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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
Commission file number: 000-54347
 
ENTEROLOGICS, INC.
(Exact name of registrant as specified in its charter)
 
Nevada
 
80-0504940
(State of incorporation)
 
(I.R.S. Employer Identification No.)
 
Enterologics, Inc.
1264 University Avenue West, Suite 404
St. Paul, Minnesota 55104
(Address of principal executive offices)
 
Telephone: (516) 303-8181
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o
 
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 x No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
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 Act).  Yes o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2012, the last business day of the registrant’s most recently complete second fiscal quarter was: $3,689,856.

As of March 28, 2013, 37,163,391 shares of the issuer’s common stock were issued and outstanding.

Documents Incorporated By Reference: None
 


 
 

 
 
TABLE OF CONTENTS
 
     
Page
 
PART I
       
Item 1
Business
    3  
Item 1A
Risk Factors
    14  
Item IB
Unresolved Staff Comments
    14  
Item 2
Properties
    14  
Item 3
Legal Proceedings
    14  
Item 4
Mine Safety Disclosures
    14  
           
PART II
         
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    15  
Item 6
Selected Financial Data
    17  
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    17  
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
    20  
Item 8
Financial Statements and Supplementary Data
    F-1  
Item 9
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    21  
Item 9A
Controls and Procedures
    21  
Item 9B
Other Information
    22  
           
PART III
         
Item 10
Directors, Executive Officers and Corporate Governance
    23  
Item 11
Executive Compensation
    25  
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    26  
Item 13
Certain Relationships and Related Transactions, and Director Independence
    26  
Item 14
Principal Accountant Fees and Services
    28  
           
PART IV
         
Item 15
Exhibits and Financial Statement Schedules
    29  
         
SIGNATURES
    31  
 
 
2

 
 
PART I
 
Item 1. Business.

As used in this Annual Report on Form 10-K (this “Report”), references to the “Company,” the “Registrant,” “we,” “our” or “us” refer to Enterologics, Inc., unless the context otherwise indicates.

Forward-Looking Statements

This Report contains forward-looking statements. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking information includes statements relating to future actions, prospective products, future performance or results of current or anticipated products, sales and marketing efforts, costs and expenses, interest rates, outcome of contingencies, financial condition, results of operations, liquidity, business strategies, cost savings, objectives of management, and other matters. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “continue” or the negative of these similar terms. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as that information is identified as forward-looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information.
 
These forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions that we cannot predict. In evaluating these forward-looking statements, you should consider various factors, including the following: (a) those risks and uncertainties related to general economic conditions, (b) whether we are able to manage our planned growth efficiently and operate profitable operations, (c) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations, (d) whether we are able to successfully fulfill our primary requirements for cash, which are explained below under “Liquidity and Capital Resources”. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.
 
Corporate Background

Overview
 
We are an early stage, pre-revenue company involved in the development of live biotherapeutic products for gastrointestinal disorders that we believe are poorly addressed by current therapies. Key examples include pouchitis, irritable bowel syndrome, Crohn’s disease, ulcerative colitis and Clostridium difficile infections. We intend to license or acquire technology to build a product pipeline based on producing probiotic bacteria in novel, shelf-stable, high potency formulations that are delivered orally. Unlike probiotic bacteria that are sold over-the-counter as dietary supplements or in food products such as yogurt, we intend to develop products to meet the exacting standards necessary to gain FDA approval as prescription drugs. We have identified a series of candidate probiotics that we plan to transform into proprietary, live biotherapeutic products following a rigorous development template that includes comprehensive characterization, full genomic sequencing and dosage form optimization. In keeping with this plan, we have acquired our first probiotic product, E. coli M17, which has already achieved several of the goals in our development template, in connection with our acquisition in September 2011 of BioBalance Corp. and BioBalance LLC, as described below. In addition to being well-characterized, E. coli M17 has an active Investigational New Drug application (“IND”) with the FDA for the indication of chronic pouchitis. The IND for E. coli M17 will permit the Company to initiate its first clinical trial, as soon as manufacturing is re-established in a qualified facility and adequate financing is in place. We have not generated any revenues to date.
 
Because E. coli M17 is a probiotic, it must be produced in a dosage form with adequate shelf life so that it remains viable at the time of administration to a patient. Preservation of probiotics is a complex challenge and many products marketed over the counter are labeled with the number of live cells (colony forming units, or cfu) per dose at the time of manufacture, but not at the time of administration. We believe that based upon testing by independent laboratories many products fall short of the label quantity at the time of purchase. For a probiotic to be approved as a biologic drug, a dose form that provides adequate potency and stability is essential.
 
 
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UST License

On January 12, 2011, we entered into a letter of intent with UST pursuant to which we were granted a right of first refusal until May 15, 2012 to enter into a definitive license agreement 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. The license is intended to specifically cover E. coli bacteria when used as a probiotic and to exclude use as a system for delivering vaccine materials to the gastrointestinal tract. Such agreement will expire on the later of (i) 20 years or (ii) the last to expire patent included in the licensed intellectual property. UST agreed to extend their obligation not to negotiate with, or entertain or consider offers from, any third party with respect to the same terms of the letter of intent until April 30, 2013.

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. The process is proprietary and includes the use of stabilizing materials, including sugars, that prevent the formation of damaging ice crystals during a vacuum drying process. We currently plan to exercise our right to license the UST preservation technology provided that we have the necessary financing to do so and the technology performs as expected during our evaluation period. Testing results obtained to date confirm the value of the technology for extending the shelf-life of our E. coli M17 probiotic in a dry form. Based on these results, we believe that the technology will enable us to produce a shelf-stable, dry dosage form of E. coli M17 for clinical testing purposes. We plan to undertake this work as soon as the technology license agreement is executed.
 
