Enterologics, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Enterologics, Inc.	Financial_Report.xls
EX-31.2 - CERTIFICATION - Enterologics, Inc.	elgo_ex312.htm
EX-32.2 - CERTIFICATION - Enterologics, Inc.	elgo_ex322.htm
EX-32.1 - CERTIFICATION - Enterologics, Inc.	elgo_ex321.htm
EX-31.1 - CERTIFICATION - Enterologics, Inc.	elgo_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended June 30, 2011

o 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 333-164956

ENTEROLOGICS, INC.

(Exact name of registrant as specified in its charter)

1264 University Avenue West, Suite 404

St. Paul, Minnesota 55104

Telephone: (516) 303-8181

(Address of principal executive offices) (Zip Code)

(516) 303-8181

(Registrant's telephone number, including area code)

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

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

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	o	Smaller reporting company	x
(Do not check if a smaller reporting company)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 35,020,000 shares of common stock, $0.0001 par value, issued and outstanding as of August 10, 2011.

TABLE OF CONTENTS



PART I - Financial Information

Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3. Quantitative and Qualitative Disclosures About Market Risk			17
Item 4. Controls and Procedures			17

PART II – Other Information

Item 1. Legal Proceedings			19
Item 1A. Risk Factors			19
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			19
Item 3. Defaults Upon Senior Securities			19
Item 4. Removed and Reserved			19
Item 5. Other Information			19
Item 6. Exhibits			19

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS



ASSETS

	June 30,			December 31,
	2011			2010
CURRENT ASSETS	(Unaudited)

Cash	$	338,907		$	1,058
Prepaid expenses		7,728			800

TOTAL CURRENT ASSETS		346,635			1,858

Website Costs, (net of accumulated amortization of $262 and -0- respectively)		2,883			1,000

OTHER ASSETS

Loan commitment fees ( Net of accumulated amortization of $8,539 and $-0-), respectively- related party		9,182			-

TOTAL ASSETS	$	358,700		$	2,858

LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)

CURRENT LIABILITIES
Accounts payable	$	7,485		$	9,107
Accounts payable - related party		1,101			2,123
Accrued Interest		275			148
Notes payable - related party		-			12,000


TOTAL LIABILITIES		8,861			23,378

COMMITMENTS AND CONTINGENCIES		-			-


STOCKHOLDERS’ EQUITY / (DEFICIENCY)
Preferred Stock, $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding	$	-		$	-
Common stock, $0.0001 par value, 150,000,000 shares authorized, 35,020,000 and 26,020,000 shares issued and outstanding, respectively		3,502			2,602
Additional paid in capital		512,688			57,588
Accumulated deficit - during developmental stage		(166,351	)		(80,710	)
Total Stockholders’ Equity / (Deficiency)		349,839			(20,520	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)	$	358,700		$	2,858

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)


													For the Period
													September 2, 2009
	For the Three Months Ended June 30,						For the Six Months Ended June 30,						(Inception) to
	2011			2010			2011			2010			June 30 , 2011


OPERATING EXPENSES
Professional fees	$	12,975		$	17,329		$	33,299		$	31,861		$	76,388
Research and Development		12,913			-			12,913			-			12,913
Compensation expense		3,000			3,000			6,000			6,000			18,000
General and administrative		12,095			5,305			17,048			7,058			42,374
Amortization Expense		262			-			262			-			262
Total Operating Expenses		41,245			25,634			69,522			44,919			149,937

LOSS BEFORE PROVISION FOR INCOME TAXES		(41,245	)		(25,634	)		(69,522	)		(44,919	)		(149,937	)

OTHER INCOME / (EXPENSES)
Interest income		-			5			-			5			5
Loan amortization expense- related party		(7,279	)		-			(15,818	)		-			(15,818	)
Interest expense		-			-			(301	)		(16	)		(601	)
		(48,524	)		(25,629	)		(85,641	)		(44,930	)		(166,351	)
Provision for Income Taxes		-			-			-			-

NET LOSS	$	(48,524	)	$	(25,629	)	$	(85,641	)	$	(44,930	)	$	(166,351	)

