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EX-32.2 - CERTIFICATION - Enterologics, Inc.elgo_ex322.htm
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EX-31.1 - CERTIFICATION - Enterologics, Inc.elgo_ex311.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

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

For the Quarterly Period Ended September 30, 2012

OR

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 000-54347

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. x Yes o No

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 37,163,391 shares of common stock, $0.0001 par value, issued and outstanding as of November 12, 2012.
 


 
 

 
TABLE OF CONTENTS
           
           
PART I  - Financial Information        
           
Item 1.
Financial Statements
    3  
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    17  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
    20  
Item 4.
Controls and Procedures
    20  
           
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.
Mine Safety Disclosures
    22  
Item 5.
Other Information
    22  
Item 6.
Exhibits
    23  
 
 
2

 
 
PART I.    FINANCIAL INFORMATION

Item 1.     Financial Statements

ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
             
ASSETS
             
   
September 30,
   
December 31,
 
   
2012
   
2011
 
CURRENT ASSETS
           
             
Cash
  $       $ 17,975  
                 
TOTAL CURRENT ASSETS
    -       17,975  
                 
Patent, (net of Accumulated Amortization of $16,384 and $12,691 respectively)
    89,951       93,644  
Website Costs, (net of Accumulated Amortization of $1,572 and $786 respectively)
    1,573       2,359  
                 
OTHER ASSETS
               
                 
Goodwill
    481,353       481,353  
                 
TOTAL ASSETS
  $ 572,877     $ 595,331  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)
 
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 29,345     $ 28,805  
Accounts payable - related party
    1,101       1,101  
Accrued Interest
    15,913       2,958  
Notes payable
    165,000          
Notes payable - related party
    109,822       133,333  
Total Current Liabilities
    321,181       166,197  
                 
LONG TERM LIABILITIES
               
Notes payable
    66,667       66,667  
                 
TOTAL LIABILITIES
    387,848       232,864  
                 
                 
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,  37,163,391 and 26,020,000 shares issued and outstanding, respectively
  $ 3,716     $ 3,541  
Additional paid in capital
    879,974       662,649  
Accumulated deficit - during developmental stage
    (698,661 )     (303,723 )
Total Stockholders’ Equity / (Deficiency)
    185,029       362,467  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)
  $ 572,877     $ 595,331  
 
 
3

 

ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
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, 2012
   
September 30, 2011
   
September 30, 2012
   
September 30, 2011
   
September 30, 2012
 
                               
                               
OPERATING EXPENSES
                             
Professional fees
  $ 4,500     $ 8,800     $ 31,249     $ 42,099     $ 121,865  
Consulting fees
    7,000       -       20,000               32,000  
Research and Development
    26,829       31,004       84,659       43,917       176,003  
Compensation expense
    -       -               6,000       18,000  
General and administrative
    9,756       19,631       23,812       36,678       86,510  
Impairment Expense
            -                          
Amortization Expense
    1,493       262       4,479       524       5,265  
  Total Operating Expenses
    49,578       59,697       164,198       129,218       439,642  
                                         
LOSS BEFORE PROVISION FOR INCOME TAXES
    (49,578 )     (59,697 )     (164,198 )     (129,218 )     (439,642 )
                                         
OTHER INCOME / (EXPENSES)
                                       
Interest income
                                    5  
Loan amortization expense- related party and Financing Fees
    (110,000 )     (9,182 )     (217,500 )     (25,000 )     (242,500 )
Interest expense
    (4,155 )     (489 )     (13,240 )     (790 )     (16,524 )
      (163,733 )     (69,368 )     (394,938 )     (155,008 )     (698,661 )
Provision for Income Taxes
    -       -                          
                                         
NET LOSS
  $ (163,733 )     (69,368 )     (394,938 )     (155,008 )   $ (698,661 )
                                         
Net loss per share - basic and diluted
    -                                  
                                         
Weighted average number of shares outstanding during the period - basic and diluted
    35,915,446       35,124,904       36,248,323       32,409,505          

 
4

 
 
ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
 
   
For the Nine Months Ended
   
For the Nine Months Ended
   
For the Period Septemeber 2, 2009(Inception) to
 
   
September 30, 2012
   
September 30, 2011
   
September 30, 2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
             
Net loss
    (394,938 )     (155,008 )     (698,661 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Imputed compensation
    -       6,000       18,000  
Stock issued for loan commitment fees-related party
    217,500       25,000       242,500  
Stock issued for services
    -       -       60  
Amortization Expense
    4,479       524       5,265  
Changes in operating assets and liabilities:
                    -  
   (Increase) in prepaid expenses
    -       800       -  
Increase/ (decrease) in accounts payable
    540       (7,695 )     2,226  
Increase / (decrease) in accounts payable - related party
    -       1,101       3,224  
Increase/ (decrease) in Accrued Expenses
    12,954       615       15,911  
Net Cash Used In Operating Activities
    (159,465 )     (128,663 )     (411,475 )
                         
CASH FLOWS USED IN INVESTING ACTIVITIES:
                       
Website costs
            (2,145 )     (3,145 )
Cash paid for acquisition of wholly owned subsidiary
            (300,000 )     (300,000 )
                         
Net Cash Used In Investing Activities
    -       (302,145 )     (303,145 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES:
                       
Proceeds from the issuance of common stock
            425,000       473,130  
Proceeds  from notes payable-related party
    51,500       50,000       197,000  
Repayment from notes payable-related party
    (75,010 )     (12,000 )     (120,510 )
Proceeds  from notes payable
    165,000               165,000  
              -       -  
Net Cash Provided By Financing Activities
    141,490       463,000       714,620  
                         
NET INCREASE (DECREASE ) IN CASH
    (17,975 )     32,192       -  
                         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    17,975       1,058       -  
                         
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ -       33,250       -  
                         
Cash paid for interest expense
  $ 9,086       790          
Cash paid for Income Taxes
    -       -       -  
Sale of Common Stock for subscription receivable
  $                    
                         
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  

 
5

 
 
ENTEROLOGICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIENCY)
FOR THE PERIOD FROM SEPTEMBER 2, 2009 (INCEPTION) TO SEPTEMBER 30,  2012
 
   
Preferred Stock
   
Common Stock
   
Additional
Paid-In
   
Subscription
   
Accumulated Deficit - Development
   
Total Stockholders' Equity /
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Receivable
    Stage     (Deficiency)  
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 year ended December 31, 2011
    -       -       -       -       -       -       (223,013 )     (223,013 )
                                                                 
BALANCE, DECEMBER 31 2011
    -     $ -       35,413,391     $ 3,541     $ 662,649     $ -     $ (303,723 )   $ 362,467  
                                                                 
Common stock issued for loan comitment fees
                    1,750,000       175       217,325                       217,500  
                                                                 
Net loss, for the nine months  ended September  30, 2012
                                                    (394,938 )     (394,938 )
                                                                 
BALANCE, SEPTEMBER 30, 2012
                    37,163,391       3,716       879,974               (698,661 )     185,029  

 
6

 
 
ENTEROLOGICS, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO  FINANCIAL STATEMENTS
September 30,2012
(Unaudited)

NOTE 1     ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(A) 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.

On September 6, 2011 Enterologics, Inc acquired BioBalance Corp and BioBalance LLC, and they are a wholly-owned subsidiary of Enterologics, Inc.
 
Activities during the development stage include developing the business plan, acquiring technology and raising capital.
 
(B) Use of Estimates
 
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.
 
(C) 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, 2012 and 2011 the Company did not have any balances that exceeded FDIC insurance limits.
 
(D) 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 three months  ended September 30, 2012 and  2011, the Company incurred $3,145  respectively, in website
development costs.  As of  September 30, 2012 and 2011, amortization of $1,572 and $524 respectively has been taken.
 
 
7

 
 
(E) Principles of Consolidation
 
The consolidated financial statements included the accounts of Enterologics, Inc and its wholly-owned subsidiary Biobalance Corp, and Biobalance LLC, from the date of acquisition of September 6, 2011 through September 30, 2012. 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, 2012 and  2011, there were no common share equivalents outstanding.

(H)  Research and Development
 
In accordance with ASC Topic 730, “Research and Development”, expenditures for research and development of the Company’s products and services are expensed when incurred, and are included in operating expenses. The Company recognized research and development costs of $84,659 and $43,917 for the nine months ended September 30, 2012 and 2011, respectively.  

(I) Fair Value of Financial Instruments

The carrying amounts of the Company's accounts payable, accrued expenses, and notes payable related approximate fair value due to the relatively short period to maturity for these instruments.
 
