Enterologics, Inc. - FORM 10-Q

Attached files

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

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the Quarterly Period Ended September 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

(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. þ 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 þ No o

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	þ
(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 þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 35,413,391 shares of common stock, $0.0001 par value, issued and outstanding as of November 21, 2011.

TABLE OF CONTENTS

		PAGE
PART I - Financial Information

Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	Controls and Procedures		21

PART II – Other Information

Item 1.	Legal Proceedings		22
Item 1A.	Risk Factors		22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 3.	Defaults Upon Senior Securities		22
Item 4.	Removed and Reserved		22
Item 5.	Other Information		22
Item 6.	Exhibits		23

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

	September 30,			December 31,
	2011			2010
	(Unaudited)

ASSETS
CURRENT ASSETS

Cash	$	33,250		$	1,058
Prepaid expenses		-			800

TOTAL CURRENT ASSETS		33,250			1,858

Website Costs, (net of Accumulated Amortization of $524 and -0- respectively)		2,621			1,000

OTHER ASSETS
Patents		93,644
Goodwill		481,353

TOTAL ASSETS	$	610,868		$	2,858

LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)

CURRENT LIABILITIES
Accounts payable	$	28,531		$	9,107
Accounts payable - related party		1,101			2,123
Accrued Interest		764			148
Notes payable		33,333
Notes payable - related party		50,000			12,000
Total Current Liabilities		113,729			23,378

LONG TERM LIABILITIES
Notes payable		66,667

TOTAL LIABILITIES		180,396			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, 35,413,391 and 26,020,000 shares issued and outstanding, respectively	$	3,541		$	2,602
Additional paid in capital		662,649			57,588
Accumulated deficit - during developmental stage		(235,718	)		(80,710	)
Total Stockholders’ Equity / (Deficiency)		430,472			(20,520	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)	$	610,868		$	2,858

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

OPERATING EXPENSES
Professional fees	$	8,800		$	4,858		$	42,099		$	26,690		$	85,237
Research and Development		31,004			0			43,917			-			43,917
Compensation expense		-			3,000			6,000			9,000			18,000
General and administrative		19,631			3,551			36,678			20,638			61,954
Amortization Expense		262						524			-			524
Total Operating Expenses		59,697			11,409			129,218			56,328			209,632

LOSS BEFORE PROVISION FOR INCOME TAXES		(59,697	)		(11,409	)		(129,218	)		(56,328	)		(209,632	)

OTHER INCOME / (EXPENSES)
Interest income								-			5			5
Loan amortization expense- related party		(9,182	)					(25,000	)		(46	)		(25,000	)
Interest expense		(489	)		(30	)		(790	)		-			(1,091	)
		(69,368	)		(11,439	)		(155,008	)		(56,369	)		(235,718	)
Provision for Income Taxes		-						-			-

NET LOSS	$	(69,368	)	$	(11,439	)		(155,008	)		(56,369	)	$	(235,718	)

Net loss per share - basic and diluted	$	(0.00	)		(0.00	)		(0.00	)		(0.00	)	$	-

Weighted average number of shares outstanding during the period - basic and diluted		35,124,904			26,020,000			32,409,505			26,009,373

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

(UNAUDITED)

							For the Period
	For the Nine Months Ended			For the Nine Months Ended			September 2, 2009 (Inception) to
	September 30 2011			September 30 2010			September 30 2011
	(CONSOLIDATED)						(CONSOLIDATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		(155,008	)	$	(56,369	)		(235,718	)
Adjustments to reconcile net loss to net cash used in operating activities:
Imputed compensation		6,000			9,000			18,000
Amortization of loan commitment fees-related party		25,000						25,000
Stock issued for services		-			60			60
Amortization Expense		524			-			524
Changes in operating assets and liabilities:
(Increase) in prepaid expenses		800			(1,300	)
Increase/ (decrease) in accounts payable		(7,695	)		5,247			3,534
Increase / (decrease) is accounts payable - related party		1,101			(105	)		1,101
Increase/ (decrease) in Accrued Expenses		615			-			764
Net Cash Used In Operating Activities		(128,663	)		(43,467	)		(186,735	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Website costs		(2,145	)		(1,000	)		(3,145	)
Cash paid for acquisition of wholly owned subsidiary		(300,000	)		-			(300,000	)