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 biologics license application (“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 that 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.

On or about May 15, 2011, we entered into a one-year non-binding development agreement for UST to conduct suitability studies and protocols to produce data demonstrating the suitability of its stabilization technology to produce a thermostable, commercially viable formulation of an E. coli probiotic satisfying their specifications. We have made monthly payments of CA$8,333 (which amount may be increased depending on the scope of the work) to UST pursuant to the agreement. We will recommence making such monthly payments on May 1, 2013. In lieu of cash payments for the first four months of 2013, we issued UST 200,000 shares of common stock. Our right to enter into a definitive license agreement with UST will terminate if we fail to make such monthly payments. The development program has proceeded according to plan, and as stated earlier, the UST preservation technology has extended the shelf-life of our E. coli M17 probiotic in a dry form. While the technology has performed to our expectations, 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.
 
 
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BioBalance Acquisition

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 (“NYHC”), 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, we paid NYHC $300,000 in cash at closing and issued to NYHC (i) 393,391 shares of common stock and (ii) a three-year promissory note in the original principal amount of $100,000. 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. If there is an event of default under the note, interest will accrue at 10%. We have the right to prepay the note, in whole or in part, at any time without premium or penalty. In connection with the acquisition, we assumed $25,000 of certain liabilities of BioBalance and BioBalance LLC.

The Stock Purchase Agreement required that NYHC be the sole owner of BioBalance. Accordingly, BioBalance purchased from Yitz Grossman his 33 1/3% membership interest in BioBalance LLC pursuant to a membership interest purchase agreement (the “Membership Purchase Agreement”) in consideration for the indemnification of Mr. Grossman for up to $75,000 in legal fees incurred by him, and not otherwise reimbursed, as a result of his prior activities on behalf of NYHC. Mr. Grossman is the husband of Lisa Grossman, our Secretary and significant shareholder. As a result, of the closing of the stock acquisition, we own 100% of both BioBalance and BioBalance LLC.

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

Probiotics and Live Biotherapeutics
 
Probiotics are live microorganisms (in most cases, bacteria) that are similar to beneficial microorganisms found in the human gut. They are also called "friendly bacteria" or "good bacteria." One widely used definition, developed by the World Health Organization and the Food and Agriculture Organization of the United Nations, is that probiotics are "live microorganisms, which, when administered in adequate amounts, confer a health benefit on the host." (For example, see http://www.who.int/foodsafety/publications/fs_management/en/probiotics.pdf). Microorganisms are tiny living organismssuch as bacteria, viruses, and yeaststhat can be seen only under a microscope.
 
Probiotics are available in foods and dietary supplements (for example, capsules, tablets, and powders) and in some other forms as well. Examples of foods containing probiotics are yogurt, fermented and unfermented milk, miso, tempeh, and some juices and soy beverages. In probiotic foods and supplements, the bacteria may have been present originally or added during preparation. Some probiotic foods date back to ancient times, such as fermented foods and cultured milk products.
 
Most probiotics are bacteria similar to those naturally found in people's guts, especially in those of breastfed infants (who have natural protection against many diseases). Most often, the bacteria come from two groups, Lactobacillus or Bifidobacterium. Within each group, there are different species (for example, Lactobacillus acidophilus and Bifidobacterium bifidus), and within each species, different strains (or varieties). Other bacterial groups in which probiotic strains have been identified include Bacillus, E. coli, Enterococcus, and Streptococcus. A few common probiotics, such as Saccharomyces boulardii, are yeasts, which are different from bacteria.
 
Probiotics generally have a very short life-span. Water, acid and oxygen are harmful to probiotics and most die or cease to function after a short period of time after extraction from the source. A reduction of these naturally-occurring organisms due to poor eating habits, stress, or the use of antibiotic drugs or other factors may disrupt the natural equilibrium of the body and could lead to a variety of abdominal ailments and an overall decrease in the function of the immune system.
 
 
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Scientific understanding of probiotics and their potential for preventing and treating health conditions is at an early stage, but growing. In November 2005, a conference that was co-sponsored by the National Center for Complementary and Alternative Medicine (NCCAM) and convened by the American Society for Microbiology reported encouraging evidence for health and disease prevention or treatment benefits from the study of specific probiotic formulations. See http://nccam.nih.gov/health/probiotics. Researchers are exploring whether probiotics could halt unfriendly agents in the first place and/or suppress their growth and activity in conditions such as irritable bowel syndrome; ulcerative colitis; Crohn's disease; infection with Helicobacter pylori (H. pylori), a bacterium that causes most ulcers and many types of chronic stomach inflammation; tooth decay and periodontal disease; vaginal infections; stomach and respiratory infections that children acquire in daycare and skin infections or conditions such as eczema.
 
Interest in probiotics also stems from the fact there are cells of the immune system located within the gastrointestinal (GI) tract. One theory is that probiotic bacteria may have beneficial effects on immune defenses, either by altering the microorganisms in an individual’s GI tract or having a direct effect on cells of the immune system.
 
Until now, probiotics have been sold in the United States as dietary supplements or as components of conventional food products, such as yogurt. The hurdles to developing probiotics as prescription drugs are many, among them the requirement to meet the stringent requirements of the FDA. However, this pathway does exist, as evidenced by the approval of the IND for E. coli M17. In their scientific publications, FDA staff has termed such products “live biotherapeutics,” as compared to other biologic products, many of which may have been produced by living organisms or cells, but are not in and of themselves capable of replicating and multiplying in the body.