Net loss per share - basic and diluted	$	-		$	-		$	-		$	-		$	-

Weighted average number of shares outstanding during the period - basic and diluted		35,020,000			26,007,778			30,981,326			26,003,889

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIENCY)
FOR THE PERIOD FROM SEPTEMBER 2, 2009 (INCEPTION) TO JUNE 30, 2011
(UNAUDITED)


	Preferred Stock				Common Stock				Additional Paid-In		Subscription			Accumulated Deficit - During Development Stage			Total Stockholders' Equity / (Deficiency)
	Shares		Amount		Shares		Amount		Capital		Receivable			Accumulated Deficit - During Development Stage			Total Stockholders' Equity / (Deficiency)

BALANCE, September 2, 2009 (Inception)		-	$	-		-	$	-	$	-	$	-		$	-		$	-

Sale of common stock -Founders $.001 per share		-		-		10,300,000		1,030		-		-			-			1,030

Sale of common stock - private placement $.003 per share		-		-		15,700,000		1,570		45,530		(20	)		-			47,080

Net loss, for the period September 2, 2009 (Inception) to		-		-		-		-		-		-			(8,099	)		(8,099	)
December 31, 2009
BALANCE, December 31, 2009		-		-		26,000,000		2,600		45,530		(20	)		(8,099	)		40,011

Imputed Compensation		-		-		-		-		12,000		-			-			12,000

Common stock issued for services		-		-		20,000		2		58		-			-			60

Cash received from issuance of common stock		-		-		-		-		-		20			-			20

Net loss, for the year ended December 31, 2010		-		-		-		-		-		-			(72,611	)		(72,611	)

BALANCE, DECEMBER 31, 2010		-		-		26,020,000		2,602		57,588		-			(80,710	)		(20,520	)

Imputed Compensation		-		-		-		-		6,000		-			-			6,000

Sale of common stock - private placement $.05 per share		-		-		8,500,000		850		424,150					-			425,000

Common stock issued for loan comitment fees $.05 per share		-		-		500,000		50		24,950		-			-			25,000

Net loss, for six months ended June 30, 2011		-		-		-		-		-		-			(85,641	)		(85,641	)

BALANCE, JUNE 30, 2011		-	$	-		35,020,000	$	3,502	$	512,688	$	-		$	(166,351	)	$	349,839

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

							For the Period
							September 2, 2009
	For the Six Months Ended June 30,						(Inception) to
	2011			2010			June 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(85,641	)	$	(44,930	)	$	(166,351	)
Adjustments to reconcile net loss to net cash used in operating activities:
Imputed compensation		6,000			6,000			18,000
Amortization of loan commitment fees-related party		15,818						15,818
Stock issued for services		-			60			60
Amortization Expense		262						262
Changes in operating assets and liabilities:					-
(Increase) in prepaid expenses		(6,928	)		(1,800	)		(7,728	)
Increase/ (decrease) in accounts payable		(1,622	)		9,463			7,485
Increase / (decrease) is accounts payable - related party		(1,022	)					1,101
Increase/ (decrease) in Accrued Expenses		127			(135	)		275
Net Cash Used In Operating Activities		(73,006	)		(31,342	)		(131,078	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Website costs		(2,145	)		(1,000	)		(3,145	)
Net Cash Used In Investing Activities		(2,145	)		(1,000	)		(3,145	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		425,000			20			473,130
Proceeds from notes payable - related party		30,000			-			45,500
Repayment of notes payable - related party		(42,000	)		(3,500	)		(45,500	)
Net Cash Provided By (Used in) Financing Activities		413,000			(3,480	)		473,130

NET INCREASE (DECREASE ) IN CASH		337,849			(35,822	)		338,907

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		1,058			43,694			-

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	338,907		$	7,872		$	338,907

Supplemental disclosure of non cash investing & financing activities:
Cash paid for interest expense	$	301		$	151		$	452
Cash paid for income taxes	$	-		$	-		$	-
Issuance of 500,000 shares of common stock of $25,000 ($0.05 per share) for loan commitment fees	$	25,000			-		$	25,000

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2011

(UNAUDITED)

NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) Basis of Presentation

The accompanying unaudited condensed financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the six months ended June 30, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011. The condensed financial statements are presented on the accrual basis.