Net Cash Used In Investing Activities		(302,145	)		(1,000	)		(303,145	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock		425,000			20			473,130
Borrowings from related party		50,000			5,000			50,000
Repayment of notes payable - related party		(12,000	)		(3,500	)		-
Net Cash Provided By Financing Activities		463,000			1,520			523,130

NET INCREASE (DECREASE ) IN CASH		32,192			(42,947	)		33,250

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

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	33,250		$	747			33,250

Cash paid for interest expense	$	790		$	151		$	1,091
Cash paid for Income Taxes		-		$	-		$	-

Supplemental disclosure of non cash investing & financing activities:

Issuance of 500,000 shares of common stock of $25,000 ($0.05 per share) for loan commitment fees	$	25,000		$	-		$	25,000

Issuance of stock for asset acquistion	$	150,000		$	-		$	150,000
Issuance of note payable for asset acquistion	$	100,000		$	-		$	100,000
Assumption of accounts payable in asset acquistion	$	24,997		$	-		$	24,997

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC AND SUBSIDIARIES

STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIENCY)

FOR THE PERIOD FROM SEPTEMBER 2, 2009 (INCEPTION) TO SEPTEMBER 30, 2011

(UNAUDITED)

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

Common stock issued for purchase of Bio-Balance						393,391		39		149,961								150,000

Net loss, for Nine months ended September 30, 2011		-		-		-		-		-		-			(155,008	)		(155,008	)

BALANCE, SEPTEMBER 30, 2011(CONSOLIDATED)		-	$	-		35,413,391	$	3,541	$	662,649	$	-		$	(235,718	)	$	430,472

See accompanying notes to unaudited financial statements

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 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 nine months ended September 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 obtaining regulatory approvals for, manufacturing, commercializing and selling new prescription drug products with the recent acquisition of its first probiotic biotherapeutic product, E. coli M17, or ProbactixR, and its option to acquire unique probiotic formulation technology from Universal Stabilization Technologies, the Company is now properly positioned to initiate the next phase of commercial development for E.coli M17, which includes establishing cGMP-quality manufacturing and testing of an improved, shelf-stable dosage form in clinical trials.

E.coli M17 has an active Investigational New Drug application (IND) with the FDA for the indication chronic pouchits. Enterologics will pursue its business plan to develop prescription biologics and drugs fro treating various gastrointestinal disorders, subject to the availability of funding. The Company intends intend to finance the development of its business, including the prescription drug development efforts, from outside sources including through the sale of equity, debt or convertible securities, third party financing and strategic partnering. The Company’s goal is secure sufficient financing to acquire and move a pipeline of products forward in clinical development as efficiently as possible.

Activities during the development stage include developing the business plan, acquiring technology and raising capital. On September 6, 2011, the Company completed a purchase acquisition of Bio Balance Corp and it's subsidary from New York Health Care.

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 September 30, 2011 and December 31, 2010 the Company did not have balances that exceeded FDIC insurance limits.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

(E) Principles of Consolidation –

The consolidated financial statements include the accounts of Enterologics, Inc. and its wholly-owned subsidiaries Biobalance Corp, and Biobalance LLC), from the date of acquisition of September 6, 2011 through September 30, 2011. All material intercompany balances and transactions have been eliminated in consolidation.

(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 September 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, notes payable and notes payable related party approximate fair value due to the relatively short period to maturity for these instruments.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

(I) 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 nine months ended September 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 $524 were recorded during the nine months ended September 30, 2011.

(J) Acquisitions and Intangible Assets

We account for acquisitions in accordance with ASC 805, Business Combinations (“ASC 805”) and ASC 350, Intangibles- Goodwill and Other (“ASC 350”). The acquisition method of accounting requires that assets acquired and liabilities assumed be recorded at their fair values on the date of a business acquisition. Our unaudited condensed consolidated financial statements and results of operations reflect an acquired business from the completion date of an acquisition.

The judgments that we make in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact net income in periods following an asset acquisition.

(K) Long-lived Assets

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We use quoted market prices when available and independent appraisals and management estimates of future operating cash flows, as appropriate, to determine fair value.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

(L) Fair Value

The Company measures the fair value of its assets and liabilities under the guidance of ASC 820, Fair Value Measurements and Disclosures , which defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but its provisions apply to all other accounting pronouncements that require or permit fair value measurement.