Scientific publications emphasize that while the evidence is growing to support the use of probiotics, more rigorous studies to validate their use in specific conditions is needed. The European Food Safety Authority has rejected health claims for a number of probiotic products sold over-the-counter, because its expert panel concluded that the clinical data supporting these claims was inadequate. We believe that this provides a strong rationale for developing probiotics according to drug regulations and approval standards, where the efficacy testing and label indications are approved by the FDA.

Pouchitis: IND Indication

E. coli M17 has an active IND with the FDA for the indication of maintenance of symptomatic remission in chronic antibiotic-dependent pouchitis. Pouchitis is a complication that may occur in patients following surgical treatment of ulcerative colitis. This involves removing the colon and reconstructing a rectal pouch, a procedure called restorative proctocolectomy or ilealanal pouch anal anastomosis. In some individuals, the pouch can become inflamed, accompanied by pain and frequent, sometimes bloody bowel movements, requiring antibiotic treatment. While the population of pouchitis sufferers is small, the unmet treatment need is significant. There are at present no FDA-approved drugs for treating this condition, although metronidazole and ciprofloxacin are typically prescribed off-label. Some patients develop chronic pouchitis and require continuous antibiotic treatment to maintain remission of their symptoms. This is undesirable due to the side effects of the drugs and the increased likelihood for developing antibiotic-resistant bacteria. We plan on developing E. coli M17 as a maintenance therapy alternative to long-term use of antibiotics and their associated risks.

Strategy

We believe that broader medical use of probiotics will follow convincing clinical tests of the type used to obtain regulatory approval for drugs and biologics to treat specific conditions. We intend to identify, in-license and develop unique probiotic strains for specific medical conditions, obtain regulatory approval and market these probiotics products as FDA-approved prescription drugs for specific label indications. E. coli M17 represents our first probiotic candidate for development and with adequate funding we believe that we will be able to successfully execute our business plan. A key element of our strategy has been the identification of a dosage form that transforms live probiotic bacteria into a dry, shelf-stable, state of “suspended animation.” Heretofore, probiotic bacteria have been subjected to freeze-drying or lyophilization, processes that have been ineffective in maintaining viability during storage at room temperature. Some probiotic products require refrigeration to preserve adequate viability. This may be one reason for the variable clinical efficacy results that have been reported for many probiotic strains. Subject to UST’s technology meeting our specifications and our funding resources, we intend to license UST’s bacterial vitrification process, which we believe is far superior to other drying techniques and which we believe will enable us to meet the high potency standards necessary for prescription drug approval.
 
 
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We intend to pursue our business plan of developing prescription biologics and drugs for treating various gastrointestinal disorders within the next 12 months, subject to the availability of funding. We currently intend to finance the development of our business, including our prescription drug development efforts, from outside sources including through the sale of equity, debt or convertible securities, third party financing and strategic partnering.
 
Our Development Plans for Operations in the First Twelve Months
 
We intend to build our technology and product portfolio through licensing and/or acquisition. Our strategy for acquiring products is based on identifying and pre-qualifying probiotic bacterial strains that meet certain standards. Specifically, a candidate product should ideally (a) have an established scientific publication record that demonstrates its unique characteristics, (b) have a history of safe use in humans, and (c) evidence of producing a clinical response in individuals with one or more gastrointestinal disorders. We believe that E. coli M17 met these standards. Many probiotics have not been subject to the same scientifically rigorous evaluation as other biotherapeutics or biologic drugs. As a result, candidate products we identify may not have each of these criteria as well-established as others.

We believe that our unique value proposition is our established template for this rigorous development. We believe that by adhering to this template, we can efficiently and at reasonable cost develop a scientific and clinical portfolio for a candidate probiotic drug that will meet FDA standards for clinical development under an approved IND.

The following illustrates our commercial development model for the development of a hypothetical probiotic strain:

    Demonstrate strain stability, metabolic characteristics, antibiotic sensitivity, etc. These are classic microbiological characteristics associated with a stable bacterial strain.

    Confirm that the strain has been appropriately registered in national or international repositories, such as the American Type Culture Collection. The strain to be developed must be traceable to a specific repository or be deposited at the time of acquisition.

    Demonstrate genetic uniqueness. This involves rapid genomic sequencing using a high throughput commercial laboratory facility that meets accepted FDA Good Laboratory Practices. The benefits of genome sequencing are that the candidate strain can be compared against genomic databanks of other related bacteria, both for its unique sequences as well as presence of any undesirable genetic markers. It also will produce unique sequences that can be used for strain identification in manufacturing and in clinical practice. Due to major recent advances in sequencing technology, the cost of this step has been reduced significantly.

    Develop a high-potency, shelf-stable formulation. This may be based on the UST’s bacterial vitrification process described above, or on other approaches that meet our specifications for long shelf life (ideally one year or longer), during which the potency of the product remains at levels for which clinical efficacy results have been achieved.
 
    Develop a cGMPs production plan. The probiotic candidate strain will be evaluated for manufacturing scale up and stability, in conjunction with a certified cGMP contract manufacturer. By undertaking this step early in the development process, we believe the steps that follow will meet FDA guidelines for submission in the first regulatory filing.