(B) Organization

Enterologics, Inc. was incorporated under the laws of the State of Nevada on September 2, 2009 to develop, test, and obtain regulatory approvals for, manufacturing, commercializing and selling new prescription drug products.

Activities during the development stage include developing the business plan, acquiring technology and raising capital.

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

(D) Cash and Cash Equivalents

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company at times has cash in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. At June 30, 2011 the Company had balances that exceeded FDIC insurance limits by $89,795. At December 31, 2010 the Company did not have balances that exceeded FDIC insurance limits.

(E) Website Development

The Company has adopted the provisions of FASB Accounting Standards Codification No. 350 Intangible-Goodwills and Other . Costs incurred in the planning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated three year life of the asset. During the six months ended June 30, 2011 and the year ended December 31, 2010, the Company incurred $2,145 and $1,000 respectively, in website development costs. During April 2011, the website was placed into service and amortization of the development costs totaling $262 were recorded during the six month period ended June 30, 2011.

(F) Stock-Based Compensation

In December 2004, the FASB issued FASB Accounting Standards Codification No. 718, Compensation – Stock Compensation . Under FASB Accounting Standards Codification No. 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant. The Company applies this statement prospectively.

Equity instruments (“instruments”) issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB Accounting Standards Codification No. 718. FASB Accounting Standards Codification No. 505, Equity Based Payments to Non-Employees defines the measurement date and recognition period for such instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the FASB Accounting Standards Codification.

(G) Loss Per Share

Basic and diluted net (loss) per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share.” As of June 30, 2011 and 2010, there were no common share equivalents outstanding.

(H) Fair Value of Financial Instruments

The carrying amounts of the Company's accounts payable, accounts payable-related party, accrued expenses, and notes payable related party approximate fair value due to the relatively short period to maturity for these instruments.

(I) Recent Accounting Pronouncements

ASU No. 2011-02; A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring(“TDR”).In April, 2011, the FASB issued ASU No. 2011-02, intended to provide additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. Early adoption is permitted. The Company intends to adopt the methodologies prescribed by this ASU by the date required, and is continuing to evaluate the impact of adoption of this ASU.

ASU No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements. In April, 2011, the FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.

The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted.

The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income. In June, 2011, the FASB issued ASU No.2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. Due to the recency of this pronouncement, the Company is evaluating its timing of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the due date.

NOTE 2 LOAN COMITMENT FEES-RELATED PARTIES

On January 7, 2011, the Company issued 500,000 shares of common stock with a fair value of $25,000 ($.05 per share) based on the most recent cash offering price, as a loan commitment fee. The commitment ends on October 9, 2011. The Company is amortizing the value over the term of the commitment. As of June 30, 2011 the Company expensed $15,818. (See notes 3 and 4 (c))

NOTE 3 NOTES PAYABLE- RELATED PARTIES

On January 7, 2011, the Company entered into a loan agreement for a series of loans up to an aggregate of $50,000 and borrowed an initial $20,000 and issued 7% promissory notes to the lender. The principal and accrued interest under the note is due and payable on the earlier of October 9, 2011 or the date the Company receives $350,000 or more in proceeds from the sale of securities in a private offering or through an effective registration statement. During February 2011, the Company issued an additional promissory note for $10,000 due the earlier of October 9, 2011 or the date the Company receives proceeds from the sale of securities in a private offering or through an effective registration statement. In consideration of the loan commitments, the Company issued the lender 500,000 shares of common stock with a fair value of $25,000 ($.05 per share) based on the most recent cash offering price (See Notes 2 and 5). On April 11, 2011 $30,000 plus accrued interest of $301 was repaid against all of the previously issued promissory notes.

On March 23, 2009 a related party loaned $3,500 to the Company for initial start-up costs. The loan is unsecured, carries an interest rate of 5%, and matured on February 28, 2010. As of December 31, 2009 the Company recorded accrued interest of $135. In February 2010, the loan and accrued interest of $151 was repaid. (See note 5).