 
8

 

(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
 
 Management evaluates the recoverability of the Company’s identifiable intangible assets and other long-lived assets in accordance with ASC Topic 360, which generally requires the assessment of these assets for recoverability when events or circumstances indicate a potential impairment exists. Events and circumstances considered by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable include, but are not limited to: significant changes in performance relative to expected operating results, significant changes in the use of the assets, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period of time, and changes in the Company’s business strategy. In determining if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these assets. If impairment is indicated based on a comparison of the assets’ carrying values and the undiscounted cash flows, the impairment loss is measured as the amount by which the carrying amount of the assets exceeds the fair market value of the assets.

(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. SC 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.
 
 
9

 
 
The valuation techniques that may be used to measure fair value are as follows:
 
  
A.
Market approach - Uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities
 
B.
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
 
C.
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 six months ended September 30, 2012 and  2011.  All of the Company’s intangible assets are valued using the level 3 inputs as of September 30, 2012. 
 
(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 assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a troubled debt restructuring. The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and are to be applied retrospectively to the beginning of the annual period of adoption. 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 FASB issued ASU No. 2011-03. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The amendments in this ASU also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.
 
The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The Company has  adopted the methodologies prescribed by this ASU by the date required, and  the ASU will does not have a material effect on its financial position or results of operations.
 
ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011.
 
The Company has  adopted the methodologies prescribed by this ASU by the date required, and the ASU does not  have a material effect on its financial position or results of operations.
 
 
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ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income. In June, 2011, the FASB issued ASU No.2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
 
The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The  Company has adopted  ASU 2011-05, as of December 31, 2011.
 
NOTE 2     ASSET PURCHASE AQUISITION
 
On September 6, 2011, the Company acquired  100% of the common stock of Bio Balance Corp and its subsidiary Bio Balance LLC from New York Health Care,,Inc for $300,000 in cash, 393,391 shares of our common stock with a fair value of $150,000 based on the fair value on the date of the grant and   a Note Payable for $100,000  to be paid in three equal installments of $33,333.33 with the first installment due on September 6, 2012, and  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 $4,155 of interest expense was recognized for the three months ended September 30, 2012. These financial statements are presented in a consolidated format.
 
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 Subsidiary
year ended December 31, 2011
 
Gross revenue
  $ -  
Total expenses
    (243,542 )
Net income (loss) before taxes
  $ (243,542 )
Earnings (loss) per share
  $ (0.01 )
 
 
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NOTE 3     NOTES PAYABLE- RELATED PARTIES
 
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 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 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, 2012 the Company recorded accrued interest of $3,192. The loan has not been repaid as of July 23, 2012 and is currently in default. (See note 5).
 
On December 2, 2011 a related party loaned $25,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid not before December 31, 2011.   On January 18, 2012 the loan and accrued interest of $104 were repaid. (See note 5).
 
 On December 19, 2011 a related party loaned $25,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid not before December 31, 2011.   On January 18, 2012 the loan and accrued interest of $161 were repaid. (See note 5).
 
On April 27, 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 6%, and be demanded to be repaid not before May 30, 2012. On May 10, 2012 the loan and accrued interest of $21 were repaid. (See note 5).
 
On July 31, 2012 a related party loaned $15,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid on or after August 5, 2012 . On August 5, 2012 the loan and accrued interest of $10 were repaid. (See note 5).
 
 
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On August 6, 2012 a related party loaned $4,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $22 were repaid. (See note 5).
 
On September 10 2012 a related party loaned $5,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $13 were repaid. (See note 5).
 
On September 14 2012 a related party loaned $7,500 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $17 were repaid. (See note 5).
 
On September 25 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $16 were repaid. (See note 5).
 
NOTE 4     STOCKHOLDERS' EQUITY / (DEFICIENCY)
 
(A) Common Stock Issued to Founders for Cash
 
In September 2009 the Company sold a total of 10,300,000 shares of common stock to four founders for $1,030 ($.0001 per share). 
 
(B) Common Stock Issued for Cash
 
In 2009, the Company sold a total of 15,700,000 shares of common stock to 55 individuals for cash of $47,080 and a subscription receivable of $20 ($.003 per share).  Cash of $20 was collected during the year ended December 31, 2010.
 
During the nine months ended September 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 as part of an asset purchase acquisition of Bio Balance Corp and its subsidiary Bio Balance LLC from New York Health Care. In addition $300,000 in cash was paid to New York Health Care and a Note Payable was issued for $100,000 to 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 $5,292 of interest expense was recognized for the nine months  ended September 30, 2012.
 