    Develop a regulatory submission plan. Summarizing everything known about a strain and conducting a rigorous “gap analysis” is a critical step in order to ensure that the development program will not experience late and costly surprises. As part of this process, we will endeavor to meet as early as possible with FDA staff in a “pre-IND meeting” to confirm that our assumptions regarding the necessary steps leading to regulatory approval are correct. A key part of this planning process will be to identify the specific indication and label claims for which we will conduct clinical testing and seek approval. This also allows us to assess the market opportunity for the product, for this initial indication and other possible follow-on indications.
 
 
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    Confirm safety in animal testing and if appropriate, preclinical efficacy in an appropriate animal model for the condition or conditions to be treated. Probiotics must be non-pathogenic and predictably safe when used in animal testing. Because there are not good animal models for all gastrointestinal diseases, efficacy testing in animal models may not be appropriate in each case. Where a model does exist, however, the value of establishing successful performance is a solid proof of principle.
 
    Select expert partners for the development program, in the form of consultants and contract research organizations. The efficiency of development will be enhanced by choosing an external team with deep experience and a demonstrated track record of successful approved products. We believe that our management’s past experience gives it a strong pool of potential advisors to draw from for building this team.

    Prepare and file an IND for first use as a regulated product in humans. Probiotics, unlike other new drugs, will likely have been used in humans without any regulatory oversight. In many cases, a probiotic strain will have been identified and isolated from an individual as part of the normal gastrointestinal microbial population (the “microflora”). The IND contains the first clinical protocol for testing and typically will have identified the first institution where testing will be undertaken. Once an IND is active, we will have established that its assumptions regarding the development program are acceptable to FDA, thus paving the way for first testing in clinical trials.

    Establish relationships with key thought leaders in the GI clinical area with expertise in the condition for which we develop its probiotic product. Typically, these thought leaders will serve as principal investigators for our early clinical trials and longer-term provide a means of publishing clinical results in the scientific literature. Our management has relationships with leaders in the GI academic community that we believe will facilitate identifying thought leaders and possible university medical centers where trials can be conducted.

The logical next steps include expanded clinical testing. Because we believe that the first year of development is critical for our success, we have provided the detailed outline as a means of assessing the capital requirements needed to launch a comprehensive clinical development program. If there has been prior testing in animal models and clinical use in humans, the primary task will be to solidify the scientific database with the elements outlined above. Provided that we obtain adequate financing to re-establish manufacturing in a qualified facility, we believe that the timeline for initiating clinical trials for E. coli M17 is one year or less from the time financing is available.

Based upon our experience with developing E. coli M17, we currently believe the cost of establishing an active IND for a future candidate probiotic to be approximately $750,000 to $1,000,000 depending on the established scientific and safety database for a particular product. The most expensive tasks include the genomic sequencing, demonstrating that a manufacturing process can be established that meets cGMP standards, and animal testing, depending on the extent required.
 
We intend to build a pipeline of probiotic biologic candidates. To minimize the initial capital requirements and speed the path to successful clinical testing, we selected E. coli M17 because it has a strong history of established use. Our preferred deal structure for follow-on products will be to use equity instead of cash for the upfront licensing or acquisition costs, coupled with cash or equity milestone payments as the product advances in clinical development, at which point we believe that testing, if successful will increase our ability to raise additional financing.
 
Our current goal is to be in clinical testing of E. coli M17 within 12 months of obtaining adequate financing. Meeting this goal is contingent upon completing the license agreement with UST and moving quickly to produce and complete quality assessment of the shelf-stable dosage form based on the US technology, resulting in a formulation that is suitable for use in our initial clinical trials. Follow-on probiotic candidate strains may be less developed and may take up to two years to complete these steps, provided that there is compelling data to support a unique position for clinical use, compared to probiotic products currently being marketed as traditional dietary supplements.
 
 
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To assist us in selecting candidate products among the pool of potential products we have identified, we intend to hire a team of expert advisors in microbiology and gastroenterology to assess the relative scientific strength of the knowledge base for each candidate product. We currently anticipate that this team of advisors will be engaged by us within the first month of financed operations. Initial contact with prospective licensors will be made as soon as this key step is completed, followed by pre-acquisition due diligence. We have also identified service vendors needed to complete our template steps and plan on engaging such vendors once sufficient financing is obtained. Based upon discussions with these potential vendors, we anticipate that they will be able to begin work on our lead candidate as soon as we have clearance to initiate development.

Regulatory Considerations
 
We currently have a single product, E. coli M17, in development, although we will not begin clinical testing until adequate financing is in place. Our intended products, probiotic bacteria, fall into the class of biologics. Our current regulatory strategy involves pursuing FDA approvals of biologic products we may develop as prescription medications. Industry studies indicate that it takes approximately 8 to 10 years for the average prescription drug or biologic to progress from the IND filing to market introduction. Biologics are derived from living organisms and include a wide range of products such as vaccines, blood and blood components, allergenics, somatic cells, gene therapy, tissues, and recombinant therapeutic proteins. Biologics can be composed of sugars, proteins, or nucleic acids or complex combinations of these substances, or may be living entities such as cells and tissues. Biologics are isolated from a variety of natural sources, human, animal, or microorganism, and may be produced by biotechnology methods and other cutting-edge technologies. Gene-based and cellular biologics, for example, often are at the forefront of biomedical research, and may be used to treat a variety of medical conditions for which no other treatments are available.
 