On August 17, 2010 a related party loaned $5,000 to the Company for initial start-up costs. The loan is unsecured, carries an interest rate of 5%, and originally matures on November 15, 2010, which was extended until February 1, 2011. As of December 31, 2010 the Company recorded accrued interest of $93. On January 10, 2010 the loan and accrued interest of $21 were repaid. (See note 5).

On October 22, 2010 a related party loaned $5,000 to the Company for operating expenses. The loan is unsecured, carries an interest rate of 5%, and matures on January 15, 2011. As of December 31, 2010 the Company recorded accrued interest of $45. On January 10, 2010 the loan and accrued interest of $21 were repaid. (See note 5).

On November 24, 2010 a related party loaned $2,000 to the Company for operating expenses. The loan is unsecured, carries an interest rate of 5%, and matures on May 23, 2011. As of December 31, 2010 the Company recorded accrued interest of $10 On January 10, 2010 the loan and accrued interest of $8 were repaid. (See note 5).

NOTE 4 STOCKHOLDERS' EQUITY / (DEFICIENCY)

(A) Common Stock Issued to Founders for Cash

In September 2009 the Company sold a total of 10,300,000 shares of common stock to four founders for $1,030 ($.0001 per share).

(B) Common Stock Issued for Cash

In 2009, the Company sold a total of 15,700,000 shares of common stock to 55 individuals for cash of $47,080 and a subscription receivable of $20 ($.003 per share). Cash of $20 was collected during the year ended December 31, 2010.

During the six months ended June 30, 2011 the Company sold a total of 8,500,000 shares of common stock to 3 individuals for cash of $425,000 ($0.05 per share).

On January 7, 2011 the Company issued 500,000 shares of common stock to a related party valued at ($.05 per share) the most recent cash offering price, as a loan commitment fee. The commitment ends on September 7, 2011. The Company is amortizing the value over the term of the commitment. As of June 30, 2011 the Company expensed $15,818.

(D) Imputed Compensation

During the six month ended June 30, 2011, an individual contributed services to the Company at a fair value of $6,000.

During the year ended December 31, 2010, an individual contributed services to the Company at a fair value of $12,000.

(E)Stock Issued for Services

In May 2010 Company issued 20,000 shares of common stock to an outside vendor for services with a fair value of $60 ($.003 per share), based on a recent cash offering price.

(F) Preferred Stock

In October 2009, the Company amended its Articles of Incorporation to increase its authorized shares to 155,000,000 shares which shall consist of 150,000,000 shares of common stock with a par value of $.0001 and 5,000,000 shares of preferred stock with a par value of $.0001 with rights and preferences to be determined by the Board of Directors.

NOTE 5 RELATED PARTY TRANSACTIONS

During the six months ended June 30, 2011, an individual contributed services to the Company at a fair value of $6,000.

During the year ended December 31, 2010, an individual contributed services to the Company at a fair value of $12,000.

NOTE 6 COMMITMENTS AND CONTINGENCIES

On January 12, 2011, the Company entered into a letter of intent with UST pursuant to which it was granted a right of first refusal until May 15, 2012 to enter into a definitive license agreement for the exclusive, world-wide license to UST’s intellectual property for the preservation/stabilization of E. coli probiotic bacteria. The license is intended to specifically cover E. coli bacteria when used as a probiotic and exclude use as a system for delivering vaccine materials to the gastrointestinal tract.

On May 15, 2011, the company entered into a one-year development agreement for UST to conduct suitability studies and protocols to produce data demonstrating the suitability of its stabilization technology to produce a thermostable, commercially viable formulation of an E. coli probiotic satisfying their specifications. It is contemplated that during such one-year development project the Company will make monthly payments of at least CA$8,333 (which amount may be increased depending on the scope of the work). From January 15, 2011 to May 15, 2012 UST will not negotiate with, or entertain or consider offers from, any third party with respect to the same terms of the letter of intent. The Company’s right to enter into a definitive license agreement with UST will terminate if it fails to make such monthly payments.

