UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

For the quarterly period ended May 31, 2011

or

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

For the transition period from            to           

 

Commission File Number 000-50480

 

EN2GO INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Nevada		98-0389557
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

644-1812 W. Burbank Blvd, Burbank, CA 91506

(Address of principal executive offices) (Zip Code)

 

(818 748-6244)
(Registrant’s Telephone Number, Including Area Code)

 

2921 W. Olive Ave., Burbank, CA 91505

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES X NO

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

 

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

 

Large accelerated filer		Accelerated filer		Non-accelerated filer		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 Act).

YES NO X

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,316,627 shares of $0.00001 par value common stock issued and outstanding as of March 31, 2011.

 

 

 

 

EN2GO INTERNATIONAL, INC. AND SUBSIDIARY

(a development stage company)

INDEX

 

 

		Page
Part I Financial Information
Item 1. Financial Statements		1
Consolidated Balance Sheets as of February 28, 2011
and August 31 , 2010 (unaudited)		2
Consolidated Statements of Operations for the nine and three months ended
May 31, 2011 and 2010 and the period from inception
(January 31, 2007) through May 31, 2011 (unaudited)		3
Consolidated Statements of Stockholders' Deficiency for the Period
ended May 31, 2011 (unaudited)		4
Consolidated Statements of Cash Flows for the nine
months ended May 31, 2011 and 2010 and the period from
inception (January 31 , 2007) through May 31, 2011 (unaudited)		5
Notes to Unaudited Consolidated Financial Statements		6
Item 2. Management's Discussion and Analysis of Financial Condition and		15
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
Item 4. Controls and Procedures		18
Part II
Item 1. Legal Proceedings		19
Item 6. Exhibits		19
Signatures		19

 

 

 

 

 

 

 

 

 

 

PART I. Financial Information

 

Item 1. Financial Statements (Unaudited)

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

 

The results of operations for the nine and three months ended May 31, 2011 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

EN2GO INTERNATIONAL, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Balance Sheets
(Unaudited)
		May 31,				August 31,
		2011				2010
ASSETS
Current Assets:
Cash		$	37,398			$	4,942
Prepaid expenses			16,876				-0-
Total  Current Assets			54,274				4,942
Property and Equipment - net			20,323				—
Total Assets		$	74,597			$	4,942
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable		$	917,180			$	1,124,248
Accrued expenses			7,699				65,000
Due to related party			50,085				562,010
Convertible debt (net of discount)			—				344,167
Total Current Liabilities			974,964				2,095,425
Total Liabilities			974,964				2,095,425
Commitments and Contingencies
Stockholders' Deficiency:
Common stock, $.00001 par value, 90,000,000 shares authorized,
and 38,156,627 and 24,215,542 shares issued and outstanding at
May 31, 2011 and August 31, 2010,      respectively			381				242
Capital in excess of par value			14,176,784				12,414,798
Deficit accumulated during the   development stage			(15,077,532	)			(14,505,523	)
Total Stockholders' Deficiency			(900,367	)			(2,090,483	)
Total Liabilities and Stockholders' Deficiency		$	74,597			$	4,942
See notes to unaudited consolidated financial statements

 

EN2GO INTERNATIONAL INC, AND SUBSIDIARY

(a development stage company)

Consolidated Statements of Operations

(Unaudited)

													(January 31,2007)
						For the Three Months Ended				For the Nine Months Ended			through
						May 31,				May 31,			May 31,
						2011		2010		2011		2010	2011
Revenues						$                -		$              -		$            -		$               -	$               -
osts and Expenses:
	General and administrative expense					312,678		122,320		764,112		636,9	6,636,461
	Stock issued for services					-		-		-		-	1,762,617
	Non-cash compensation					-		-		-		-	3,990,692
	Impairment loss					-		-		-		-	1,104,917
		Total operating expenses				312,678		122,320		764,112		636,945	13,494,687
Loss from Operations:						(312,678)		(122,320)		(764,112)		(636,945)	(13,494,687)
Other Income (Expense):
	Other income (primarily from the settlement
	Of prior liabilities)					193,908		-		194,061		-	223,881
	Interest expense					-		-		(5,125)		(24,750)	(210,594)
	Interest expense on amortization of note discount					-		-		(5,833)		(1,178,920)	(1,605,132)
	Gain on sale of equipment					-		-		9,000		-	9,000
	Total other income (expense)					193,908		-		192,103		(1,203,670)	(1,582,845)
	Loss Before Provision for Income Taxes					(118,770)		(122,320)		(572,009)		(1,840,615)	(15,077,532)
	Provision for income taxes					-		-		-		-	-
Net Loss						$    (118,770)		$ (122,320)		$(572,009)		$(1,840,615)	$(15,077,532)
Net loss per share of common stock -
Basic and diluted						$          (0.00)		$      (0.01)		$      (0.02)		$         (0.08)
Weighted Average Shares Outstanding -
Basic and diluted						32,951,819		24,215,542		30,058,797		22,342,048