Biologics are approved for marketing under the provisions of the Public Health Service Act. The Act requires a firm which manufactures a biologic for sale in the United States to hold a license for the product. A Biologic License Application, also called a Therapeutic Biologic Application, is a submission that contains specific biologic product information on the manufacturing processes, quality assessments, pharmacology, clinical pharmacology and the medical affects of the biologic product. If the information provided meets FDA requirements, the application is approved and a license is issued allowing the firm to market the product in the US. A BLA is issued for approved biologics and a NDA (“NDA”) is issued for drugs. Each BLA includes information that is specific for the process and facility where the biologic product is manufactured, tested, and stored.
 
A prescription drug or biologic can be assigned orphan drug status by the FDA and European regulatory authorities if the indication addresses a target population of less than 200,000 sufferers in the U.S. or less than 5 sufferers per 10,000 persons in Europe. There is a separate Office of Orphan Drug Product Development at the FDA designed to help facilitate rapid approval of orphan drug applications. Once approved, orphan drugs are given 7 year exclusivity in the U.S. and ten years of exclusivity in Europe. Additional benefits of receiving orphan drug status in the U.S. include study design assistance, a 50% reduction in the filing cost of the NDA/BLA (new drug application/biological licensing application) and may also include partial funding of clinical costs by the FDA. The NDA/BLA requests permission from FDA to market a drug in the U.S. In Europe, a drug product is filed with the European Medicines Agency (“EMEA”) for marketing throughout the European Commission area. The EMEA has a Committee for Orphan Medicinal Products whereby drugs are designated "orphan drug" status for the European Union. We believe that the indication identified in the IND for E. coli M17 will meet criteria for orphan drug designation, based upon the target population being less than 200,000 in the U.S.
 
Clinical Trials and Marketing Approval
 
Before an experimental drug or biologic can be sold over the counter or with a prescription, it must undergo rigorous testing. Clinical trials are studies done with human subjects to answer specific questions about the new biologic product. The questions that are usually asked in a clinical trial involve the safety and effectiveness of the product in humans. The results of these clinical studies define the ways to use the potentially new product in humans. Carefully conducted and well controlled sound clinical trials are the fastest and safest way to test if a biotech drug or treatment is safe and effective in humans. The entire development of a new product can take up to nine years, over which time the FDA carefully reviews each study before, during and after the study is started. There are many factors that can influence the overall time for the biological approval process.
 
 
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Clinical trials proceed in several well-defined phases, beginning with a demonstration that the proposed product is safe in animal or cell-culture based studies before it is tested for the first time in humans, and ending with the product being approved for marketing by the FDA or corresponding regulatory agency in Europe and elsewhere. The stages of development generally proceed as follows:
 
·
Non-clinical studies. An experimental drug or biologic that is examined in a test tube experiments or in animal experiments is referred to as non-clinical research. The non-clinical research that occurs before an experimental drug or biologic is tested in humans is called pre-clinical research. If early pre-clinical research in animal studies shows that the product appears to be safe, the company will then provide this information to the FDA along with a request to begin testing of the experimental drug in humans. This request is referred to as an IND or an Investigational New Drug application. It is estimated that only about 0.1% (or one in one thousand) compounds developed in laboratories pass the pre-clinical studies and advance to FDA-regulated clinical trials. All studies monitor the safety of the product in humans.
 
·
Phase 1 trials. Researchers test their experimental product in a small group of people (20-100) to determine the metabolic and pharmacologic actions of the product, the side effects that may be associated with increasing doses, and any early evidence of effectiveness. These early studies typically could last up to 2-3 years before moving on to the next phase of study (Phase 2).
 
·
Phase 2 trials. A larger population of subjects (up to 300) is included in this phase of study. It is here that the experimental product can be tested in comparison to another product or a placebo, to see if the experimental product offers any benefit of effectiveness. The comparison of the product with another group is called a “controlled study”, and a comparison of the 2 or more groups is made for safety, effectiveness. These Phase 2 studies also help to define the dose and frequency of dosing for this disease. It is in the Phase 2 study that some indication of the potential benefits and risks associated with the use of the experimental product can be first seen. This phase typically could last up to 2 years, before moving on to the next phase of study (Phase 3).
 
·
Phase 3 trials. Pursuing a Phase 3 study requires time and enormous costs to conduct a pivotal trial. Results from Phase 3 studies provide the necessary data for the FDA to make its final decision on approving the experimental product and awarding a BLA. These studies also provide the needed information for the drug dosing and administration. These studies are usually large studies (several hundred to thousands) using control groups that are designed to confirm the experimental product’s effectiveness and safety when used in the target clinical population. In general, these studies may last several years.
 
·
Filing of NDA or BLA for marketing approval. After the successful completion of clinical phases of the experimental product’s development, Phases 1-3, a company will assemble and submit to the FDA the results of these studies to obtain marketing authorization to the public, in the form of a BLA for a biologic product and a NDA for a drug product. The license process under FDA review generally takes from 12-18 months. We anticipate that most of the products we currently plan to develop, if approved will receive BLA authorization.
 
·
Phase 4 trials. The FDA may request post-marketing clinical and/or non-clinical studies to define additional information (for example, risks, benefits, and optimal use) for a new product.
 
In addition to a proposed product moving through the development stages outlined above, a particular product may qualify for special designation by the FDA or corresponding regulatory agency, depending on the clinical need for the product or the size of the population with the particular disease that the product is intended to treat.
 
·
Fast track approval status. If granted by the FDA, fast track approval status allows for expedited review and approval. This could reduce the FDA product approval time to 6 months.
 