(C) Loan Commitment Fee
 
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.
 
(D) Imputed Compensation
 
During the nine months ended September 30, 2012 and 2011, an individual contributed services to the Company at a fair value of $0 and $6,000 respectively.
 
 
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(E) Stock Issued for Services
 
In May 2010 Company issued 20,000 shares of common stock to an outside vendor for services with a fair value of $60 ($.003 per share), based on a recent cash offering price.
 
(F) Preferred Stock
 
In October 2009, the Company amended its Articles of Incorporation to increase its authorized shares to 155,000,000 shares which shall consist of 150,000,000 shares of common stock with a par value of $.0001 and 5,000,000 shares of preferred stock with a par value of $.0001 with rights and preferences to be determined by the Board of Directors.
 
NOTE 5     RELATED PARTY TRANSACTIONS
 
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.
 
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.
 
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.
 
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.
 
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, 2012 the Company recorded accrued interest of $3,912. The loan has not been repaid as of July 23, 2012 and is currently in default.
 
On December 2, 2011 a related party loaned $25,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid not before December 31, 2011. On January 18, 2012 the loan and accrued interest of $104 were repaid.
 
On December 19, 2011 a related party loaned $25,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid not before December 31, 2011. On January 18, 2012 the loan and accrued interest of $161 were repaid.
 
On April 27, 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 6%, and be demanded to be repaid not before May 30, 2012. On May 10, 2012 the loan and accrued interest of $21 were repaid.
 
 
14

 
 
On July 31, 2012 a related party loaned $15,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%, and be demanded to be repaid on or after August 5, 2012 . On August 5, 2012 the loan and accrued interest of $10 were repaid.
 
On August 6, 2012 a related party loaned $4,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $22 were repaid.
 
On September 10 2012 a related party loaned $5,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $13 were repaid.
 
On September 14 2012 a related party loaned $7,500 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $17 were repaid.
 
On September 25 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $16 were repaid.
 
NOTE 6 COMMITMENTS AND CONTINGENCIES
 
On January 12, 2011, the Company entered into a letter of intent with UST pursuant to which it was granted a right of first refusal until May 15, 2012 to enter into a definitive license agreement for the exclusive, world-wide license to UST’s intellectual property for the preservation/stabilization of E. coli probiotic bacteria. The license is intended to specifically cover E. coli bacteria when used as a probiotic and exclude use as a system for delivering vaccine materials to the gastrointestinal tract.
 
On May 15, 2011, the company  entered into a one-year development agreement for UST  to conduct suitability studies and protocols to produce data demonstrating the suitability of its stabilization technology to produce a thermostable, commercially viable formulation of an E. coli probiotic satisfying their specifications. It is contemplated that during such one-year development project the Company will make monthly payments of at least CA$8,333 (which amount may be increased depending on the scope of the work). From January 15, 2011 to May 15, 2012 UST will not negotiate with, or entertain or consider offers from, any third party with respect to the same terms of the letter of intent. The Company’s right to enter into a definitive license agreement with UST will terminate if it fails to make such monthly payments.
 
The letter of intent provides that the Company will negotiate in good faith with UST to enter into a license agreement by May 15, 2012 for the exclusive, worldwide license to develop, manufacture, use, sublicense, market and sell UST’s patents, patent applications, know-how and trade secrets relating to its preservation/stabilization of E. coli bacteria.  Such agreement will expire on the later of (i) 20 years or (ii) the last to expire patent included in the licensed intellectual property. On May 14, 2012 the period for the Company to enter into a License agreement was extended to August 15, 2012.
 
On August 15, 2012 the period for the Company to enter into a License Agreement was extended to October 15, 2012.  As of October 15, 2012 the period for the Company to enter into a License Agreement was extended to December 15, 2012.
 
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, 2012 the company made payments to UST totaling $84,659 US Dollars.
 
 
15

 
 
NOTE 7     NOTES PAYABLE
 
On January 11, 2012, the Company entered into a loan agreement for $100,000  and issued the initial  5% promissory note for $50,000 to the lender on January 19, 2012. The principal and accrued interest under the note is due and payable on July 16, 2012 which has been extended to September 15, 2012 and has a conversion feature. An additional 5 % promissory note for $25,000 was issued on February 1, 2012. The principal and accrued interest are due and payable on August 1, 2012 which has been extended to October1, 2012.The final 5 % promissory note for $25,000 was issued on March 14, 2012. The principal and accrued interest are due and payable on September 14, 2012  In consideration of the loan, the Company issued the lender 500,000 shares of common stock with a fair value of $95,000 ($.19 per share) based on the most recent cash offering price.
 
