UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x	Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

For the quarterly period ended November 30, 2010

or

 

¨	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission File Number 000-50480

 

 

EN2GO INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada		98-0389557
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
644-1812 W. Burbank Blvd, Burbank, CA		91506
(Address of principal executive offices)		(Zip Code)

(818 748-6244

(Registrant’s Telephone Number, Including Area Code)

2921 W. Olive Ave., Burbank, CA 91505

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

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

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

 

Large accelerated filer		¨		Accelerated filer		¨
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨    NO  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 30,816,167 shares of $0.00001 par value common stock issued and outstanding as of January 19, 2010.

 

 

 

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EN2GO INTERNATIONAL, INC.

INDEX

EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

INDEX

 

						Page
Part I				Financial Information			1
		Item 1.		Financial Statements			1
				Consolidated Balance Sheets as of November 30, 2010 and August 31, 2010 (unaudited)			2
				Consolidated Statements of Operations for the Three Months Ended November 30, 2010 and 2009 and the period from inception (January 31, 2007) through November 30, 2010 (unaudited)			3
				Consolidated Statements of Stockholders’ Deficiency for the Period Ended November 30, 2010 (unaudited)			4-5
				Consolidated Statements of Cash Flows for the Three Months Ended November 30, 2010 and 2009 and the period from inception (January 31, 2007) through November 30, 2010 (unaudited)			6
				Notes to Unaudited Consolidated Financial Statements			7
		Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
		Item 3.		Quantitive and Qualitive Disclosures About Market Risk			24
		Item 4.		Controls and Procedures			24
Part II							25
		Item 1.		Legal Proceedings			25
		Item 6.		Exhibits			26
		Signatures					26

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PART I.             Financial Information

Item 1.      Financial Statements (Unaudited)

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The following condensed consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2010.

The results of operations for the three months ended November 30, 2010 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Consolidated Balance Sheets

(Unaudited)

 

		November 30, 2010				August 31, 2010
ASSETS
Current Assets:
Cash		$	115,221			$	4,942
Total Assets		$	115,221			$	4,942
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities:
Accounts payable		$	1,075,741			$	1,124,248
Accrued expense			3,967				65,000
Due to related party			12,010				562,010
Covertible debt (net of discount)			—				344,167
Total Current Liabilities			1,091,718				2,095,425
Total Liabilities			1,091,718				2,095,425
Commitments and Contingencies
Stockholders’ Deficit:
Common stock, $.00001 par value, 90,000,000 shares authorized, and 30,816,167 and 24,215,542 shares issued and outstanding at November 30, 2010 and August 31, 2010 , respectively			308				242
Capital in excess of par value			13,734,857				12,414,798
Deficit accumulated during the development stage			(14,711,662	)			(14,505,523	)
Total stockholders’ deficit			(976,497	)			(2,090,483	)
Total Liabilities and Stockholders’ Deficit		$	115,221			$	4,942

See notes to unaudited consolidated financial statements

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Consolidated Statements of Operations

(Unaudited)

 

		For the Three Months Ended November 30,								Period from inception (January 31, 2007) through November 30,
		2010				2009				2010
Revenues		$	—			$	—			$	—
Costs and Expenses:
General and administrative expenses			195,322				226,897				6,067,671
Stock issued for services			—				—				1,762,617
Non-cash compensation			—				—				3,990,692
Impairment loss			—				—				1,104,917
Total operating expenses			195,322				226,897				12,925,897
Loss from operations			(195,322	)			(226,897	)			(12,925,897	)
Other Income (Expense):
Other income			141				—				29,961
Interest expense			(5,125	)			(12,375	)			(210,594	)
Interest expense on amortization of note discount			(5,833	)			(1,170,170	)			(1,605,132	)
Total other income (expense)			(10,817	)			(1,182,545	)			(1,785,765	)
Loss Before Provision for Income Taxes			(206,139	)			(1,409,442	)			(14,711,662	)
Provision for income taxes			—				—				—
Net Loss		$	(206,139	)		$	(1,409,442	)		$	(14,711,662	)
Net loss per share of common stock - Basic and diluted		$	(0.01	)		$	(0.08	)
Weighted Average Shares Outstanding - Basic and diluted			25,956,433				18,484,818

See notes to unaudited consolidated financial statements

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

 

		Common Shares				Stock Amount				Capital in Excess of Par Value				Prepaid Stockholders’ Equity				Deficit Accumulated During Development Stage				Total Stockholders’ Equity
Balance - August 31, 2007			4,980,000				50				999,950				—				(602,659	)			397,341
Issuance of options and warrants issued for services rendered			—				—				3,686,768				—				—				3,686,768
Common stock issued for $10.00 per share in January 2008			135,000				1				1,349,999				—				—				1,350,000
Offering costs on issuance of common stock			—				—				(91,401	)			—				—				(91,401	)
Issuance of common stock for services rendered			100,000				1				1,849,999				—				—				1,850,000
Issuance of common stock as consideration for debt financing			16,600				—				144,600				(6,400	)			—				138,200
Net loss for the year ended August 31, 2008			—				—				—				—				(7,830,062	)			(7,830,062	)
Balance - August 31, 2008			5,231,600				52				7,939,915				(6,400	)			(8,432,721	)			(499,154	)
Common stock and warrants issued for $1.50 per unit in October 2008			100,000				1				149,999				—				—				150,000
Common stock issued for services rendered in October 2008			30,000				—				63,000				—				—				63,000
Common stock issued for services in November 2008			5,000				—				14,000				—				—				14,000
Common stock issued in consideration of debt financing - Sept - April 2009			71,940				1				174,999				—				—				175,000
Common stock issued for $2.00 per share in May 2009			75,000				1				149,999				—				—				150,000
Discount on notes payable net of amortization			—				—				1,593,729				—				—				1,593,729
Interest and stock based compensation			—				—				133,141				6,400				—				139,541
Net loss for the year ended August 31, 2009			—				—				—				—				(2,983,660	)			(2,983,660	)

