provided that the
entity (i) makes that choice in the first 120 days of that year, (ii) has not
yet issued financial statements for any interim period of such year, and (iii)
elects to apply the provisions of FASB 157. Management is currently evaluating
the impact of SFAS 159, if any, on the Company’s financial statements. The
adoption of SFAS No. 159 did not have a material effect on its financial
position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
adoption of SFAS No. 160 is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
In
December 2007, the FASB issued SFAS 141R, “Business Combinations” (“SFAS 141R”),
which replaces FASB SFAS 141, “Business Combinations”. This Statement
retains the fundamental requirements in SFAS 141 that the acquisition method of
accounting be used for all business combinations and for an acquirer to be
identified for each business combination. SFAS 141R defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. SFAS 141R will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. SFAS 141R will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that date. This
compares to the cost allocation method previously required by SFAS No.
141. SFAS 141R will require an entity to recognize as an asset or
liability at fair value for certain contingencies, either contractual or
non-contractual, if certain criteria are met. Finally, SFAS 141R will
require an entity to recognize contingent consideration at the date of
acquisition, based on the fair value at that date. This Statement
will be effective for business combinations completed on or after the first
annual reporting period beginning on or after December 15,2008. Early adoption of this standard is not permitted and the
standards are to be applied prospectively only. Upon adoption of this
standard, there would be no impact to the Company’s results of operations and
financial condition for acquisitions previously completed. The
adoption of SFAS No. 141R is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
F-16
In
January 2008, the SEC released SAB No. 110, which amends SAB No. 107 which
provided a simplified approach for estimating the expected term of a “plain
vanilla” option, which is required for application of the Black-Scholes option
pricing model (and other models) for valuing share options. At the time, the
Staff acknowledged that, for companies choosing not to rely on their own
historical option exercise data (i.e., because such data did not provide a
reasonable basis for estimating the term), information about exercise patterns
with respect to plain vanilla options granted by other companies might not be
available in the near term; accordingly, in SAB No. 107, the Staff permitted use
of a simplified approach for estimating the term of plain vanilla options
granted on or before December 31, 2007. The information concerning exercise
behavior that the Staff contemplated would be available by such date has not
materialized for many companies. Thus, in SAB No. 110, the Staff continues to
allow use of the simplified rule for estimating the expected term of plain
vanilla options until such time as the relevant data becomes widely available.
The Company does not expect its adoption of SAB No. 110 to have a material
impact on its financial position, results of operations or cash
flows.
In March
2008, the FASB issued SFAS No. 161 “Disclosures about Derivative Instruments and
Hedging Activities—An Amendment of FASB Statement No. 133.” (“SFAS 161”). SFAS
161 establishes the disclosure requirements for derivative instruments and for
hedging activities with the intent to provide financial statement users with an
enhanced understanding of the entity’s use of derivative instruments, the
accounting of derivative instruments and related hedged items under Statement
133 and its related interpretations, and the effects of these instruments on the
entity’s financial position, financial performance, and cash flows. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2008. The Company does not expect its adoption of
SFAS 161 to have a material impact on its financial position, results of
operations or cash flows.
In April
2008, the FASB issued FASB Staff Position (“FSP”) SFAS No. 142-3, “Determination
of the Useful Life of Intangible Assets”. This FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). The intent of this
FSP is to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS 141R, and other GAAP. This FSP is
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. Early adoption
is prohibited. The Company is currently evaluating the impact of SFAS FSP 142-3,
but does not expect the adoption of this pronouncement will have a material
impact on its financial position, results of operations or cash
flows.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources
of accounting principles and the framework for selecting principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement is effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is currently evaluating
the impact of SFAS 162, but does not expect the adoption of this pronouncement
will have a material impact on its financial position, results of operations or
cash flows.
In
October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market For That Asset Is Not Active” (“FSP FAS 157-3”),
with an immediate effective date, including prior periods for which financial
statements have not been issued. FSP FAS 157-3 amends FAS 157 to
clarify the application of fair value in inactive markets and allows for the use
of management’s internal assumptions about future cash flows with appropriately
risk-adjusted discount rates when relevant observable market data does not
exist. The objective of FAS 157 has not changed and continues to be
the determination of the price that would be received in an orderly transaction
that is not a forced liquidation or distressed sale at the measurement
date. The adoption of FSP FAS 157-3 is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
Other
accounting standards have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
F-17
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM
9A(T). 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 Securities
Exchange Act of 1934, as amended (Exchange Act), as of October 31, 2008. Based
on this evaluation, our principal executive officer and principal financial
officers have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Securities and
Exchange Commission’s rules.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of the Company is responsible for establishing and maintaining effective
internal control over financial reporting as defined in Rule
13a-15(f) under the Exchange Act over the registrant. The Company’s
internal control over financial reporting is designed to provide reasonable
assurance to the Company’s management and Board of Directors regarding the
preparation and fair presentation of published financial statements in
accordance with United State’s generally accepted accounting
principles (US GAAP), including those policies and procedures that: (i) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with US
GAAP and that receipts and expenditures are being made only in accordance with
authorizations of management and directors of the company, and (iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements. Management
conducted an evaluation of the effectiveness of internal control over financial
reporting based on the framework in Internal Control— Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included an evaluation of the design of our
internal control over financial reporting and testing of the operational
effectiveness of our internal control over financial reporting. Based on this
assessment, Management concluded the Company maintained effective internal
control over financial reporting as of October 31, 2008.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation. This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to temporary rules
of the Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual Report.