See notes to unaudited consolidated financial statements

 

 

 

 

 

EN2GO INTERNATIONAL, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Stockholders' Deficiency
(Unaudited)
																											Deficit
																											Accumulated
																	Capital in					Prepaid					During					Total
					Common					Stock							Excess of					Stockholders'					Development					Stockholders'
					Shares					Amount							Par Value					Equity					Stage					Equity
Balance - August 31, 2007					4,980,000					50							999,950					-					(602,659)					397,341
Issuance of options and warrants
issued for services rendered					-					-							3,686,768					-					-					3,686,768
Common stock issued for $10.00
per share in January 2008					135,000					1							1,349,999					-					-					1,350,000
Offering costs on issuance of
common stock					-					-							(91,401)					-					-					(91,401)
Issuance of common stock for
services rendered rendered					100,000					1							1,849,999					-					-					1,850,000
Issuance of common stock as
consideration for debt financing					16,600					-							144,600					(6,400)					-					138,200
Net loss for the year ended
August 31, 2008					-					-							-					-					(7,830,062)					(7,830,062)
Balance - August 31, 2008					5,231,600					52							7,939,915					(6,400)					(8,432,721)					(499,154)
Common stock and warrants
issued for $1.50 per unit in
October 2008					100,000					1							149,999					-					-					150,000
Common stock issued for services
rendered in October 2008					30,000					-							63,000					-					-					63,000
Common stock issued for services
in November 2008					5,000					-							14,000					-					-					14,000
Common stock issued in
consideration of debt financing -
Sept - April 2009					71,940					1							174,999					-					-					175,000
Common stock issued for $2.00
per share in May 2009					75,000					1							149,99					-					-					150,000
Discount on notes payable net of
amortization					-					-							1,593,729					-					-					1,593,729
Interest and stock based
compensation					-					-							133,141					6,400					-					139,541
Net loss for the year ended
August 31, 2009					-					-							-					-					(2,983,660)					(2,983,660)
Issuance of common stock upon
conversion of convertible debt						17,500,000						175				1,749,825				-						-					1,750,000
Sale of common stock						1,000,002						10				349,990				-						-					350,000
Issuance of common stock as
consideration for payment of
accounts payable						202,000						2				96,201				-						-					96,203
Net loss for the year ended
August 31, 2010						-						-				-				-						(3,089,142)					(3,089,142)
Balance - August 31, 2010						24,215,542						242				12,414,798				-						(14,505,523)					(2,090,483)
Issuance of common stock upon
conversion of convertible debt						11,090,625						111				897,248				-						-					897,359
Sale of common stock						2,850,000						28				335,955				-						-					335,983
Allocation of sale of common stock
and conversion of debt to warrants
issued						-						-				528,783				-						-					528,783
Net loss for the nine months ended
May 31, 2011						-						-				-				-						(572,09)					(572,009)
Balance – May 31, 2011						38,156,167						$381				$14,176,784				$           -						$(15,077,532)					$(900,367)
See notes to unaudited consolidated financial statements