See notes to unaudited consolidated financial statements

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Consolidated Statements of Stockholders’ Deficit

(Unaudited)

(Continued)

 

		Common Shares				Stock Amount				Capital in Excess of Par Value				Prepaid Stockholders’ Equity				Deficit Accumulated During Development Stage				Total Stockholders’ Equity
Issuance of common stock upon conversion of convertible debt			17,500,000				175				1,749,825												1,750,000
Sale of common stock			1,000,002				10				349,990												350,000
Issuance of common stock as consideration for payment of accounts payable			202,000				2				96,201												96,203
Net loss for the year ended August 31, 2010			—				—				—				—				(3,089,142	)			(3,089,142	)
Balance - August 31, 2010			24,215,542				242				12,414,798				—				(14,505,523	)			(2,090,483	)
Issuance of common stock upon conversion of convertible debt			4,850,625				49				678,888												678,937
Sale of common stock			1,750,000				17				244,988												245,005
Allocation of sale of common stock and conversion of debt to warrants issued											396,183												396,183
Net loss for the three months ended November 30, 2010			—				—				—				—				(206,139	)			(206,139	)
Balance - November 30, 2010			30,816,167			$	308			$	13,734,857			$	—			$	(14,711,662	)		$	(976,497	)

See notes to unaudited consolidated financial statements

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Consolidated Statements of Cash Flows

(Unaudited)

 

		For the Three Months Ended November 30,								Period from inception (January 31, 2007) through November 30,
		2010				2009				2010
Cash Flows From Operating Activities:
Net loss		$	(206,139	)		$	(1,409,442	)		$	(14,711,662	)
Adjustments to reconcile net loss to net cash used in operating activities:
Debt financing costs			5,833				1,170,170				1,906,933
Depreciation expense			—				15,056				144,804
Impairment loss			—				—				1,104,917
Options, warrants and common stock issued for services rendered			—				—				5,753,309
Changes in operating assets and liabilities:
Prepaid expense			—				(12,000	)			—
Accounts payable			(48,507	)			(8,123	)			1,176,441
Accrued expense			8,592				12,375				73,592
Net cash used in operating activities			(240,221	)			(231,964	)			(4,551,666	)
Cash Flows From Investing Activities:
Purchase of property and equipment			—				(2,273	)			(182,502	)
Software development			—				(64,500	)			(1,109,417	)
Net cash used in investing activities			—				(66,773	)			(1,291,919	)
Cash Flows From Financing Activities:
Proceeds from related party			500				45,600				562,510
Proceeds from sale of equipment			—				—				37,697
Proceeds from issuance of notes payable			—				—				2,600,000
Repayment of notes payable			—				—				(500,000	)
Proceeds from issuance of common stock, net of offering costs			350,000				350,000				3,258,599
Net cash provided by financing acitivities			350,500				395,600				5,958,806
Net (decrease) increase in cash			110,279				96,863				115,221
Cash beginning of period			4,942				3,132				—
Cash end of period		$	115,221			$	99,995			$	115,221
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		$	—			$	—
Income taxes			—				—
Common stock issued for payment of accounts payable		$	70,125			$	—			$	166,325
Common stock issued upon conversion of covertible debt		$	900,000			$	—			$	2,600,000

See notes to unaudited consolidated financial statements

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

The accompanying consolidated financial statements represent the accounts of En2Go International, Inc. (“Parent”), incorporated in the State of Nevada on August 23, 2002 (formerly Medusa Style Corporation) and En2Go, Inc. (“Subsidiary”), incorporated in the State of Nevada on January 31, 2007, collectively (“the Company” or “we”).

On July 17, 2007, Parent completed an exchange agreement with Subsidiary wherein Parent issued 2,780,000 shares of its common stock in exchange for all the issued and outstanding common stock of Subsidiary. The Acquisition was accounted for as a recapitalization of Subsidiary in a manner similar to a reverse purchase as the former shareholders of Subsidiary controlled the combined Company after the acquisition. Following the acquisition and the transfer of an additional 1,075,000 shares from the shareholders of parent to the former shareholders of the subsidiary, the former shareholders of subsidiary controlled approximately 77% of the total outstanding stock of the combined entity. There was no adjustment to the carrying values of the assets or the liabilities of Parent or Subsidiary as a result of the recapitalization.

The operations of Parent are included only from the date of recapitalization. Accordingly, the previous operations and retained deficits of Parent prior to the date of recapitalization have been eliminated. The financial history prior to the recapitalization is that of the Subsidiary.

General

We are a start-up company that is developing software for the online distribution of audio and video content. We plan to become a full service entertainment and technology company that will create and develop a variety of media and entertainment related programs and applications, including cutting edge media delivery software, Internet video applications and high-end, innovative desktop applications.

Our primary software application under development is called Flyxo, which is an application that delivers accelerated high-quality video to a user’s computer desktop, television set, tablet or netbook computer, PDA or smart phone. It is being developed as a global Internet broadcast platform that can facilitate online television channels, movie channels, radio stations, online gaming, slide shows, 3-D objects, high-resolution graphics, interactive advertising, social media and more. We also plan to offer the Channel Manager making it simple for individuals or organizations to create their own high-quality Internet media channels. Other software applications to be developed include eMaculate, a search engine; VideoBlox, a custom media player that is specifically designed for the entertainment industry; Kandictionary, a downloadable personalized dictionary and translator; and the En2go jukebox, a custom stand-alone media player designed to play music from social networking sites.