·
Orphan product status is granted to drugs or biologics addressing patient populations of less then 200,000. The FDA, through the Orphan Drug Act of 1983, grants seven-year market exclusivity and tax breaks to companies with orphan drugs. Additional benefits of receiving orphan drug status in the U.S. include FDA assistance with clinical study design, a 50% reduction in the costs of filing for the marketing authorization (NDA or BLA) and potentially partial FDA funding of clinical costs.
 
 
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Manufacturing
 
We do not have manufacturing facilities. Any products that we develop will be required to be manufactured in a facility maintained and operated under FDA laboratory and cGMP requirements as a prescription drug or biologic product. The manufacturer of any future product, whether done by third-party contractors or internally, will be subject to rigorous regulations, including the need to comply with the FDA's cGMP standards. As part of obtaining FDA approval for a product, manufacturing facilities must be inspected, approved by and registered with the FDA. For a biologic, this includes licensing of the facility under a BLA. In addition to obtaining FDA approval of the prospective manufacturer's quality control and manufacturing procedures, domestic and foreign manufacturing facilities are subject to periodic inspection by the FDA and/or foreign regulatory authorities which have the authority to suspend or withdraw approvals.
 
We have established the basic terms of a technology transfer and clinical trial product manufacturing contract with an experienced cGMP contract manufacturing company to be entered into upon our raising sufficient funds in order to satisfy our payment requirements under such agreement. The contract terms will need to be revised in accordance with the use of the UST technology into our manufacturing process. Assuming that we will be successful in concluding our license agreement with and the associated transfer of the process technology from UST, we believe that the incorporation of the UST technology into the manufacturing process has the potential to decrease the number of production batches needed for clinical trial manufacturing, therefore lowering costs. We believe that the capital expense associated with incorporating the UST technology will be limited to freeze-drying equipment. Until we license the UST technology and transfer the manufacturing process, we will be unable to determine the cost of producing clinical trial material or making a final determination whether the UST process is compatible with the contract manufacturing facility we have identified. These changes will need to be factored into the terms of the manufacturing contract. While we believe that this is possible, we have no assurance at the present time that these changes are acceptable to the contract manufacturing company. For this reason, finalization of the license agreement with UST and transfer of full process details is a key step in determining whether our manufacturing plan is achievable. If we are successful in raising financing sufficient to allow us to enter into such agreement, both with UST and the contract manufacturer, and the manufacturer executes and delivers to us the agreement containing those terms, we will be in a position to implement manufacturing.
 
Intellectual Property
 
We have a right of first refusal to enter into a license agreement with UST for an exclusive, worldwide license to UST’s preservation/stabilization technology which includes certain patents, patent applications, know-how and associated trade secrets. These rights have been maintained through extensions of our initial agreement with UST. The license is intended to cover the use of E. coli probiotic bacteria but excludes the use to preserve E. coli bacteria as a system for delivering vaccine materials to the gastrointestinal tract.
 
The intellectual property acquired with the BioBalance acquisition includes a number of issued U.S. and foreign patents, as well as patent applications that are pending. The issued patents cover specific composition of a liquid dosage form and its therapeutic use, as well as the use of E. coli M17 for various gastrointestinal disorders. Pending U.S. and foreign patent applications relate to the liquid dosage form, a composition combining an antibiotic with E. coli M17 and other aspects related to E coli M17 that have not yet been published. In addition, should we obtain a license for the UST technology, this will provide access to several pending U.S. and foreign applications, one of which has received first notice of allowance in Israel. In addition, we acquired ownership of the E. coli M17 cell deposits with the American Tissue Culture Collection, master and working seed deposits at secure storage locations, and know-how related to the manufacture of E. coli M17 product in the BioBalance acquisition. The BioBalance patent portfolio is actively maintained through our relationship and regular communications with our patent counsel, G.E. Ehrlich, Ltd., and their interactions with the patent offices on our behalf, responding to office actions and attending to renewal fees, and other related issues.
 
 
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The following patents were acquired from BioBalance:
 
ISSUED PATENTS ACQUIRED FROM BIOBALANCE: TITLE
COUNTRY
PATENT NUMBER
EXPIRATION
DATE
Probiotic Compositions for the Treatment of Inflammatory Bowel Disease
US 7,018,629
10/06/2022
Bacterial Strain, Processed Plant Extracts and Probiotic Compositions for Human and Veterinary Use
Europe 1185618
Australia 778789
Mexico 255870
New Zealand 515830
New Zealand 527587
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
Bacterial Strain, Processed Plant Extracts, Compositions Containing Same, Processes for Their Preparation and Their Therapeutic And Industrial Applications
US 6,500,467
US 6,569,424
US 6,544,510
US 6,544,509
US 6,544,508
US 6,534,054
US 6,534,053
US 6,524,576
US 6,524,575
US 6,514,494
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
06/03/2019
     
Bacterial Strain, Processed Plant Extracts and Probiotic Compositions for Human and Veterinary Use
US 6,503,505
US 6,500,424
US 6,511,661
US 6,500,423
06/03/2019
06/03/2019
06/03/2019
06/03/2019
Bacterial Strain, Processed Plant Extracts, Compositions Containing Same, Processes for Their Preparation and Their Therapeutic and Industrial Applications
Australia 2002221004
New Zealand 526748
US 7,504,251
China ZL01821485.1
Russian Fed. 2281326
South Africa 2003/4747
11/30/2020
11/30/2020
11/30/2020
11/30/2020
11/30/2020
 
 
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Competition
 
We currently have no products or drugs in commercial production. Accordingly, we do not compete with any product or in any market or industry. While there is no assurance that we will develop any products capable of commercialization, we believe that competition, should we develop products which obtain regulatory clearances required for commercialization, will be intense competition from large pharmaceuticals companies with resources far greater than ours and which have been in business longer than us and have established brand recognition and consumer loyalty. We will compete based on factors including, effectiveness of our products for the approved indications, delivery, price, insurance availability, price, quality, service and distribution.
 