ITEM
9B. OTHER INFORMATION
None
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Appointment
of New Officers and Directors
In
connection with the Share Exchange Transaction, Victoria Callanan resigned as
the former Chairman of the Board of Directors and as our sole officer and we
appointed three (3) new directors to our board and hired three (3) new
officers.
The
following table sets forth the names, ages, and positions of our new executive
officers and directors as of the Closing Date. Executive officers are elected
annually by our Board of Directors. Each executive officer holds his office
until he resigns, is removed by the Board, or his successor is elected and
qualified. Directors are elected annually by our shareholders at the annual
meeting. Each director holds his office until his successor is elected and
qualified or his earlier resignation or removal.
Name
Age
Positions
and Offices Held
Mr. Stephen
J. Browand
57
Director
and Chief Executive Officer
Dr.
Andy Kielbania
61
Chief
Scientist
James
Crane
32
Chief
Financial Officer
Raj
Pamani
42
Director
Suresh
Relwani
52
Director
The
following summarizes the occupation and business experience for our officers,
directors, and key employees.
Family
Relationships
None.
-18-
Conflicts
of Interest
Certain
potential conflicts of interest are inherent in the relationships between our
officers and directors, and us.
From time
to time, one or more of our affiliates may form or hold an ownership interest in
and/or manage other businesses both related and unrelated to the type of
business that we own and operate. These persons expect to continue to form, hold
an ownership interest in and/or manage additional other businesses which may
compete with ours with respect to operations, including financing and marketing,
management time and services and potential customers. These activities may give
rise to conflicts between or among the interests of us and other businesses with
which our affiliates are associated. Our affiliates are in no way prohibited
from undertaking such activities, and neither we nor our shareholders will have
any right to require participation in such other activities.
Further,
because we intend to transact business with some of our officers, directors and
affiliates, as well as with firms in which some of our officers, directors or
affiliates have a material interest, potential conflicts may arise between the
respective interests of us and these related persons or entities. We believe
that such transactions will be effected on terms at least as favorable to us as
those available from unrelated third parties.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority of our
disinterested outside directors, and (iii) the transaction be fair and
reasonable to us at the time it is authorized or approved by our
directors.
Our
policies and procedures regarding transactions involving potential conflicts of
interest are not in writing. We understand that it will be difficult
to enforce our policies and procedures and will rely and trust our officers and
directors to follow our policies and procedures. We will implement
our policies and procedures by requiring the officer or director who is not in
compliance with our policies and procedures to remove himself and the other
officers and directors will decide how to implement the policies and procedures,
accordingly.
Involvement
in Certain Legal Proceedings
To our
knowledge, during the past five (5) years, none of our directors, executive
officers, promoters, control persons, or nominees has been:
▪
the
subject of any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that
time;
▪
convicted
in a criminal proceeding or is subject to a pending criminal proceeding
(excluding traffic violations and other minor
offenses);
▪
subject
to any order, judgment, or decree, not subsequently reversed, suspended or
vacated, of any court of competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
▪
found
by a court of competent jurisdiction (in a civil action), the Commission
or the Commodity Futures Trading Commission to have violated a federal or
state securities or commodities
law.
Compliance
With Section 16(A) Of The Exchange Act.
Section
16(a) of the Exchange Act requires the Company’s officers and directors, and
persons who beneficially own more than 10% of a registered class of the
Company’s equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and are required to
furnish copies to the Company. To the best of the Company’s knowledge, any
reports required to be filed were timely filed for the fiscal years ended
October 31, 2008 and 2007, respectively.
Auditors;
Code of Ethics; Financial Expert
We do not
have an audit committee financial expert. Mr. Crane, our Chief
Financial Officer, qualifies as an audit committee financial
expert. We are only beginning our commercial operations. Management
expects to review and possibly implement an audit committee in
2010.
-19-
ITEM
11. EXECUTIVE COMPENSATION
BioNeutral
Executive Compensation Summary
Summary
Compensation Table
The
following table shows the compensation awarded or paid to, or earned by the
officers and directors of BioNeutral for the ten months ended October 31, 2008
and fiscal year ended October 31, 2007, respectively.
Name
and Principal Position
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan Compensation ($)
Non-Qualified
Deferred Compensation Earnings
($)
All
Other Compensation
($)
Totals
($)
Raj
Pamani,
Director
(1)
2008
40,000
0
4,250,000
0
0
0
0
4,290,000
2007
0
0
0
0
0
0
0
0
Stephen
Browand,
CEO
(2)
2008
0
0
0
0
0
0
0
0
2007
0
0
0
0
0
0
0
0
James
Crane (3),
Chief
Financial Officer
2008
0
0
0
0
0
0
0
0
2007
0
0
0
0
0
0
0
0
Dr.