Effective for the year ended August 31, 2010, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”). The ASC was established as the sole source of US GAAP and super ceded existing accounting and reporting guidance issued by the FASB, Emerging Issue Task Force and other sources. The ASC did not change US GAAP. All references to accounting standards in these consolidated financial statements correspond to ASC references.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

Basis of Presentation and Going Concern

The consolidated balance sheet as of November 30, 2010 and the consolidated statements of operations, stockholders’ deficiency and cash flows for the periods presented have been prepared by En2Go International, Inc. and Subsidiary (the “Company” or “En2Go”) and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders’ equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of August 31, 2010 were derived from audited financial statements

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, we have sustained losses and as of November 30, 2010, we have no revenues and have a net working capital deficiency and a negative cash flow from operations. These conditions, among others, give rise to substantial doubt about our ability to continue as a going concern. Management is continuing to seek additional equity capital. Until such time, we anticipate our working capital needs will be funded with proceeds from equity and debt financing. Management believes these steps will provide us with adequate funds to sustain our continued existence. There is, however, no assurance that the steps taken by management will meet all of our needs or that we will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Development Stage Activities

Since inception the Company has not yet generated significant revenues and has been defining its business operations and raising capital. All of our operating results and cash flows reported in the accompanying consolidated financial statements from January 31, 2007 through November 30, 2010 are considered to be those related to development stage activities and represent the cumulative from inception amounts from our development stage activities required to be reported pursuant to ASC 915, “Development Stage Enterprises”.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are summarized in Note 2 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2010. There were no significant changes to these accounting policies during the three months ended November 30, 2010 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

NOTE 3 – FINANCIAL INSTRUMENTS

The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. While the Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, no such assets or liabilities existed at the balance sheet date. As permitted by ASC 820, the Company delayed implementation of this standard for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis and adopted these provisions effective August 1, 2008.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of November 30, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash. The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of November 30, 2010 and August 31, 2010.

 

			Assets at Fair Value as of November 30, 2010 and August 31, 2010
			Quoted Prices in
		Active Markets for				Significant Other				Significant Other
		Identical Assets				Observable Inputs				Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)
November 30, 2010
Cash and cash equivalents		$	115,221			$	—			$	—
Total		$	115,221			$	—			$	—
August 31, 2010
Cash and cash equivalents		$	4,942			$	—			$	—
Total		$	4,942			$	—			$	—

The Company had no financial assets accounted for on a non-recurring basis as of November 30, 2010.

There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the three months ended November 30, 2010 and the Company did not have any financial liabilities as of November 30, 2010. The Company has other financial instruments, such as advances and other receivables, accounts payable and other liabilities, notes payable and other assets, which have been excluded from the table above. Due to the short-term nature of these instruments, the carrying value of advances and other receivables, accounts payable and other liabilities, notes payable and other assets approximate their fair values.

NOTE 4 – RELATED PARTY TRANSACTIONS

During the three months ended November 30, 2010, Richard Genovese, a Director of the Company, (“Genovese”) invested $50,000 into the Company as additional working capital by way of the issuance of 250,000 units (“Units”), at a purchase price per Unit of $.20,

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share.

During the three months ended November 30, 2010, Genovese converted $550,000 of debt owed to him into 2,750,000 units (“Units”), at a conversion price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share. The fair value of the warrants issued was $165,000. As of November 30, 2010 and August 31, 2010, the amount due Genovese was $12,010 and $562,010, respectively.

NOTE 5 – CONVERTIBLE DEBT

 

		November 30, 2010				August 31, 2010
The Company issued notes payable of $2,100,000 during the year ended August 31, 2009		$	—			$	350,000
Discount on note payable net of amortization			—				(5,833	)
Total		$	—			$	344,167

Interest expense for the three months ended November 30, 2010 and 2009 was $5,125 and $12,375 respectively.

In August 2008, we entered into a promissory note with NSC Investments Ltd. (“NSC”) for a sum of $250,000. Under this promissory note, interest is to be prepaid at the commencement of each quarter by us issuing 1,600 shares of our common stock. The unpaid principal balance of the promissory note is due and payable in full on the sale of any assets of the Company or November 1, 2008. Further consideration for the loan shall consist of 15,000 shares of our common stock at the funding, 5,000 shares of our common stock at the beginning of the next month, and 10,000 shares at the beginning of the next month. This promissory note was extended until February 1, 2009. We agreed to pay 3,900 shares of our common stock as interest and additional issuance of 10,000 shares of our common stock for additional compensation. The promissory note was further extended to May 1, 2009 and we agreed to make payments on the principal of $50,000 by February 15, 2009; repay a further $100,000 by May 1, 2009; issue 3,000 shares of our common stock as interest and additional issuance of 20,040 shares of our common stock for additional compensation. All the terms of the amended agreement have been complied with. The remaining $100,000 plus accrued interest is convertible at NSC’s option at $2.00 per share on or before May 1, 2010. Pursuant to ASC 470-25-20, the modification of the Note agreement was not treated as an extinguishment but rather reduced the carrying amount of the debt through an adjustment to the note discounts, with a corresponding increase in additional paid-in capital.

On January 15, 2009 we entered into an agreement with Genovese whereby Genovese and/or his affiliates (collectively “Genovese”) will advance to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principal amount of $250,000. The Debenture shall be non-interest bearing and will mature on December 5, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agrees to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese shall be issued an additional $250,000 Convertible

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

Debenture. The Debenture shall be non interest bearing and will mature two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”).

At the Holders’ sole discretion, the Holder may elect to convert the Subsequent Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Subsequent Debenture issued. We further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years, (2) Genovese would be entitled to two board seats, (3) we would obtain directors and officers insurance, and (4) the parties would work together commencing December 2008 to address other matters. We offered the convertible notes and warrants in reliance on Section 506 of Regulation D and/or Regulation S of the Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws. The Debenture was subsequently amended for an aggregate principal amount of $545,000.

Additional Debentures for $455,000, $250,000, and $50,000 and $195,000 were issued during the year ended August 31, 2009. In April 2009, the amount of convertible debentures available to be issued was increased by $255,000 for an aggregate of $1,750,000.