On May 10, 2012, the Company entered into a loan agreement for $50,000  and issued a 5% promissory note to the lender. The principal and accrued interest under the note is due and payable on November 10, 2012 and has a conversion feature . In consideration of the loan, the Company issued the lender 250,000 shares of common stock with a fair value of $12, 500 ($.05 per share) based on the most recent cash offering price.
 
On July 31, 2012, the Company entered into an unsecured  loan agreement for a series of loans up to an aggregate of $250,000 and borrowed an initial $15,000 and issued 6% promissory notes to the lender on August 1, 2012 . The principal and accrued interest under the note is due and payable on the six months anniversary or earlier from the proceeds of a capital raise. An additional 6 % promissory note for $30,000 was issued on October 11 , 2012. The principal and accrued interest are due and payable on April 11, 2013. An additional 6 % promissory note for $55,000 was issued on October 15 , 2012. The principal and accrued interest are due and payable on April 15, 2013.In consideration of the loan commitments, the Company issued the lender 1,000,000 shares of common stock with a fair value of $110,000 ($.11 per share) based on the most recent cash offering price .
 
NOTE 8      GOING CONCERN
 
As reflected in the accompanying financial statements, the Company is in the development stage with no operations, a net loss of $698,661 from inception, used cash in operations from inception of $411,475. 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.
 
NOTE 9      SUBSEQUENT EVENTS
 
On October 5, 2012, we issued a promissory note to Special Times For Special Needs, a New York not-for profit corporation, in the principal amount of $2,500. The note bears interest at 3% per annum and is due and payable upon demand, which demand may not be made before October 31, 2012. The note was paid on October 11, 2012.
 
On October 11, 2012, we issued a promissory note to Corporate Debt Consultants, LLC, a New York limited liability company (“CDC”), in the principal amount of $30,000. The note bears interest at 6% and is due and payable on the earlier of (i) April 11, 2013, or (ii) the first proceeds from the sale of securities through a private placement or a public offering. The principal and interest under the note become immediately due and payable upon an event of default as set forth in the note.
 
On September 30, 2012 we entered into an Extension to Letter Agreement dated July 31, 2012 (the “Original Letter Agreement”) which extended the commitment for funding under the Original Letter Agreement from October 1, 2012 to November 30, 2012. As previously disclosed, effective as of August 1, 2012, the Company entered into a note purchase agreement (“Purchase Agreement”) and a letter agreement (“Letter Agreement”) with CDC, pursuant to which CDC will lend the Company an aggregate of $250,000 pursuant to promissory notes as follows: $15,000 on or before August 2, 2012; $25,000 may be requested by the Company at any time after August 18, 2012; $25,000 may be requested by the Company at any time after August 31, 2012; $35,000 may be requested by the Company at any time after September 18, 2012 and the balance of $150,000 may be requested on or after September 30, 2012. Each loan was to be unsecured and evidenced by a promissory note setting forth the interest rate and other terms of the loan. The extension letter provides that we can request the balance of the funds from CDC to be lent to us to November 30, 2012.
 
On October 15, 2012, we issued a promissory note to CDC, in the principal amount of $55,000. The note bears interest at 6% and is due and payable on the earlier of (i) April 15, 2013, or (ii) the first proceeds from the sale of securities through a private placement or a public offering. The principal and interest under the note become immediately due and payable upon an event of default as set forth in the note.
 
 
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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 and analysis and results of operations should be read in conjunction with our unaudited financial statements and accompanying notes and the other financial information 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 for the fiscal year ended December 31, 2011, filed with the Securities and Exchange Commission on April 11, 2012. 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. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

Business Overview

We are an early stage company with plans to engage in the development of proprietary probiotic bio-therapeutic products for the treatment of various gastrointestinal disorders. We intend to market these products as FDA approved prescription drugs. 

In May 2011 we entered into a development agreement with Universal Stabilization Technologies, Inc., a Delaware company (“UST”) to evaluate its probiotic stabilization technology.  We have a right of first refusal to enter into a license agreement with 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. 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. We have the right, pursuant to the letter of intent with UST, to enter into a license agreement until August 15, 2012. UST and the Company executed a letter agreement extending the term of the letter of intent to December 15, 2012.