EN2GO INTERNATIONAL, INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
																		Period from
																		inception
																		(January 31, 2007)
													For the Nine Months Ended					through
													May 31,					May 31,
													2011			2010		2011
Cash Flows From Operating Activities:
Net loss													$(572,009)			$(1,840,615)		$(15,077,532)
Adjustments to reconcile net loss to net cash used in operating activities:
	Debt financing costs												5,833			1,178,920		1,906,933
	Depreciation expense												3,156			30,112		147,960
	Impairment loss												-			-		1,104,917
	Options, warrants and common stock issued for services rendered												-			-		5,753,309
	Gain on settlement of prior liabilities												(193,938)			-		(193,938)
	Gain on sale of equipment												(9,000)			-		(9,000)
Changes in operating assets and liabilities:
	Prepaid expense												(16,876)			-		(16,876)
	Accounts payable												(13,130)			155,903		1,211,818
	Accrued expense												12,824			24,750		77,824
		Net cash used in operating activities											(783,140)			(450,930)		(5,094,585)
Cash Flows From Investing Activities:
	Purchase of property and equipment												(23,479)			24,131		(205,981)
	Software development												-			(141,500)		(1,109,417)
			Net cash used in investing activities										(23,479)			(117,369)		(1,315,398)
Cash Flows From Financing Activities:
	Proceeds from related party												350,075			221,600		912,085
	Proceeds from sale of equipment												9,000			-		46,697
	Proceeds from issuance of notes payable												-			-		2,600,000
	Repayment of notes payable												-			-		(500,000)
	Proceeds from issuance of common stock, net of offering costs												480,000			350,000		3,388,599
		Net cash provided by financing activities											839,075			571,600		6,447,381
Net (decrease) increase in cash													32,456			3,301		37,398
Cash beginning of period													4,942			3,132		-
Cash end of period													$   37,398			$     6,433		$       37,398
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest												$               -			$                  -
	Income taxes												$               -			$                  -
Common stock issued for payment of accounts payable													$     70,125			$                  -		$        166,325
Common stock issued upon conversion of convertible debt													$1,212,000			$                  -		$     2,912,000
See notes to unaudited consolidated financial statements

Notes to Unaudited Consolidated Financial Statements

As of and for the Nine Months Ended May 31, 2011

 

 

 

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

 

The consolidated balance sheet as of May 31, 2011 and the consolidated statements of operations, stockholders' deficiency and cash flows for the periods presented have been prepared by En2Go International, Inc. and Subsidiary (the "Company" or "En2Go") and are unaudited. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' equity and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of August 31, 2010 were derived from audited financial statements.

 

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

 

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

 

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

 

 

General

 

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

 

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

 

 

Basis of Presentation and Going Concern

 

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, we have sustained losses and as of May 31, 2011, we have no revenues and have a net working capital deficiency and a negative cash flow from operations. These conditions, among others, give rise to substantial doubt about our ability to continue as a going concern. Management is continuing to seek additional equity capital. Until such time as we are operating profitably, we anticipate our working capital needs will be funded with proceeds from equity and debt financing. Management believes these steps will provide us with adequate funds to sustain our continued existence. There is, however, no assurance that the steps taken by management will meet all of our needs or that we will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Development Stage Activities

 

Since inception the Company has not yet generated significant revenues and has been defining its business operations and raising capital. All of our operating results and cash flows reported in the accompanying consolidated financial statements from January 31, 2007 through May 31, 2011 are considered to be those related to development stage activities and represent the cumulative from inception amounts from our development stage activities required to be reported pursuant to ASC 915, “Development Stage Enterprises”. 

 

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The Company’s significant accounting policies are summarized in Note 2 of the Company’s Annual Report on Form 10-K for the year ended August 31, 2010. There were no significant changes to these accounting policies during the nine months ended May 31, 2011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

NOTE 3 – SETTLEMENT OF PRIOR LIABILITIES

 

We have settled certain payables to reflect the acceptance by these creditors of lessor amounts. Accordingly, amounts accrued with respect to these account holders have been reduced to $-0- from $193,908, and we have recognized other income in that amount in the three months ended May 31, 2011.

 

NOTE 4 –FAIR VALUE MEASUREMENTS

The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:

Level 1 – Observable inputs such as quoted market prices in active markets

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable

Level 3 – Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions

As of May 31, 2011, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents.  The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.    The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of May 31, 2011 and August 31, 2010.

 

		Fair Value Measurements Using
		Quoted Prices		Significant Other		Significant Other
		in Active Market		Observable Inputs		Unobservable Inputs
		(Level 1)		(Level 2)		(Level 3)
May 31, 2011
Cash and
cash equivalents		$            37,398		$                        -		$                              -
Total		$            37,398		$                        -		$                              -
August 31, 2010
Cash and
cash equivalents		$            4,942		$                        -		$                              -
Total		$            4,942		$                        -		$                              -

 

The Company had no financial assets accounted for on a non-recurring basis as of May 31, 2011.