As of August 31, 2009 a total of $1,750,000 has been issued as Debentures. The amount of the Debentures outstanding at August 31, 2009 was classified as “permanent equity” as capital in excess of par value and a corresponding amount was recorded as a discount against the note payable. This discount will be amortized over 24 months on a straight-line basis as interest expense. On September 25, 2009, all issued debentures were converted into 17,500,000 shares of common stock.

In April 2009, we entered into a loan agreement with Janst Limited for $250,000. The loan bears interest at 15% per annum and matures on May 1, 2010 (the “Maturity Date”). The principal and accrued interest is convertible into common stock at the conversion rate of $0.35 per share. From November 1, 2009 to Maturity Date, should the average closing prices for the five trading days ending on the day prior to the conversion notice not exceed $0.35, the conversion rate shall be 80% of the average closing prices for the five trading days ending on the day prior to the conversion notice.

In November 2010, the Company entered into an agreement with Janst Limited to issue 1,515,625 units (“Units”), at a conversion price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share, to settle $250,000 of principal debt and $53,125 of accrued interest.

In November 2010, the Company entered into an agreement with NSC Investments Ltd. to issue 585,000 units (“Units”), at a conversion price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share, to settle $100,000 of principal debt and $17,500 of accrued interest.

NOTE 6 – COMMON STOCK

The Company has authorized 90,000,000 shares of common stock with a par value of $.00001. At November 30, 2010 and August 31, 2010, the Company had 30,816,167 and 24,215,542 shares of common stock issued and outstanding, respectively.

On April 10, 2007, the Company completed a forward stock split by issuing two additional shares of common stock for every one share previously issued.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

On July 17, 2007, in connection with its Exchange Agreement with the Subsidiary, Parent issued 2,780,000 shares of its previously authorized but unissued common stock in exchange for all the issued and outstanding common stock of Subsidiary. The 2,780,000 shares have been reflected as though they were issued at the inception of the Subsidiary, with a reverse merger adjustment that represents the shareholders of the public shell at the time of the recapitalization.

During July, 2007, in connection with its Exchange Agreement with Subsidiary, Parent issued 100,000 shares of common stock to private placement subscribers at $10.00 per share.

On October 31, 2007 the Board of Directors approved the issuance of a private placement memorandum for 135,000 shares of common stock at $10.00 per share. On January 22, 2008, we completed a private placement of 135,000 shares of our common stock at a purchase price of $10.00 per share to persons who were not “U.S. Persons” within the meaning of Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Also, stock offering costs of $91,401 have been recorded against capital in excess of par value.

During November 2007, the Board of Directors authorized the granting of options to purchase 200,000 shares of common stock at $10.00 per share. The fair value of each option granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted-average assumptions; risk-free interest rates of 4.4%, expected dividend yields of zero, expected life of 10 years, and expected volatility of 147.95%. The options vested immediately and were valued in total at $2,366,186. Options granted under the Plan are subject to the Plan being approved by the stockholders of the Company within one year from the date the Plan was adopted.

On January 22, 2008, the Company completed a private placement of 135,000 shares of its common stock at a purchase price of $10.00 per share to persons who were not “U.S. Persons” within the meaning of Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Company received gross proceeds from the placement of $1,350,000 and net proceeds of approximately $1,258,600 after deducting $30,000 in placement fees paid to registered investment dealers in Canada and other offering costs. The foregoing sales of common stock were made in reliance on the exemption from registration provided by Regulation S. Each of the purchasers signed a subscription agreement containing the representations required by Regulation S and the certificates for the shares will be stamped with restricted stock legends indicating the shares have not been registered under the Securities Act, have been issued in reliance on the exemption from registration provided by Regulation S, and may not be reoffered or sold except in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or an available exemption from registration under the Securities Act.

In August 2008, we entered into a promissory note with NSC Investments Ltd. (“NSC”) for a sum of $250,000. Under this promissory note, interest is to be prepaid at the commencement of each quarter by us issuing 1,600 shares of our common stock.

The unpaid principal balance of the promissory note is due and payable in full on the sale of any assets of the Company or November 1, 2008. Further consideration for the loan shall consist of 15,000 shares of our common stock at the funding, 5,000 shares of our common stock at the beginning of the next month, and 10,000 shares at the beginning of the next month. This promissory note was extended until February 1, 2009. We agreed to pay 3,900 shares of our common stock as interest and an additional issuance of 10,000 shares of our common stock in lieu of the extension of the note. The promissory note was further extended to May 1, 2009 and we agreed to issue 3,000 shares of our common stock as interest and additional issuance of 20,040 shares of our common stock for additional compensation. During the year ended August 31, 2009, an aggregate of 71,940 common shares were issued to NSC Investments Ltd. The remaining $100,000 plus accrued interest shall be convertible at NSC’s option at $2.00 per share on or before May 1, 2010. In November 2010, NSC converted the remaining $100,000 and $17,500 of accrued interest into 585,000 shares of the Company’s common stock. The fair value of the warrants was $126,188.

During August 2008, the Company issued 45,000 warrants valued at approximately $338,000 to purchase stock for services rendered. The warrants vest over various terms. During the year ended August 31, 2009, the Company recognized compensation expense of $216,479. The fair value of each warrant granted is estimated on the date granted using the Black-Scholes option

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

pricing model with the following weighted average assumptions: risk free interest rates of 3.74% to 3.97%, expected dividend yields of zero, expected life of 10 years and expected volatility of 136.94% to 140.60%.

During the fiscal year ended August 31, 2008, the Company authorized the issuance of 100,000 shares of common stock to Mr. Steve Wozniak. The shares were valued at $1,850,000 based on the fair market value of the stock on the date the shares were issued.

In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates (collectively “Genovese”) whereby Genovese purchased 100,000 shares or our common stock and 100,000 warrants with an exercise price of $1.50 for $150,000.