Upon execution of the license agreement, we 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, we 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. We will also be required to make royalty payments of up to 3% on net sales of the licensed products sold by us or our sublicensees. Our right to sublicense under the license agreement is subject to UST’s approval, which will not be unreasonably withheld. In the event we receive other than cash consideration from a sublicense, we 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 us will be made in Canadian dollars at UST’s request.  We will be required to cover any currency conversion and bank transfer costs up to 1% of the total payment.
 
 
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There are no assurances that UST’s technology will perform as expected.  If such technology fails to perform to our expectations, we may not enter into a license agreement with UST or if such technology performs, there can be no guarantee that we will have the resources to enter into a license agreement with UST and we may lose all of the payments made to UST.

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.

This acquisition provides us with the intellectual property to develop and test biotherapeutic agents for the treatment of various gastrointestinal disorders.
 
Results of Operations

Comparison of Three Months Ended September 30, 2012 and 2011:

Revenues
 
The Company did not generate any revenues for the three months ended September 30, 2012 or for the three months ended September 30, 2012.

Total Operating Expenses
 
During the three months ended September 30, 2012, total operating expenses were $49,578, which includes $26,829 for research and development, $9,756 for general and administrative expenses, $7,000 of consulting fees, $4,500 professional fees and $1,493  for amortization expenses, compared to total operating expenses of $59,697 for the three months ended September 30, 2011, which expenses included $31,004 for research and development, $19,631 for general and administrative expenses, $8,800 of professional fees and $262 for amortization expense.  The decrease in total operating expenses of $10,119 represents a decrease of approximately 17%, primarily as a result of our decrease in general and administrative costs.
 
Net loss
 
For the three months ended September 30, 2012, net loss was $163,733 compared with net loss for the three months ended September 30, 2011 of $69,368, which represents an increase of $94,365, or approximately 136%.

Comparison of Nine Months Ended September 30, 2012 and 2011

Total Operating Expenses
 
During the nine months ended September 30, 2012, total operating expenses were $164,198, which includes $84,659 for research and development, $31,249 of professional fees, $23,812 general and administrative expenses, $20,000 consulting fees and $4,479 for amortization expense, compared to total operating expenses of $129,218 for the nine months ended September 30, 2011, which includes $43,917 for research and development, $42,099 for professional fees, $36,678 for general and administrative expense, $6,000 compensation expense and $524 for amortization expense.  The increase in total operating expenses of $34,980, representing an increase in 27%, was primarily a result of the increase in research and development expenses
 
 
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Net loss
 
For the nine months ended September 30, 2012, net loss was $394,938 compared with net loss for the nine months ended September 30, 2011 of $155,008 which represents an increase of $239,930, or approximately 155%.

Liquidity and Capital Resources

As of September 30, 2012 we had no cash or cash equivalents. On September 30, 2012, our total current liabilities were $321,181. We had a stockholders’ deficiency of $185,029 at September 30, 2012.
 
On September 10 2012 Arevim, a related party, loaned $5,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $13 were repaid.
 
On September 14 2012 Arevim loaned $7,500 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $17 were repaid.
 
On September 14, 2012, we issued a promissory note to an affiliate BSFS LLC, in the principal amount of $50,000. The note bears interest at 6% per annum and was paid on October 15, 2012 along with $3,238.88.
 
On September 25 2012 Arevim loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3% . On October 11, 2012 the loan and accrued interest of $16 were repaid.
 
On October 5, 2012, we issued a promissory note to Special Times For Special Needs, a New York not-for profit corporation, in the principal amount of $2,500. The note bears interest at 3% per annum and is due and payable upon demand, which demand may not be made before October 31, 2012. The note was paid on October 11, 2012.
 
On October 11, 2012, we issued a promissory note to Corporate Debt Consultants, LLC, a New York limited liability company (“CDC”), in the principal amount of $30,000. The note bears interest at 6% and is due and payable on the earlier of (i) April 11, 2013, or (ii) the first proceeds from the sale of securities through a private placement or a public offering. The principal and interest under the note become immediately due and payable upon an event of default as set forth in the note.
 