There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the nine months ended May 31, 2011 and the Company did not have any financial liabilities as of May 31, 2011. The Company has other financial instruments, such as advances and other receivables, accounts payable and other liabilities, notes payable and other assets, which have been excluded from the table above. Due to the short-term nature of these instruments, the carrying value of advances and other receivables, accounts payable and other liabilities, notes payable and other assets approximate their fair values.

 

NOTE 5 – RELATED PARTY TRANSACTIONS

During the nine months ended May 31, 2011, Richard Genovese, a Director of the Company, (“Genovese”) invested $30,000 into the Company as additional working capital by way of the issuance of 600,000 units (“Units”), at a purchase price per Unit of $.05, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.10 per share. The fair value of the warrants issued was $9,000.

During the nine months ended May 31, 2011, Genovese converted $312,000 of debt owed to him into 6,240,000 units (“Units”), at a conversion price per Unit of $.05, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.10 per share. The fair value of the warrants issued was $93,600.

During the nine months ended May 31, 2011, Richard Genovese, a Director of the Company, (“Genovese”) invested $50,000 into the Company as additional working capital by way of the issuance of 250,000 units (“Units”), at a purchase price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share. The fair value of the warrants issued was $15,000.

During the nine months ended May 31, 2011, Genovese converted $550,000 of debt owed to him into 2,750,000 units (“Units”), at a conversion price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share. The fair value of the warrants issued was $165,000.

During the nine months ended May 31, 2011, Genovese made advances of $350,075 to the Company. As of May 31, 2011 and August 31, 2010, the amount due Genovese was $50,085 and $562,010, respectively.

 

 

 

 

 

 

NOTE 6 – CONVERTIBLE DEBT

 

		May 31, 2011	August 31, 2010
The Company issued notes payable of  $0 and $2,100,000 during the year ended August 31, 2009		$-	$350,000
Discount on note payable net of amortization		-	(5,833)
Total		$-	$344,167

 

Interest expense for the nine months ended May 31, 2011 and 2010 was $5,125 and $24,750 respectively.

 

 

NSC Investments

 

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

 

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

2009 Convertible Debentures

On January 15, 2009 we entered into an agreement with Genovese whereby Genovese and/or his affiliates (collectively “Genovese”) advanced to the Company $250,000 for a convertible debenture or debentures (“the 2008 Genovese Convertible Debenture”) for the aggregate principal amount of $250,000. The 2008 Genovese Convertible Debenture was non-interest bearing and matured on December 5, 2010. At the holder’s sole discretion, the holder could elect to convert the 2008 Genovese Convertible Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese was issued a share purchase warrant certificate for 2,500,000 warrants, with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agreed to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese would be issued an additional $250,000 Debenture. The 2008 Genovese Convertible Debentures were non interest bearing and mature two years from the date of issuance of each subsequent debenture (“2009 Convertible Debentures”). At the holders’ sole discretion, the holder could elect to convert the 2009 Convertible Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share.

As additional compensation, Genovese was issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Convertible Debenture issued. We further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years; (2) Genovese would be entitled to two board seats; (3) we would obtain directors and officers insurance; and (4) the parties would work together commencing December 2008 to address other matters. We offered the convertible notes and warrants in reliance on Section 506 of Regulation D

and/or Regulation S of the Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws. The 2008 Genovese Convertible Debenture was subsequently amended for an aggregate principal amount of $545,000.

 

Additional 2008 Convertible Debentures for $455,000, $250,000, and $50,000 and $195,000 were issued during the year ended August 31, 2009. In April 2009, the amount of 2009 Convertible Debentures available to be issued was increased by $255,000 for an aggregate of $1,750,000.

 

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

 

Janst Limited

 

In April 2009, we entered into a loan agreement with Janst Limited for $250,000. The loan bears interest at 15% per annum and matured on May 1, 2010 (the “Maturity Date”). The principal and accrued interest is convertible into common stock at the conversion rate of $0.35 per share.