In October 2008, we entered into an agreement with Euro Trend Trader, Inc. (“ETT”) to provide investor relations and public relations. We agreed to pay ETT $5,000 start up fees and $3,000 per month thereafter. Additionally, we paid ETT 20,000 shares of our common stock for coverage of the Company by a registered market maker and an additional 10,000 for investor relations services.

In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25. In February 2009 we repaid the principal and interest in full and did not issue any shares or warrants.

In November 2008 we issued 5,000 shares of our common stock to Howard Family Trust as a bonus in consideration of the Company’s failure to pay rent on a timely basis. The shares were valued at $14,000 based on the fair market value of the stock on the date the shares were issued.

In May 2009, we entered into a subscription agreement with Robert Kolson; whereby Mr. Kolson purchased 75,000 shares of our common stock and 37,500 warrants with an exercise price of $3.00 for $150,000.

During the year ended August 31, 2009, the Company issued an aggregate of $1,750,000 in Convertible Debentures. At the holder’s sole discretion, the holder was entitled to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, in conjunction with the issuance of the Debentures, the Company issued 17,500,000 share purchase warrant certificates with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. On September 25, 2009 all of the $1,750,000 of debentures were converted into 17,500,000 common shares and 17,500,000 share purchase warrants exercisable at $0.15 per share remained outstanding.

On September 15 2009, the Company completed a reverse stock split on a one to ten (1:10) basis, such that each shareholder now holds one new share for every ten shares previously held. The Company’s share transactions disclosed in the financial statements have been restated retroactively to reflect the reverse stock split for all periods presented.

On October 30, 2009 we entered into a subscription agreement with Janspec Holdings Limited (“Janspec”); whereby Janspec purchased 428,572 common shares and 428,572 warrants with an exercise price of $0.60 for $150,000.

On November 7, 2009 we entered into a subscription agreement with Peninsula Merchant Syndications Corp. (“Peninsula”) where Peninsula purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On November 9, 2009, we issued 32,000 common shares to Weintraub Genshlea Chediak in lieu of outstanding legal services provided to the Company. The shares were valued at $11,200 based on the fair market value of the stock on the date that the shares were issued.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

On November 13, 2009 we entered into a subscription agreement with Robert Kolson; whereby Mr. Kolson purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On January 20, 2010 we issued 170,000 common shares to Howard Family Trust in lieu of outstanding rent, property taxes and insurance. The shares were valued at $85,000 reflective of the fair market value of the stock on the date the shares were issued.

On November 8, 2010, we entered into a subscription agreement with Janst Limited; whereby Janst purchased 1,250,000 shares of our common stock and 1,250,000 warrants with an exercise price of $.30 for $250,000.

On November 8, 2010, we entered into a subscription agreement with NSC Investments Ltd.; whereby NSC purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

On November 8, 2010, we entered into a subscription agreement with Richard Genovese.; whereby Mr. Genovese purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

The fair value of the warrants issued in connection with the sale of common stock during the three months ended November 30, 2010 was $104,995.

NOTE 7 – OPTIONS AND WARRANTS

Stock Options

During November, 2007 the Board of Directors of the Company adopted and the stockholders at that time approved the 2007 Stock Plan (“the Plan”). The Plan provides both for the direct award or sale of shares and for the granting of options to purchase shares. Options granted under the plan may include qualified and non-qualified stock options. The aggregate number of shares that may be issued under the plan shall not exceed 750,000 shares of common stock, and are issuable to directors, officers, and employees of the Company. Awards under the plan will be granted as determined by Committees of the Board of Directors or by the Board of Directors. The options will expire after 10 years or 5 years if the option holder owns at least 10% of the common stock of the Company. The exercise price of a non-qualified option must be at least 85% of the market price on the date of issue. The exercise price of a qualified option must be at least equal to the market price or 110% of the market price on the date of issue if the option holder owns at least 10% of the common stock of the Company.

In November 2007, 200,000 stock options were granted with an exercise price equal to fair value at the date of grant. The term of the options granted under the Plan could not exceed 10 years and the stock options granted were vested immediately.

On August 1, 2008, we agreed to issue 30,000 stock options to certain board members for their services to the board.

On September 1, 2008 we granted 15,000 stock options to a certain officer and board member for his services performed as Chair of the Audit Committee and Chair of the Compensation Committee.

The estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 10 years, a risk free interest rate of 3.97% to 4.40%, a dividend yield of 0% and volatility of 136.94% to 147.95%. During the years ended August 31, 2010 and 2009, the amount of the expense charged to operations for compensatory options granted in exchange for services was $-0- and $121,739, respectively.

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

		Shares				Weighted Average Exercise Price
Outstanding, September 1, 2010			45,000			$	7.70
Granted
Expired/Cancelled			—				—
Exercised			—				—
Outstanding, period ended November 30, 2010			45,000				7.70
Exercisable at November 30, 2010			45,000			$	7.70

Stock Warrants

In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates (collectively “Genovese”) whereby Genovese purchased 100,000 shares of our common stock and 100,000 warrants with an exercise price of $2.00 for $150,000.

In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25. In February 2009 we repaid the principal and interest in full and no shares or warrants were issued.

On January 15, 2009 we entered into an agreement with Genovese whereby Genovese and/or his affiliates (collectively “Genovese”) will advance to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principal amount of $250,000. The Debenture shall be non-interest bearing and will mature on December 5, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agrees to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese shall be issued an additional $250,000 Convertible Debenture. The Debenture shall be non interest bearing and will mature two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”).

At the Holders’ sole discretion, the Holder may elect to convert the Subsequent Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Subsequent Debenture issued. We would further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years, (2) Genovese would be entitled to two board seats, (3) we would obtain directors and officers insurance, and (4) the parties would work together commencing December 2008 to address other matters. We offered the convertible notes and warrants in reliance on Section 506 of Regulation D and/or Regulation S of the

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws. The Debenture was subsequently amended for an aggregate principal amount of $545,000.