ASC 820 clarifies that 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 based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820 requires the Company to use valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly such as quoted prices for similar assets or liabilities or market-corroborated inputs; and

Level 3: Unobservable inputs for which there is little or no market data, which require the reporting entity to develop its own assumptions about how market participants would price the assets or liabilities.

The valuation techniques that may be used to measure fair value are as follows:

Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities

Income approach - Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option-pricing models and excess earnings method

Cost approach - Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost)

The Company also adopted the provisions of ASC 825, Financial Instruments. ASC 825allows companies to choose to measure eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities under the provisions of this Statement and did not elect the fair value option for any financial assets and liabilities transacted in the year-ended December 31, 2010 and the nine months ended September 30, 2011. All of the Company’s intangible assets are valued using the level 3 inputs as of September 30, 2011.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

(M) 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 assistcreditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubleddebt 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. The Company has adopted the methodologies prescribed by this ASU.

ASU No. 2011-03; Reconsideration of Effective Control for Repurchase Agreements. In April, 2011, the FASBissued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control thecriterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreedterms, even in the event of default by the transferee. The amendments in this ASU also eliminate therequirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost ofpurchasing 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 transactionsthat occur on or after the effective date. Early adoption is not permitted. The Company will adopt themethodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have amaterial effect on its financial position or results of operations.

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements inU.S. GAAP and IFRSs.In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generallyrepresent clarifications of Topic 820, but also include some instances where a particular principle orrequirement 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 disclosinginformation 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 effectiveduring interim and annual periods beginning after December 15, 2011. Early application by public entities is notpermitted.

The Company will adopt the methodologies prescribed by this ASU by the date required, and doesnot 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 comprehensiveincome, the components of net income, and the components of other comprehensive income either in a singlecontinuous 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 ofother comprehensive income along with a total for other comprehensive income, and a total amount forcomprehensive 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 changethe items that must be reported in other comprehensive income or when an item of other comprehensive incomemust be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments areeffective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Earlyadoption is permitted, because compliance with the amendments is already permitted. The amendments do notrequire any transition disclosures. Due to the recency of this pronouncement, the Company is evaluating itstiming of adoption of ASU 2011-05, but will adopt the ASU retrospectively by the due date.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

NOTE 2 ASSET PURCAHSE AQUISITION

On September 6, 2011, the company issued 393,391 share of common stock with a fair value of $150,000 based on the note payable's date of grant. A Note Payable of $100,000 and cash of $300,000 for the acquisition of 100% of the common stock of Bio Balance Corp and its subsidiary Bio Balance LLC from New York Health Care to be paid in three equal installments of $33,333.33 with the first installment due on September 6, 2012, and the annually thereafter with the last payment due no later than September 6, 2014. This note accrues interest at a rate of 5% per annum and $347 of interest expense was recognized for the period ended September 30, 2011.

Purchase price	$	550,000
Patents	$	93,644
Goodwill		481,353
Less: Assumption of Accounts Payable		-24,997
Total assets acquired	$	550,000

The table below summarizes the unaudited pro forma information of the results of operations as though the acquisitions had been completed as of January 1, 2011:

	Enterologics Corp and Subsidary nine months ended September 30,2011
Gross revenue
Total expenses		(225,147	)
Net income (loss) before taxes	$	(225,147	)
Earnings per share	$	(0.00	)

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

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 $10On January 10, 2010 the loan and accrued interest of $8 were repaid. (See note 5).

On September 14, 2011 a related party loaned $50,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 6%, and be demanded to be repaid on or after October 31, 2011. As of September 30, 2011 the Company recorded accrued interest of $141. The loan has not been repaid as of November 21, 2011.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

NOTE 4 NOTE PAYABLE

On September 6, 2011, the company issued a note payable of $100,000 to New York Health Care in partial consideration of the acquisition. The note is due in three equal installment of $33,333.33 with the first installment due September 6, 2012 and then annually thereafter with interest at a 5% per annum due semi-annually and a default interest rate of 10% per annum. This note is unsecured.

NOTE 5 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 September 6, 2011, the Company issued 393,391 share of common stock with a fair value of $150,000 ($0.38 per share) based on the fair value on the date of grant as part of the acquisition of Bio Balance Corp and its subsidiary Bio Balance LLC from New York Health Care.

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 September 30, 2011 the Company expensed $25,000.