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

 

NOTE 7 - COMMON STOCK

 

The Company has authorized 90,000,000 shares of common stock with a par value of $.00001.  At May 31, 2011 and August 31, 2010, the Company had 38,156,627 and 24,215,542 shares of common stock issued and outstanding, respectively.

 

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

 

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

 

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

 

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

 

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

 

On January 22, 2008, the Company completed a private placement of 135,000 shares of its common stock at a purchase price of $10.00 per share to persons who were not “U.S. Persons” within the meaning of Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”).  The Company received gross proceeds from the placement of $1,350,000 and net proceeds of approximately $1,258,600 after deducting $30,000 in placement fees paid to registered investment dealers in Canada and other offering costs.

 

In August 2008, we issued the NSC 2008 Note in the principal amount of $250,000. In November 2010, the Company entered into an agreement with NSC Investments Ltd. to issue 585,000 units (“Units”), at a conversion price per Unit of $.20, each Unit consisting of one share of common stock and a common stock purchase warrant to purchase one share of common stock at an exercise price of $.30 per share, to settle the remaining balance of the $100,000 of principal debt and $17,500 of accrued interest on the NSC 2008 Note.

 

During August 2008, the Company issued 45,000 warrants valued at approximately $338,000 to purchase stock for services rendered. The warrants vest over various terms. During the year ended August 31, 2009, the Company recognized compensation expense of $216,479. The fair value of each warrant granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rates of 3.74% to 3.97%, expected dividend yields of zero, expected life of 10 years and expected volatility of 136.94% to 140.60%.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

On December 13, 2010, we entered into a subscription agreement with Musgrave Investments Ltd.; whereby Musgrave purchased 500,000 shares of our common stock and 500,000 warrants with an exercise price of $.30 for $100,000.

 

On May 6, 2011, we entered into a subscription agreement with Richard Genovese.; whereby Mr. Genovese purchased 600,000 shares of our common stock and 600,000 warrants with an exercise price of $.10 for $30,000.

 

The fair value of the warrants issued in connection with the sale of common stock during the nine months ended May 31, 2011 was $143,955.

 

 

NOTE 8 – OPTIONS AND WARRANTS

 

Stock Options

 

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

 

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

 

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

 

On September 1, 2008 we granted 15,000 stock options to a certain officer and board member for his services performed as Chair of the Audit Committee and Chair of the Compensation Committee. The estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 10 years, a risk free interest rate of 3.97% to 4.40%, a dividend yield of 0% and volatility of 136.94% to 147.95%. During the years ended August 31, 2010 and 2009, the amount of the expense charged to operations for compensatory options granted in exchange for services was $-0- and $121,739, respectively.

 

 

 

 

 

 

 

 

 

 

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

 

		Shares				Weighted Average Exercise Price
Outstanding, September 1, 2010			45,000				$7.70
Granted			-				-
Expired/Cancelled			20,000				-
Exercised			-				-
Outstanding, period ended May 31, 2011			25,000				7.70
Exercisable at May 31, 2011			25,000				$7.70

 

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

 

 

 

 

 

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

 

		Warrants				Weighted Average Exercise Price
Outstanding, September 1, 2010			18,637,502				$0.19
Granted			13,940,625				$0.20
Expired/Cancelled			(37,500)				$3.00
Exercised			-				-
Outstanding, period ended May 31, 2011			32,540,627				$0.19
Exercisable			32,540,627				$0.19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

		Warrants Outstanding			Warrants Exercisable
Year		Exercise Price	Number of Warrants Outstanding	Weighted Average Contractual Life (Years)	Number Exercisable		Weighted Average Exercise Price
2008	$	2.00	100,000	2.15	100,000		2.00
2009		0.15	*10,000,000	0.67	10,000,000		0.15
2009		0.15	*2,500,000	0.72	2,500,000		0.15
2009		0.15	*500,000	0.75	500,000		0.15
2009		0.15	*1,700,000	0.90	1,700,000		0.15
2009		0.15	*150,000	0.92	150,000		0.15
2009		0.15	*50,000	0.93	50,000		0.15
2009		0.15	*50,000	0.96	50,000		0.15
2009		0.15	*500,000	1.23	500,000		0.15
2009		0.15	*2,050,000	1.23	2,050,000		0.15
2010		0.60	1,000,000	0.45	1,000,000		0.60
2010		0.30	6,600,625	4.50	6,600,625		0.30
2010		0.30	500,000	4.60	500,000		0.30
2011		0.10	6,840,000	5.00	6,840,000		0.10
Total			32,540,627		32,540,627

 

As at May 31, 2011 none of the Company’s outstanding warrants have been exercised or cancelled.