On September 30, 2012 we entered into an Extension to Letter Agreement dated July 31, 2012 (the “Original Letter Agreement”) which extended the commitment for funding under the Original Letter Agreement from October 1, 2012 to November 30, 2012.  As previously disclosed, effective as of August 1, 2012, the Company entered into a note purchase agreement (“Purchase Agreement”) and a letter agreement (“Letter Agreement”) with CDC, pursuant to which CDC will lend the Company an aggregate of $250,000 pursuant to promissory notes as follows: $15,000 on or before August 2, 2012; $25,000 may be requested by the Company at any time after August 18, 2012; $25,000 may be requested by the Company at any time after August 31, 2012; $35,000 may be requested by the Company at any time after September 18, 2012 and the balance of $150,000 may be requested on or after September 30, 2012.  Each loan was to be unsecured and evidenced by a promissory note setting forth the interest rate and other terms of the loan. The extension letter provides that we can request the balance of the funds from CDC to be lent to us to November 30, 2012.
 
On October 15, 2012, we issued a promissory note to CDC, in the principal amount of $55,000. The note bears interest at 6% and is due and payable on the earlier of (i) April 15, 2013, or (ii) the first proceeds from the sale of securities through a private placement or a public offering. The principal and interest under the note become immediately due and payable upon an event of default as set forth in the note.
 
We currently have no other agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. 
 
 
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Going Concern Consideration

The Company is a development stage company with no operations. For the period September 2, 2009 (inception) through September 30, 2012, the Company had a net loss of $698,661.  Our ability to continue as a going concern is dependent on our ability to raise additional capital and implement our business plan. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

The Company believes that it will need approximately $1,000,000 to fund its expenses and execute its business plan over the next twelve months. There can be no assurance that additional capital will be available to us or available on terms favorable to us. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund and develop our business.

Critical Accounting Estimates and Recently Issued Accounting Standards

The preparation of financial statements in accordance with accounting principles generally accepted in the United States 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.
 
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 evaluated 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 September 30, 2012, the end of the period covered by this report and have concluded that our disclosure controls and procedures were not effective to ensure that material information relating to the Company is recorded, processed, summarized, and reported in a timely manner.
 
 
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The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a full time accountant with adequate and relevant experience in conforming financial statements with generally accepted accounting principles in the United States (“GAAP”); (2) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (3) inadequate segregation of duties consistent with control objectives; and (4) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our officers in connection with the review of our financial statements as of September 30, 2012. Management believes any of the matters noted above could result in a material misstatement in our financial statements in future periods.

Management's Remediation Initiatives
 
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

In order to mitigate the foregoing material weaknesses, 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 GAAP. This outside accounting consultant is a certified public accountant and has significant experience in the preparation of financial statements in conformity with 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.

We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. We plan to appoint one or more outside directors to our board of directors who will be appointed to an audit committee resulting in a full functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management. Management believes that the appointment of one or more outside directors, who will be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

We anticipate that these initiatives will be at least partially, if not fully, implemented with the next 12 months. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2012.
 
Changes in Internal Controls over Financial Reporting
 
During the quarter ended September 30, 2012, there was no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
 
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PART II - OTHER INFORMATION

Item 1.        Legal Proceedings

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

Item 1A.      Risk Factors

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

Purchases of equity securities by the issuer and affiliated purchasers

None.

Item 2.        Unregistered Sale of Securities and Use of Proceeds

None

Item 3.        Defaults upon Senior Securities

None.

Item 4.        Mine Safety Disclosures.

Not applicable.

Item 5.         Other information

None.
 
 
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Item 6.        Exhibits

Exhibit No.
 
Description
     
10.25
 
Promissory Note, dated October 11, 2012 in favor of Corporate Debt Consultants, LLC
     
10.26
 
Extension to Letter Agreement, as of September 30, 2012 with Corporate Debt Consultants, LLC
     
10.27
 
Promissory Note, dated October 15, 2012 in favor of Corporate Debt Consultants, LLC
     
10.28
 
Letter Agreement as of October 15, 2012 with Universal Stabilization Technologies, Inc.
     
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.
 
 
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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 __, 2012
     
  By:
/s/ Robert Hoerr, M.D.
 
   
Robert Hoerr, M.D.
President (principal executive officer) and Director
 

  By: /s/ Lawrence Levitan, M.D.  
Dated: November __, 2012
 
Lawrence Levitan, M.D.
Treasurer (principal financial and accounting officer) and Director
 
 
 
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