Andy Kielbania, Chief Scientist
2008
120,000
0
0
0
0
0
0
120,000
2007
120,000
0
0
0
0
0
0
120,000
(1) Raj
Pamani was hired on May 15, 2008. An entity controlled by him
received cash compensation of $10,000 per month and received a signing stock
award of 4,722,222 shares of common stock.
(2) Steve
Browand was hired by the Company on January 29, 2009. He is not
receiving any cash compensation and was issued 750,000 shares of common stock as
a signing stock award.
(3) James
Crane was hired on January 29, 2009. He is not receiving any cash
compensation. He has been issued 532,585 shares of common stock as compensation
through June 19, 2009. An additional 77,415 shares of common stock have been
earned by Mr. Crane and will be issued in June 2009. Mr. Crane is
also eligible to earn an additional 148,000 shares of common stock per year on a
going forward basis.
Director
Compensation
Our
directors will not receive a fee for attending each board of directors meeting
or meeting of a committee of the board of directors. All directors will be
reimbursed for their reasonable out-of-pocket expenses incurred in connection
with attending board of director and committee meetings.
Stock
Incentive Plan
As of the
Closing Date, we approved the Bioneutral 2009 Stock Incentive
Plan. Pursuant to this plan, at the discretion of the Directors, the
Company can issue up to 5,000,000 shares of Common Stock to any officer,
director, employee or consultant of the Company.
Certain
Relationships and Related Transactions
We will
present all possible transactions between us and our officers, directors or 5%
shareholders, and our affiliates to the Board of Directors for their
consideration and approval. Any such transaction will require approval by a
majority of the disinterested directors and such transactions will be on terms
no less favorable than those available to disinterested third
parties.
Employment
Agreements
We have
entered into employment agreements with Stephen Browand, James Crane and Raj
Pamani.
The
number of shares beneficially owned by each stockholder is determined under
rules promulgated by the SEC. The information is not necessarily indicative of
beneficial ownership for any other purpose. Under these rules, beneficial
ownership includes any shares as to which the individual or entity has sole or
shared voting or investment power and any shares as to which the individual or
entity has the right to acquire beneficial ownership within 60 days after
June 24, 2009 through the exercise of any stock option, warrant or other right.
The inclusion in the following table of those shares, however, does not
constitute an admission that the named stockholder is a direct or indirect
beneficial owner.
PRINCIPAL
SHAREHOLDERS
The
following table sets forth certain information regarding our common stock
beneficially owned on June 24, 2009, for (i) each shareholder known to be the
beneficial owner of 5% or more of our outstanding common stock, (ii) each
executive officer and director, and (iii) all executive officers and directors
as a group, after the closing of the Share Exchange Agreement.
Name
and Address of
Beneficial
Owner (1)
Number
of Shares
Beneficially
Owned
Percentage
of
Class
Stephen
Browand (2)
750,000
shares
1.20%
Dr.
Andy Kielbania (3)
260,000
shares
*
Raj
Pamani (4)
4,722,222
shares
7.58%
James
Crane (5)
535,585
shares
*
Suresh
Relwani (6)
83,218
shares
*
Total
Shares
6,348,025
10.19%
(1)
Unless otherwise stated, the address for all the officers and directors is 211
Warren Street, Newark, New Jersey07103.
(2)
Stephen Browand is the Chief Executive Officer and the Chairman of the Board of
Directors of BioNeutral.
(3) Dr.
Andy Kielbania is the Chief Scientist of BioNeutral.
(4) Raj
Pamani is a Director of BioNeutral.
(5) James
Crane is the Chief Financial Officer of BioNeutral.
(6)
Suresh Relwani is a Director of BioNeutral.
* Less
than 1%
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
During
October and November 2007, the members of our Board of Directors advanced funds
to us totaling $60,000. Repayment terms were not defined at the
time. The loans are classified as related party payables in the
balance sheets and carried interest at 9% per annum. The majority of
the loans were either paid off or converted to equity in January,
2009. For the ten months ended October 31, 2008, we recorded $5,408
of interest expense associated with these loans.
On
September 30, 2008, our Chief Scientist, Dr. Andrew Kielbania, agreed to convert
$260,000 in accrued but unpaid compensation into 260,000 shares of the Company’s
common stock.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit
Fees
For the
Company’s consolidated financial statements for the ten months ended ended
October 31, 2008, we were billed approximately $25,000 for professional services
rendered for the audit of our consolidated financial statements.
Legal
Fees
For the
Company’s consolidated financial statements for the ten months ended ended
October 31, 2008, we were billed approximately $10,000 for professional services
rendered for legal compliance related to federal securities laws.
All
Other Fees
The
Company did not incur any other fees related to services rendered by our
principal accountant for the ten months ended October 31, 2008.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
-21-
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibit
No.
Description
31.1
Certification
of Chief Executive Officer, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2
Certification
of Chief Financial Officer, Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1
Certification
of Chief Executive Officer, Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2
Certification
of Chief Financial Officer, Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
-22-
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