The letter of intent provides that the Company will negotiate in good faith with UST to enter into a license agreement by May 15, 2012 for the exclusive, worldwide license to develop, manufacture, use, sublicense, market and sell UST’s patents, patent applications, know-how and trade secrets relating to its preservation/stabilization of E. coli bacteria. Such agreement will expire on the later of (i) 20 years or (ii) the last to expire patent included in the licensed intellectual property.

Upon execution of the license agreement, the Company will be required to issue 100,000 shares of our common stock to UST and to pay CA$75,000 as license issue and technology transfer fees. In addition, the Company will be obligated to pay UST CA$50,000 for each new patent granted, minimum annual license payments of CA$25,000 until the first FDA approval of the BLA and CA$50,000 following the approval of the BLA, with annual payments increasing by CA$25,000 thereafter to a maximum of CA$100,000 for a orphan drug and CA$150,000 for a drug for a larger indication market. The Company will also be required to make royalty payments of up to 3% on net sales of the licensed products sold by us or our sublicenses. The Company’s right to sublicense under the license agreement is subject to UST’s approval, which will not be unreasonably withheld. In the event that the Company receives other than cash consideration from a sublicense, it will be required to pay 20% of the fair market value of such consideration to UST and in the case of equity, 20% of shares issued.

All amounts required to be paid to UST by the Company will be made in Canadian dollars at UST’s request. The Company will be required to cover any currency conversion and bank transfer costs up to 1% of the total payment. During the six months ended June 30, 2011 the company made payments to UST totaling $17,124 US Dollars.

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

As used in this Form 10-Q, references to “Enterologics,” the “Company,” “we,” “our” or “us” refer to Enterologics, Inc. unless the context otherwise indicates.

Forward-Looking Statements

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

For a description of such risks and uncertainties, refer to our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 23, 2011. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Business Overview

We are an early stage, pre-revenue company involved in the development of live biotherapeutic products for gastrointestinal disorders that we believe are poorly addressed by current therapies. Key examples include pouchitis, irritable bowel syndrome, Crohn’s disease, ulcerative colitis and Clostridium difficile infections. We intend to license or acquire technology to build a product pipeline based on producing probiotic bacteria in novel, shelf-stable, high potency formulations that are delivered orally. Unlike probiotic bacteria that are sold over-the-counter as dietary supplements or in food products such as yogurt, we intend to develop products to meet the exacting standards necessary to gain FDA approval as prescription drugs.

We have a right of first refusal to enter into a license agreement with Universal Stabilization Technologies, Inc., a Delaware company (“UST”) for a unique preservation/stabilization bacterial vitrification process that we believe is superior to conventional freeze-drying techniques and can be applied to a wide variety of bacterial strains, rendering them in a state of “suspended animation” until they are administered. The process is proprietary and includes the use of stabilizing materials, including sugars, that prevent the formation of damaging ice crystals during a vacuum drying process. We currently plan to exercise our right to license the UST preservation technology provided that we have the necessary financing to do so and the technology performs as expected during our evaluation period, because we presently believe that commercializing a shelf-stable product will offer a competitive advantage in the market. We have identified a series of candidate probiotics that we will be transforming into proprietary, live biotherapeutic products following a rigorous development template that includes comprehensive characterization, full genomic sequencing and dosage form optimization. As we do not yet have any product in development, we have not generated any revenues. During the next 12 months, we will begin execution of our operating plan, which based on our development template, is intended to result in the filing of our first IND within a year.

The Company, on or about May 15, 2011, entered into a one-year non-binding development agreement for UST to conduct suitability studies and protocols to produce data demonstrating the suitability of its stabilization technology to produce a thermostable, commercially viable formulation of an E. coli probiotic satisfying their specifications. It is contemplated that during such one-year development project the Company will make monthly payments of at least CA$8,333 (which amount may be increased depending on the scope of the work). The Company has made monthly payments of CA$8,333 pursuant to the Agreement..