Most probiotic products being marketed as dietary supplements today are sold in traditional capsule format, where the capsules are made of gelatin, gel caps made of vegetable origin ingredients, or an enteric coated version of one of these (meaning a polymer coating that is designed to withstand the low pH of the gastric juice acid and permit release of the product as it enters the small intestine, where the pH is higher and less damaging to bacteria. Most of these products use a traditional freeze-drying approach to stabilize the probiotic. Testing by third party organizations, such as Consumer Reports, has indicated that many products have significantly lower viable organisms than the label specifies, though most companies indicate the number of bacteria present at the time the product was manufactured instead of the number to be expected at the end of shelf-life. Several chewable tablet formulations have been marketed, but the comparative shelf-life viability of probiotics in these forms is unknown. In contrast, UST’s preservation/stabilization technology has been shown to preserve probiotics and other microbial agents for a year or longer, with significantly higher viability upon reconstitution of the dry product compared to traditional freeze-dried (also called lyophilized) comparison probiotic formulations. For this reason, we believe that if we enter into a license agreement to acquire such technology and are successful in our commercialization efforts, we will have a competitive position in the market place.
 
Governmental Regulations
 
The manufacturing and marketing of drug and drug delivery and research and development activities are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries. Compliance with these regulations will involve a considerable amount of time, expense and uncertainty.
 
In the United States, drugs are subject to rigorous federal regulation and, to a lesser extent, state regulation. The United States Food, Drug and Cosmetic Act, the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of drugs. Drug development and approval within this regulatory framework is difficult to predict and will take a number of years and involve material expenditures that are difficult to accurately projected but which will exceed our current resources and will require additional funding.
 
We will be subject to a variety of state laws and regulations relating to, among other things, advertising, pricing, charging and collecting state sales or use tax and product safety/restrictions. We will be subject to certain federal, state and local laws and regulations relating to the protection of the environment and human health and safety.
 
 
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Employees

We currently have no employees. All functions including development, strategy, negotiations and administration are currently being provided by our executive officers on a voluntary basis.

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.
 
Item 1B. Unresolved Staff Comments
 
None
 
Item 2. Properties
 
Our executive offices, located at 1264 University Avenue West, Suite 404, St. Paul, Minnesota 55104, consist of approximately 200 square feet of office space provided to us by our President. We do not pay rent for this space. We believe that this space will be sufficient until we are able to generate revenues, if at all, and hire employees.
 
Item 3. 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 4. Mine Safety Disclosures
 
Not applicable.
 
 
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PART II
 
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 
Market Information
 
Our common stock is quoted on the OTC Bulletin Board (“OTCBB”) under the symbol “ELGO”. Trading of our common stock commenced on April 15, 2011. Prior to said date, there was no active market for our common stock. The following table sets forth the high and low bid prices as reported on the OTCBB. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.

 
FISCAL YEAR 2011
 
HIGH
   
LOW
 
             
Second Quarter
  $ 0.61     $ 0.10  
Third Quarter
  $ 1.01     $ 0.05  
Fourth Quarter
  $ 0.40       0.11  
 
FISCAL YEAR 2012
 
HIGH
   
LOW
 
             
First Quarter
  $ 0.26     $ 0.12  
Second Quarter
  $ 0.20     $ 0.10  
Third Quarter
  $ 0.11     $ 0.10  
Fourth Quarter
  $ 0.10     $ 0.07  
 
The last reported sales price of our common stock on the OTCBB on March 28, 2013 was $0.02.
 
Holders
 
As of March 28, 2013, we had approximately 60 shareholders of record.

DIVIDEND POLICY
 
We have not declared or paid dividends on our common stock nor do we anticipate paying dividends in the foreseeable future. Declaration or payment of dividends, if any, in the future, will be at the discretion of our board of directors and will depend on our then current financial condition, results of operations, capital requirements and other factors deemed relevant by the board of directors. There are no contractual restrictions on our ability to declare or pay dividends.
 
 
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Equity Compensation Plans
 
We do not have any equity compensation plans.
 
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
 
The following are all issuances of unregistered securities by us since inception on September 2, 2009 which were not registered under the Securities Act of 1933, as amended (the "Securities Act"). In each of these issuances the recipient represented that he or it was acquiring the shares for investment purposes only, and not with a view towards distribution or resale except in compliance with applicable securities laws. No general solicitation or advertising was used in connection with any transaction, and the certificate evidencing the securities that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom.
 
On November 4, 2009 by action taken by our board of directors, we issued 1,500,000, 500,000, 500,000 and 7,800,000 shares of our common stock to Dr. Hoerr, Dr. Levitan, Mr. Welwart and Mrs. Grossman, respectively, our executive officers and directors, at the purchase price of $0.0001 per share for the aggregate consideration of $1,030. Each issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act. Each of the above persons is a founder of our Company and had access to all of the information which would be required to be included in a registration statement, and the transaction did not involve a public offering.
 
From November through December 2009, we issued an aggregate of 15,700,000 shares of our common stock to 50 investors in a fully subscribed private placement made pursuant to the exemption from the registration requirements of the Securities Act provided under Section 4(2) of, and Rule 504 of Regulation D of the Securities Act. The consideration paid for such shares was $0.003 per share, amounting in the aggregate to $47,100. The Company conducted the private placement without any general solicitation or advertisement and a restriction on resale. The Company provided all investors in the private placement with a subscription agreement.
 