Additional Debentures for $455,000, $250,000, and $50,000 and $195,000 were issued during the year ended August 31, 2009. In April 2009, the amount of convertible debentures available to be issued was increased by $255,000 for an aggregate of $1,750,000. As of August 31, 2009 a total of $1,750,000 has been issued as Debentures. On September 25, 2009 all of the $1,750,000 of debentures were converted into 17,500,000 common shares and 17,500,000 share purchase warrants exercisable at $0.15 per share remained outstanding.

In May 2009, we entered into a subscription agreement with Robert Kolson; whereby Mr. Kolson purchased 75,000 shares of our common stock and 37,500 warrants with an exercise price of $3.00 for $150,000.

On October 30, 2009 we entered into a subscription agreement with Janspec Holdings Limited (“Janspec”); whereby Janspec purchased 428,572 common shares and 428,572 warrants with an exercise price of $0.60 for $150,000.

On November 7, 2009 we entered into a subscription agreement with Peninsula Merchant Syndications Corp. (“Peninsula”) where Peninsula purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On November 13, 2009 we entered into a subscription agreement with Robert Kolson; whereby Mr. Kolson purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On November 8, 2010, we entered into a subscription agreement with Janst Limited; whereby Janst purchased 1,250,000 shares of our common stock and 1,250,000 warrants with an exercise price of $.30 for $250,000.

On November 8, 2010, we entered into a subscription agreement with NSC Investments Ltd.; whereby NSC purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

On November 8, 2010, we entered into a subscription agreement with Richard Genovese.; whereby Mr. Genovese purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

The Company has determined the estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: expected term of 1year, a risk free interest rate of 1.79%, a dividend yield of 0% and volatility of 193.92% in 2010.

 

		Warrants				Weighted Average  Exercise Price
Outstanding, September 1, 2010			18,637,502			$	0.19

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

 

Granted			6,600,625				0.30
Expired/Cancelled			—				—
Exercised			—				—
Outstanding, period ended November 30, 2010			25,238,127			$	0.22
Exercisable			25,238,127			$	0.22

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company.

 

		Warrants Outstanding												Warrants Exercisable
Year		Exercise Price				Number of Warrants Outstanding				Weighted Average Contractual Life (Years)				Number Exercisable				Weighted Average Exercise Price
2008		$	2.00				100,000				4.16				100,000				2.00
2009			0.15				*10,000,000				2.42				10,000,000				0.15
2009			0.15				*2,500,000				2.47				2,500,000				0.15
2009			0.15				*500,000				2.50				500,000				0.15
2009			0.15				*1,700,000				2.64				1,700,000				0.15
2009			0.15				*150,000				2.67				150,000				0.15
2009			0.15				*50,000				2.68				50,000				0.15
2009			0.15				*50,000				2.71				50,000				0.15
2009			3.00				37,500				0.70				37,500				3.00
2009			0.15				*500,000				2.97				500,000				0.15
2009			0.15				*2,050,000				2.97				2,050,000				0.15
2010		$	.60				1,000,002								1,000,002				0.60
2010		$	.30				6,600,625								6,600,625				0.30
Total							25,238,127								25,238,127

As at November 30, 2010 none of the Company’s outstanding warrants have been exercised or cancelled.

 

*

Pursuant to the terms of the debentures issued under the Genovese Agreement, the warrants contain an anti-dilusion provision that states it is specifically agreed that in the event that the Company shall reduce the number of outstanding shares of Common Stock by combining such shares into a smaller number of shares, then, in such case, the then applicable Exercise Price per Warrant Share purchasable pursuant to the Warrant Certificate in effect at the time of such action will not be changed.

NOTE 8 – EARNINGS PER SHARE

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

Basic Loss Per Share - The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.

 

		For the Three Months Ended November 30,
		2010				2009
NET LOSS		$	(206,139	)		$	(1,409,442	)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING BASIC and DILUTED LOSS PER COMMON SHARE		$	(0.01	)		$	(0.08	)

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

The following table sets forth common stock equivalents (potential common stock) for the three months ended November 30, 2010 and 2009 that are not included in the loss per share calculation above because their effect would be anti-dilutive for the periods indicated:

 

		For the Three Months Ended November 30,
		2010				2009
Plan Stock Options			45,000				245,000
Warrants			25,238,127				18,637,502
Convertible notes			—				764,286

NOTE 9 – INCOME TAXES

The Company adopted the provisions of ASC 740, “Income Taxes” (“ASC 740”) on January 1, 2007. As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits. The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed. Should the Company recognize a liability for uncertain tax positions; the Company will separately recognize the liability for uncertain tax positions on its balance sheet. Included in any liability for uncertain tax positions, the Company will also record a liability for interest and penalties. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.

Substantial changes in the company’s ownership have occurred, and therefore there is an annual limitation of the amount of Parent’s pre-acquisition net operating loss carryforward which can be utilized. Accordingly, only the post-acquisition net operating loss carryforward has been included for Parent.

The Company recorded no provision for income taxes for the three months ended November 30, 2010 and 2009.

NOTE 10 – SUBSEQUENT EVENTS

On December 13, 2010, the Company received a subscription from one investor for an additional 500,000 Units for an investment of $100,000.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Effective September 1, 2010, the Company entered into a consulting agreement with, L.A. Dreamline II, LLC, a marketing consultant, for a monthly consulting fee of $15,000. The consulting agreement is for a term of 25 months.

We are party to the following litigation matters.

Stride & Associates. We are a defendant in a suit filed September 2, 2009 by Stride & Associates, Inc. in the Superior Court of California, Los Angeles Superior Court-North Central District, for the amount of $19,500, plus interest, for services allegedly rendered by the plaintiff to the Company in connection with personnel placement.