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

 

NOTE 9 – EARNINGS PER SHARE

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

 

For the Nine Months						For the Three Months
Ended May 31,                                                                         2011                            2010						Ended May 31, 2011                   2010
Net loss	$	(572,009)	$	(1,840,615)	$	(119,770)	$	(122,320)
Weighted average number of shares outstanding	$	30,058,797	$	22,342,048	$	32,951,819	$	24,215,542
Basic and diluted loss per common share	$	(0.02)	$	(0.08)	$	(0.000)	$	(0.00)

 

 

NOTE 10 - INCOME TAXES

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

 

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

 

The Company recorded no provision for income taxes for the nine months ended May 31, 2011 and 2010.

 

NOTE 11 – COMMITMENTS AND CONTINGENCIES

 

Consulting Agreement

 

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

 

 

 

NOTE 12 – LEGAL PROCEEDINGS

 

We are party to the following litigation matters.

 

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

 

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

 

Cypress Communications. On April 12, 2010, we were sued in the Superior Court of California, County of Los Angeles-Central District, by Jonathan Neil & Associates, Inc., for $206,151.77, plus interest, for telecommunications and internet services allegedly provided by the plaintiff's assignor, Cypress Communications, Inc. On March 17, 2011 a confidential settlement agreement and release was effectuated between the parties. The Complaint has been dismissed by the plaintiff without prejudice.

 

 

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

 

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

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

 

EN2GO Overview

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

 

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

 

Critical Accounting Policies and Estimates

 

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

 

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:

 

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

 

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

 

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

 

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

 

Results of Operations

 

Nine Months Ended May 31, 2011 and 2010

 

We had a net loss of $572,009 for the nine months ended May 31, 2011 compared to a net loss of $1,840,615 for the nine months ended May 31, 2010. The change is explained below.

 

Operating Expenses: Operating expenses were $764,112 and $636,945 for the nine months ended May 31, 2011 and 2010, respectively. The increase of $127,167 was primarily due to an increase in salaries and wages.

 

Other income (expense): Other income (expense) was $192,103 for the nine months ended May 31, 2011 compared to $(1,203,670) recorded for the nine months ended May 31, 2010. The decrease was primarily due to the increase in other income primarily from the settlement of prior liabilities from $-0- in 2010 to $194,061 in 2011, the decrease in interest expense on amortization of note discount from $(1,178,920) in 2010 to $(5,833) in 2011, and a decrease in interest expense from $(24,750) in 2010 to $(5,125) in 2011. In the nine months ended May 31, 2011, we also recorded a gain of $9,000 on sale of equipment, as compared to $-0- in the comparable period in 2010.

 

Three Months Ended May 31, 2011 and 2010

 

We had a net loss of $118,770 for the three months ended May 31, 2011 compared to a net loss of $122,320 for the three months ended May 31, 2010. The change is explained below.

 

Operating Expenses: Operating expenses were $312,678 and $122,320 for the three months ended May 31, 2011 and 2010, respectively. The increase of $190,358 was primarily due to an increase in salaries and wages.

 

Other income (expense): Other income (expense) was $193,908 for the three months ended May 31, 2011 compared

to $-0- recorded for the three months ended May 31, 2010. The increase was primarily due to the increase in other income primarily from the settlement of prior liabilities from $-0- in 2010 to $193,908 in 2011.

 

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

 

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

 

 

Liquidity and Capital Resources

 

At May 31, 2011, total assets increased to $74,597, as compared with total assets of $4,942 at August 31, 2010. The increase is primarily due to the proceeds of $480,000 from the sale of common stock and advances from related parties of $350,075 during the nine months ended May 31, 2011.