On June 20, 2011, the Company and New York Health Care, Inc., a New York corporation (the “Seller”), entered into a stock purchase agreement (the “Purchase Agreement”) pursuant to which the Seller agreed to sell all of its shares of BioBalance Corp., a Delaware corporation and a wholly-owned subsidiary of the Seller (the “Company”), to us for a purchase price consisting of (i) $300,000 in cash, (ii) the assumption by Enterologics of liabilities of the Company and/or BioBalance LLC, a Delaware limited liability company (the “LLC”), as designated by the Company, (iii) either $100,000 in cash or the number of shares of common stock of the Company with an aggregate market value (calculated in accordance with the terms of the Purchase Agreement) of $150,000 (“Consideration Shares”), provided that the number of Consideration Shares shall not be less than 300,000 shares, as determined by the Company, and (iv) a three-year promissory note issued by Enterologics to the Seller in the original principal amount of $100,000 (the “Note”). The Note will bear interest at the rate of 5% per annum, payable semi-annually, with the principal amount payable in three equal annual installments of $33,333.33 commencing on the first anniversary of the date of issuance. If there is an event of default (as defined in the Note), interest will accrue at 10%. We have the right to prepay the Note, in whole or in part, at any time without premium or penalty. The Purchase Agreement provides for mutual indemnification for breach of representations and warranties and failure to perform. However, the Seller has no liability for breach of representations and warranties unless and until the aggregate of such liabilities exceeds $25,000 and shall have no liability for indemnification in excess of $300,000.

Prior to, and as a condition to closing, the New York Health Care, Inc will purchase from Yitz Grossman his 33 1/3% membership interest in the LLC pursuant to a membership interest purchase agreement (the “Membership Purchase Agreement”) in consideration for the indemnification of Mr. Grossman for up to $75,000 in legal fees incurred by him as a result of his prior activities on behalf of the Company and not otherwise reimbursed out of insurance proceeds or otherwise. Mr. Grossman is the husband of Lisa Grossman, the Company’s Secretary and significant shareholder.

The transactions contemplated by the Purchase Agreement were approved by the shareholders of the Seller at a meeting of the shareholders of the Seller on July 15, 2011. The parties anticipate closing the transaction by early September 2011.

Results of Operations

Comparison of Three Months Ended June 30, 2011 and 2010:

Revenues

The Company did not generate any revenues for the three (3) months ended June 30, 2011 or for the three (3) months ended June 30, 2010.

Total Operating Expenses

During the three (3) months ended June 30, 2011, total operating expenses were $41,245, which includes $12,975 for professional fees, $12,913 for research and development, $3,000 for compensation expense, general and administrative expenses of $12,095, and $262 for amortization expense. The increase in total operating expenses of $15,611 represents an increase of 61% from the total operating expenses of $25,634 for the three months ended June 30, 2010. The increase in the research and development expenses is attributable to the one year non-binding development agreement with UST.

Net loss

For the three months ended June 30, 2011, net loss increased by $22,895, or 89%, to a loss of $48,524, compared to a net loss of $25,629 during the three months ended June 30, 2010.

Comparison of Six Months Ended June 30, 2011 and 2010:

Revenues

The Company did not generate any revenues for the six (6) months ended June 30, 2011 or for the six months (6) ended June 30, 2010.

Total Operating Expenses

During the six (6) months ended June 30, 2011, total operating expenses were $69,522, which includes $33,299 for professional fees, $12,913 for research and development, $6,000 for compensation expense, general and administrative expenses of $17,048, and $262 for amortization expense. The increase in total operating expenses of $24,603 represents an increase of 55% from the total operating expenses of $44,919 for the six months ended June 30, 2010. During the period from September 2, 2009 (inception) to June 30, 2011, total operating expenses was $149,937. The increase in the research and development expenses is attributable to the one year non-binding development agreement with UST.

Net loss

For the six months ended June 30, 2011, net loss increased by $40,711, or 91%, to a loss of $85,641, compared to a net loss of $44,930 during the six months ended June 30, 2010. Net loss for the period from September 2, 2009 (inception) to June 30, 2011 was $166,351.