Cypress Communications. On April 12, 2010, we were sued in the Superior Court of California, County of Los Angeles-Central District, by Jonathan Neil & Associates, Inc., for $206,151.77, plus interest, for telecommunications and internet services allegedly

 

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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended November 30, 2010

 

provided by the plaintiff’s assignor, Cypress Communications, Inc. We have commenced mediation with Cypress and intend to settle this lawsuit.

Powell Enterprises. Powell Enterprises, a consulting company, has notified the Company on April 15, 2010 of its claim that the Company owes this firm $212,480 of consulting fees. This company has not performed any services for the Company for a significant period of time, and the Company believes that Powell Enterprises has no basis whatsoever to seek any payment from the Company for the period after its services were terminated. If we determine that any amounts are owing to Powell Enterprises, we intend to discuss the claim and settle the matter.

 

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ITEM 2.

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

The following discussion of our consolidated financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto and the other financial information included elsewhere in this report.

Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

EN2GO Overview

We are a start-up company that is developing software for the online distribution of audio and video content. We plan to become a full service entertainment and technology company that will create and develop a variety of media and entertainment related programs and applications, including cutting edge media delivery software, Internet video applications and high-end, innovative desktop applications.

Our primary software application under development is called Flyxo, which is an application that delivers accelerated high-quality video to a user’s computer desktop, television set, tablet or netbook computer, PDA or smart phone. Flyxo is designed to be utilized to watch movies online and is designed to eliminate the user’s frustration of long download times or waiting for buffering. It is being developed as a global Internet broadcast platform that can facilitate online television channels, movie channels, radio stations, online gaming, slide shows, 3-D objects, high-resolution graphics, interactive advertising, social media and more.

We also plan to offer the Channel Manager making it simple for individuals or organizations to create their own high-quality Internet media channels. Once the clients’ videos or other media is uploaded, using drag and drop functionality, the clients would be able to create their own global HD Internet broadcast channel in a matter of minutes. This simplicity and convenience combined with the ability to distribute high-quality media to a worldwide audience opens a wide range of possibilities in terms of potential clients. Other software applications to be developed include eMaculate, a search engine; VideoBlox, a custom media player that is specifically designed for the entertainment industry; Kandictionary, a downloadable personalized dictionary and translator; and the En2go jukebox, a custom stand-alone media player designed to play music from social networking sites.

Critical Accounting Policies and Estimates

Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR60”) issued by the SEC, suggests that companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the consolidated financial statements.

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the

 

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reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:

The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows expected to be generated by those assets are less than the carrying amount of those items. The Company’s cash flow estimates are based on limited operating history and have been adjusted to reflect management’s best estimate of future market and operating conditions. The net carrying values of assets deemed not recoverable are reduced to fair value. The Company’s estimates of fair value represent management’s best estimates based on industry trends.

We account for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of ASC topic 505-50, “Equity Based Payments to Non-Employees”, (formerly EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services”), and ASC 470-20-25, “Debt with Conversion and Other Options (“ASC 470-20-25”). The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with ASC 470-20-25, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its consolidated balance sheet.

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There is no assurance that actual results will not differ from these estimates.

See footnotes in the accompanying financial statements regarding recent financial accounting developments.

Results of Operations

For the Three Months Ended November 30, 2010 and 2009

We had a net loss of $206,139 for the three months ended November 30, 2010 compared to a net loss of $1,409,442 for the three months ended November 30, 2009. The change is explained below.

Operating Expenses: Operating expenses were $195,322 and $226,897 for the three months ended November 30, 2010 and 2009, respectively. The decrease of $31,575 was primarily due to a decrease in salaries and wages.

Other income (expense): Other income (expense) was $(10,817) for the three months ended November 30, 2010 compared to $(1,182,170) recorded for the three months ended November 30, 2009. The decrease was primarily due to the decrease in amortization costs of the notes payable from $(1,170,170) in 2009 to (5,833) in 2010, and a decrease in interest expense from $(12,375) in 2009 to $(5,125) in 2010.

As of the date of this report, we have not generated any revenues. As a result, we have generated significant operating losses since our formation and expect to incur substantial losses and negative operating cash flows for the foreseeable future as we attempt to expand our infrastructure and development activities. Our ability to continue may prove more expensive than we currently anticipate and we may incur significant additional costs and expenses.

We are a development stage company and are in the early stages of developing our products and services. We have not yet successfully developed any of our products and services to the final completion stage. The diversity of our products, the competitive entertainment industry, lack of liquidity and the current economic downturn, make it difficult for us to project our near-term results of operations. These conditions could further impact our business and have an adverse effect on our financial position, results of operations and/or cash flows.

Liquidity and Capital Resources

At November 30, 2010, total assets increased to $115,221, as compared with total assets of $4,942 at August 31, 2010. The increase is primarily due to the proceeds of $350,000 from the sale of common stock during the three months ended November 30, 2010.

 

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Net cash used in operating activities was $240,221 and $231,694 for the three months ended November 30, 2010 and 2009, respectively. The increase in cash used by operating activities was primarily due to the decrease in accounts payable. Net cash used in investing activities was $-0- and $66,773 for the three months ended November 30, 2010 and 2009, respectively. Investing activities for the three months ended November 30, 2009 resulted from the purchase of computers and furniture and software development costs. Net cash provided by financing activities, principally the sale of common stock, was $350,500 and $395,600 for the three months ended November 30, 2010 and 2009, respectively.

The Company suffered recurring losses from operations and has an accumulated deficit of $14,711,662 at November 30, 2010. Primarily as a result of our recurring losses and our lack of liquidity, the Company has received a report from our independent auditors that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. We have delayed payment of a substantial amount of accounts payable and accrued expenses and reduced our expenses to a minimum level. Our existing cash and cash equivalents will not be sufficient to fund our operations. Unless we receive liquidity from new purchase orders, obtain additional capital, loans or sell or license assets, we may be required to seek to reorganize our business or discontinue operations and liquidate our assets. There can be no assurance that the Company will be able to secure sufficient financing or on terms acceptable to the Company. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders is likely to or will be reduced.