(D) Imputed Compensation

During the six month ended September 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.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

(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 6 RELATED PARTY TRANSACTIONS

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.

During the nine months ended September 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.

ENTEROLOGICS, INC AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011

(UNAUDITED)

NOTE 7 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 nine months ended September 30, 2011 the company made payments to UST totaling $42,737 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 and further detailed in this prospectus, 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 September 6, 2011, we completed our acquisition of all of the shares of BioBalance Corp., a Delaware corporation (“BioBalance”), and its wholly owned subsidiary BioBalance LLC from New York Health Care, Inc., a New York corporation (the “Seller”), the sole owner of BioBalance, pursuant to a stock purchase agreement entered into on June 20, 2011 (the “Stock Purchase Agreement”). In connection with the completion of the acquisition and in consideration for the shares acquired, the Company paid the Seller $300,000 in cash at closing and issued to the Seller (i) 393,391 shares of its common stock with a fair value of $150,000 and (ii) a three-year promissory note in the original principal amount of $100,000 (the “Note”). The Note bears 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 September 6, 2012. In connection with the acquisition, we assumed $25,000 of certain liabilities of BioBalance.

Results of Operations

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

Revenues

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

Total Operating Expenses

During the three (3) months ended September 30, 2011, total operating expenses were $59,697, which includes $8,800 for professional fees, $31,004 for research and development, general and administrative expenses of $19,631, and $262 for amortization expense. The increase in total operating expenses of $48,288 represents an increase of 422% from the total operating expenses of $11,409 for the three months ended September 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 September 30, 2011, net loss increased by $57,929, or 406%, to a loss of $69,368, compared to a net loss of $11,439 during the three months ended September 30, 2010.

Comparison of Nine Months Ended September 30, 2011 and 2010:

Revenues

The Company did not generate any revenues for the nine (9) months ended September 30, 2011 or for the nine months (9) ended September 30, 2010.

Total Operating Expenses

During the nine (9) months ended September 30, 2011, total operating expenses were $129,218, which includes $42,099 for professional fees, $43,917 for research and development, $6,000 for compensation expense, general and administrative expenses of $36,678, and $524 for amortization expense. The increase in total operating expenses of $72,890 represents an increase of 129% from the total operating expenses of $56,328 for the nine months ended September 30, 2010. During the period from September 2, 2009 (inception) to September 30, 2011, total operating expenses was $209,632. The increase in the research and development expenses is attributable to the one year non-binding development agreement with UST.

Net loss

For the nine months ended September 30, 2011, net loss increased by $98,639, or 174%, to a loss of $155,008, compared to a net loss of $56,369 during the nine months ended September 30, 2010. Net loss for the period from September 2, 2009 (inception) to September 30, 2011 was $235,718.

Liquidity and Capital Resources

As of September 30, 2011 we had $33,250 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. The Company estimates that it will require approximately one million dollars to adequately fund operations and execute its bisiness plan in the coming 12 months. We do not have enough cash to continue operations for the next twelve months.

Going Concern

As reflected in the accompanying consolidated unaudited financial statements, the Company is in the development stage with no operations, a net loss of $235,718 from inception and used cash in operation from inception of $186,735. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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 September 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 September 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 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 t effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.

Material Weakness: the Company does not currently employ a full time accountant with adequate and relevant experience in conforming financial statements with US GAAP. In order to mitigate the foregoing material weakness, we engaged an outside accounting consultant 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 in the U.S. 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. 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. However, full remediation of the material weakness in our internal control over financial reporting will not be possible until we hire the proper internal accounting staff with the requisite U.S. GAAP experience.

Changes in Internal Controls over Financial Reporting

During the quarter ended September 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

On September 6,2011, the company issued 393,391 shares of common stock to New York Health Care Inc in consideration for the shares of Bio Balance Corp. The issuance was conducted in reliance upon as exemption from registration pursuant to section 4(2) OF THE Securities Act of 1933.

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

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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: November 21, 2011	By:	/s/ Robert Hoerr, M.D.
		Name: Robert Hoerr, M.D.
		Title: President (principal executive officer) and Director

Dated: November 21, 2011	By:	/s/ Lawrence Levitan, M.D.
		Name: Lawrence Levitan, M.D.
		Title: Treasurer (principal financial and accounting officer) and Director

Enterologics, Inc. - FORM 10-Q - November 22, 2011

Attached files

Enterologics, Inc. Reports