Liquidity and Capital Resources

As of June 30, 2011 we had $338,907 cash on hand. Other than the current $1,750,000 offering, we currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Upon the completion of the acquisition transaction with New York Health Care, Inc, for the purchase of its subsidiary, we will use $300,000 of cash to complete this transaction. The company has commitments for an additional $300,000 through the sale of shares pursuant to its effective S-1 registration. In addition, on January 7, 2011 the Company and Surge Partners, Ltd entered into a credit facility under which Surge committed to providing a series of loans, the total not to exceed fifty Thousand dollars ($50,000.00). Currently, there is no balance owed to Surge. The facility expires in October 2011.

Critical Accounting Estimates and Recently Issued Accounting Standards

The preparation of financial statements in accordance with GAAP requires our management to select and apply accounting policies that best provide the framework to report the results of operations and financial position. The selection and application of those policies requires management to make difficult, subjective and/or complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, there exists the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

As of June 30, 2011, there have been no significant changes with regard to the critical accounting policies disclosed in our Quarterly Report on Form 10-Q for the period ended June 30, 2011. The policies disclosed included contingencies, accounting for long-lived assets, stock-based compensation and income taxes.

See “Note 1—Summary of Significant Accounting Policies—Recently Issued Accounting Standards” to the condensed financial statements included in Item 1 of this report for additional information regarding recently adopted and new accounting pronouncement.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 3.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the United States Securities and Exchange Commission. Our Chief Executive Officer and our Chief Financial Officer have reviewed the effectiveness of our "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report and have concluded that our disclosure controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

Therefore, our internal controls over financial reporting were not effective as of June 30, 2011 based on the material weakness described below:

• we lack competent financial management personnel with appropriate accounting knowledge and training;

• our financial staff does not hold a license such as Certified Public Accountant in the U.S., nor have they attended U.S. institutions or extended educational programs that would provide enough of the relevant education relating to U.S. GAAP, nor have any U.S. GAAP audit experience;

• we rely on an outside consultant to prepare our financial statements; and

• we have insufficient controls over our period-end financial close and reporting processes.

As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of June 30, 2011. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the company’s financial reporting.

Because of its inherent limitations, however, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

In order to mitigate the foregoing material weakness, we engaged an outside accounting consulting to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity to U.S. GAAP. This outside accounting consultant is a certified public accountant and has significant experience in the preparation of financial statements in conformity with U.S. GAAP. We believe that the engagement of this consultant will lessen the possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis, and we will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate. We expect to continue to rely on this outside consulting arrangement to supplement our internal accounting staff for the foreseeable future. Until such time as we hire the proper internal accounting staff with the requisite U.S. GAAP experience, however, it is unlikely we will be able to remediate the material weakness in our internal control over financial reporting.

We believe that the foregoing steps will remediate the significant deficiencies identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate.

Changes in Internal Controls over Financial Reporting

During the quarter ended June 30, 2011, there was no change in internal control over financial reporting that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.

Item 1A. Risk Factors

As a “smaller reporting company” as defined by Rule 229.10(f)(1), we are not required to provide the information required by this Item 1A.

Purchases of equity securities by the issuer and affiliated purchasers

None.

Item 2. Unregistered Sale of Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Removed and Reserved

Item 5. Other information

None.

Item 6. Exhibits

Exhibit No.		Description
31.1		Rule 13a-14(a)/15d-14(a) Certifications of Robert Hoerr, President

31.2		Rule 13a-14(a)/15d-14(a) Certifications of Lawrence Levitan, Treasurer

32.1		Section 1350 Certifications of Robert Hoerr, President

32.2		Section 1350 Certifications of Lawrence Levitan, Treasurer

SIGNATURES

Pursuant to the requirements of the Securities Exchange act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ENTEROLOGICS, INC.

Dated: August 10, 2011	By: /s/ Robert Hoerr, M.D.
	Name: Robert Hoerr, M.D. Title: President (principal executive officer) and Director

	By: /s/ Lawrence Levitan, M.D.
Dated: August 10, 2011	Name: Lawrence Levitan, M.D. Title: Treasurer (principal financial and accounting officer) and Director

Attached files

Enterologics, Inc. Reports

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