In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates (collectively “Genovese”) whereby Genovese purchased 100,000 shares of our common stock and 100,000 warrants with an exercise price of $2.00 for $150,000.

In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25. In February 2009 we repaid the principal and interest in full and no shares or warrants were issued.

On January 15, 2009 we entered into an agreement with Genovese whereby Genovese and/or his affiliates (collectively “Genovese”) advanced to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principal amount of $250,000. The Debenture was non-interest bearing and had a maturity date of December 5, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese was issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Subsequent Debenture issued. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agreed to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese was issued an additional $250,000 Convertible Debenture. The Debenture was non interest bearing and had a maturity date of two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”).

We further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years, (2) Genovese would be entitled to two board seats, (3) we would obtain directors and officers insurance, and (4) the parties would work together commencing December 2008 to address other matters. We offered the convertible notes and warrants in reliance on Section 506 of Regulation D and/or Regulation S of the Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws. The Debenture was subsequently amended for an aggregate principle amount of $545,000.

Additional Debentures for $455,000, $250,000, and $50,000 and $195,000 were issued by the Company during the year ended August 31, 2009. In April 2009, the amount of convertible debentures available to be issued was increased by $255,000 for an aggregate of $1,750,000.

During the period ended May 31, 2009, Richard Genovese advanced $210,000 to us for additional working capital. From June 1, 2009 to August 31, 2009, Richard Genovese advanced a further $319,498. The aggregate of $529,498 advanced was converted into the balance of the convertible debentures for the amount of $255,000 and the remaining $274,498 was applied as an advance to the Company. During the period ended February 28, 2010, Richard Genovese advanced a further $142,100 to the Company for working capital. No arrangement has been made for repayment of the loan. The advance is non-interest bearing and due upon demand.

As of August 31, 2009 a total of $1,750,000 had been issued as Debentures. On September 25, 2009, all issued debentures were

 

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converted into 17,500,000 shares of common shares and 17,500,000 share purchase warrants exercisable at $0.15 per share remained outstanding.

In April 2009, we entered into a loan agreement with Janst Limited for $250,000. The loan bears interest at 15% per annum and matures on May 1, 2010 (the “Maturity Date”). The principal and accrued interest is convertible into common stock at the conversion rate of $0.35 per share. From November 1, 2009 to Maturity Date, should the average closing prices for the five trading days ending on the day prior to the conversion notice not exceed $0.35, the conversion rate shall be 80% of the average closing prices for the five trading days ending on the day prior to the conversion notice.

In May 2009, we entered into a subscription agreement with Robert Kolson, whereby Mr. Kolson purchased 75,000 shares of our common stock and 37,500 warrants with an exercise price of $3.00 for $150,000.

On October 30, 2009 we entered into a subscription agreement with Janspec Holdings Limited (“Janspec”), whereby Janspec purchased 428,572 common shares and 428,572 warrants with an exercise price of $0.60 for $150,000.

On November 7, 2009 we entered into a subscription agreement with Peninsula Merchant Syndications Corp. (“Peninsula”), pursuant to which Peninsula purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On November 13, 2009 we entered into a subscription agreement with Robert Kolson, whereby Mr. Kolson purchased 285,715 shares of our common stock and 285,715 warrants with an exercise price of $0.60 for $100,000.

On November 8, 2010, we entered into a subscription agreement with Janst Limited; whereby Janst purchased 1,250,000 shares of our common stock and 1,250,000 warrants with an exercise price of $.30 for $250,000.

On November 8, 2010, we entered into a subscription agreement with NSC Investments Ltd.; whereby NSC purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

On November 8, 2010, we entered into a subscription agreement with Richard Genovese.; whereby Mr. Genovese purchased 250,000 shares of our common stock and 250,000 warrants with an exercise price of $.30 for $50,000.

Going Concern

As of the date of this report, there is doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flow to fund our business operations and loan commitments. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon the Company and our shareholders.

Commitments and Contractual Obligations

We did not have any commitments or contingencies as at August 31, 2010.

Off-Balance Sheet Arrangements

As of November 30, 2010, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

 

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule

 

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13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended November 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings and, to the best of its knowledge its properties are not the subject of any such proceedings, except as follows: Stride & Associates. We are a defendant in a suit filed September 2, 2009 by Stride & Associates, Inc. in the Superior Court of California, Los Angeles Superior Court-North Central District, for the amount of $19,500, plus interest, for services allegedly rendered by the plaintiff to the Company in connection with personnel placement.

Cypress Communications. On April 12, 2010, we were sued in the Superior Court of California, County of Los Angeles-Central District, by Jonathan Neil & Associates, Inc., for $206,151.77, plus interest, for telecommunications and internet services allegedly provided by the plaintiff’s assignor, Cypress Communications, Inc. We have commenced mediation with Cypress and intend to settle this lawsuit.

Powell Enterprises. Powell Enterprises, a consulting company, has notified the Company on April 15, 2010 of its claim that the Company owes this firm $212,480 of consulting fees. This company has not performed any services for the Company for a significant period of time, and the Company believes that Powell Enterprises has no basis whatsoever to seek any payment from the Company for the period after its services were terminated. If we determine that any amounts are owing to Powell Enterprises, we intend to discuss the claim and settle the matter.

 

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ITEM 6.

EXHIBITS

 

(a)

Exhibits

 

31		Certification of Chief Executive and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32		Certification of Chief Executive and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. *

 

*	Filed herewith.

 

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SIGNATURES

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

 

						EN2GO INTERNATIONAL, INC. (Registrant)
Date: January 19, 2011						By: ROBERT ROSNER Robert Rosner
						President, Chief Executive and Chief Financial Officer

 

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