Net cash used in operating activities was $783,140 and $450,930 for the nine months ended May 31, 2011 and 2010, respectively. The increase in cash used by operating activities was primarily due to the decrease in depreciation expense, prepaid expense, accrued expense and accounts payable. Net cash used in investing activities was $23,479 and $117,369 for the nine months ended May 31, 2011 and 2010, respectively. Investing activities for the nine months ended May 31, 2011 resulted from the purchase of computers and furniture and software development costs. Net cash provided by financing activities was $839,075 and $571,600 for the nine months ended May 31, 2011 and 2010, respectively.

 

The Company suffered recurring losses from operations and has an accumulated deficit of $15,077,532 at May 31, 2011. Primarily as a result of our recurring losses and our lack of liquidity, the Company has received a report from our independent auditors that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. We have delayed payment of a substantial amount of accounts payable and accrued expenses and reduced our expenses to a minimum level. Our existing cash and cash equivalents will not be sufficient to fund our operations. Unless we receive liquidity from new purchase orders, obtain additional capital, loans or sell or license assets, we may be required to seek to reorganize our business or discontinue operations and liquidate our assets. There can be no assurance that the Company will be able to secure sufficient financing or on terms acceptable to the Company. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders is likely to or will be reduced.

 

During the first nine months of fiscal 2011, the Company has funded its capital requirements primarily through financing activities, $480,000 from the sale of common stock, and $350,075 from advances from a related party. As of May 31, 2011 the Company had a cash balance of $37,398. This compares with a cash balance of $4,942 at August 31, 2010. Accounts payable were $917,180 at May 31, 2011, as compared with $1,124,248 at August 31, 2010. The amount due related party decreased to $50,085 at May 31, 2011 from $562,010 at August 31, 2010, principally due to the conversion of an aggregate

$862,000 of outstanding debt into equity during the nine months ended May 31, 2011. Convertible debt decreased from $344,167 at August 31, 2010, to $-0- at May 31, 2011, due to the conversion of the $350,000 of principal amount of the debt and $53,125 of accrued interest into equity in November 2010.

Going Concern

 

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

 

Commitments and Contractual Obligations

 

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

 

Off-Balance Sheet Arrangements

 

As of May 31, 2011, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

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

13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective since the following material

weaknesses exist:

 

(i)               The Company’s management is relying on external consultants for purposes of preparing its financial reporting package; the officers may not be able to identify errors and irregularities in the financial reporting package before its release as a continuous disclosure document.

 

(ii)             The Company does not have standard procedures in place to ensure that the financial statements agree to the underlying source documents and accounting records, that all of its transactions are completely reflected in the financial statements.

 

(iii)       There are no controls in place to ensure that expenses are recorded when incurred, as opposed to when invoices are presented by suppliers, increasing the risk of incomplete expenses and accrued liabilities.

 

The foregoing material weaknesses identified in our disclosure controls and procedures were identified in June 2009, by our external consultants responsible for the preparation of our financial reporting package. The aforementioned material weaknesses did not impact our financial reporting or result in a material misstatement of our financial statements. As of May 31, 2011 we have taken action to correct the material weaknesses identified in our disclosure controls and procedures with the addition of a corporate controller.

 

Once the Company has sufficient personnel available, our Board of Directors will nominate an audit committee and audit committee financial expert and we will appoint additional personnel to assist with the preparation of our financial statements; which will allow for proper segregation of duties as well as additional manpower for proper documentation.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended May 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 

 

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

 

The Company is not a party to any material pending legal proceedings and, to the best of its knowledge its properties are not the subject of any such proceedings, except as follows:

 

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

 

Cypress Communications. On April 12, 2010, we were sued in the Superior Court of California, County of Los Angeles-Central District, by Jonathan Neil & Associates, Inc., for $206,151.77, plus interest, for telecommunications and internet services allegedly provided by the plaintiff's assignor, Cypress Communications, Inc. On March 17, 2011 a confidential settlement agreement and release was effectuated between the parties. The Complaint has been dismissed by the plaintiff without prejudice.

 

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

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable

 

ITEM 6. EXHIBITS

 

(a)  Exhibits

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

 

*

Filed herewith.

 

SIGNATURES

 

 

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

		EN2GO INTERNATIONAL, INC. (Registrant)
Date: July 14, 2011		By: /s/ROBERT ROSNER   Robert Rosner
		President, Chief Executive and Chief Financial Officer

 

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