In May 2010, the Company issued 20,000 shares of common stock to an outside vendor for services with a fair value of $60 ($.003 per share). The issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act.
 
On January 17, 2011, in connection with a loan agreement for a series of loans up to an aggregate of $50,000, we issued 500,000 shares of our common stock to the lender as consideration for its loan commitment. The issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act.
 
In February 2011, we issued Surge Partners, Ltd. (“Surge”) 500,000 shares of common stock in consideration for Surge agreeing to lend the Company up to an aggregate of $50,000. The shares were valued at $25,000 ($.05 per share). Irv Bader, the father of Lisa Grossman, the Secretary of our company, is President of Surge. The issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act.
 
On June 6, 2011, in connection with the completion of the acquisition and in considerations for all of the shares of BioBalance, we issued (i) 393,391 shares of common stock and (ii) a three-year promissory note to NYHC in the original principal amount of $100,000. Such 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 the first anniversary of the date of issuance. If there is an event of default, as defined in the Note, interest will accrue at 10%. We have the right to prepay the note, in whole or in part, at any time without premium or penalty. Such shares and note were issued pursuant to the exemption from registration afforded under Section 4(2) of the Securities Act of 1933, as amended.
 
 
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On January 11, 2012, we entered into an agreement with MBTA Management, LLC, a Pennsylvania limited liability company (“MBTA”), pursuant to which MBTA will lend us an aggregate of $100,000 as follows, $50,000 on or before January 16, 2012, $25,000 upon our request at any time after February 1, 2012 and an additional $25,000 upon our request after February 15, 2012. Each loan will be unsecured and evidenced by a promissory note setting forth the interest rate and other terms of the loan.
 
On January 16, 2012, MBTA made the first loan of $50,000 to us and we issued a promissory note in the principal amount of $50,000 and 500,000 shares of common stock to MBTA as consideration for agreeing to make such loans. The note bears interest at 5% per annum, can be prepaid by us without penalty or premium, and is due and payable on July 16, 2012, or earlier upon our bankruptcy, an assignment for the benefit of creditors or an involuntary bankruptcy not resolved in 10 days. The proceeds of the $50,000 loan were used to pay off two outstanding promissory notes, each in the principal amount of $25,000, which were held by BSF II LLC, an affiliate of the Company.
 
On each of February 1, 2012 and March 14, 2012, MBTA loaned us $25,000 and we issued MBTA a promissory note evidencing such loans. The notes bear interest at 5% per annum, can be prepaid by us without penalty or premium, and are due and payable on August 1, 2012, and September 14, 2012, respectively, or earlier upon our bankruptcy, an assignment for the benefit of creditors or an involuntary bankruptcy not resolved in 10 days.
 
The issuances to MBTA were made in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act.
 
On May 10, 2012, the Company issued 250,000 shares of its common stock to The 1999 Family Trust, a Pennsylvania limited liability company (the “Trust”), concurrent with a loan of $50,000 made by the Trust to the Company. The loan was made pursuant to a promissory note, is due November 10, 2012 and bears interest at 5% per annum. At any time after 30 days from issuance, the holder can convert the note, in whole or in part, into shares of common stock at $0.05 per share. The issuances were made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.
 
Effective as of July 31, 2012, the Company issued 1,000,000 shares of its common stock to Corporate Debt Consultants, LLC, a New York limited liability company concurrent with a loan made by Corporate Debt Consultants to the Company. The issuance was made in reliance upon an exemption from registration provided under Section 4(2) of the Securities Act of 1933, as amended.
 
As of November 29, 2012, we issued 500,000 shares of common stock to MBTA in connection with its extension of our loan to May 1, 2013.
 
As of December 31, 2012 we issued 200,000 shares of common stock to UST in connection with the extension of the letter of intent through April 30, 2013.
 
As of January 15, 2013, we issued 150,000 shares of common stock to the Trust in connection with its extension of our loan to May 1, 2013.
 
Purchases of Equity Securities by the Small Business Issuer and Affiliated Purchasers
 
We have not repurchased any shares of our common stock during the fiscal year ended December 31, 2012.
 
Item 6. Selected Financial Data.
 
Smaller reporting companies are not required to provide the information required by this Item 6.
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion of our plan of operation and financial condition is based upon, and should be read in conjunction with, our financial statements and accompanying notes thereto included elsewhere in this annual report.
 
 
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Certain statements contained in this annual report, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to our future operating performance and the products we plan to offer and other statements contained herein regarding matters that are not historical facts, are "forward-looking" statements. Future filings with the Securities and Exchange Commission, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may contain forward-looking statements, because such statements include risks and uncertainties, and actual results may differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.
 
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.
 
UST
 
On January 12, 2011, we entered into a letter of intent with UST pursuant to which we were granted a right of first refusal until May 15, 2012 to enter into a definitive license agreement 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. The license is intended to specifically cover E. coli bacteria when used as a probiotic and to exclude use as a system for delivering vaccine materials to the gastrointestinal tract. Such agreement will expire on the later of (i) 20 years or (ii) the last to expire patent included in the licensed intellectual property. UST agreed to extend their obligation not to negotiate with, or entertain or consider offers from, any third party with respect to the same terms of the letter of intent until April 30, 2013.
 
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. The process is proprietary and includes the use of stabilizing materials, including sugars, that prevent the formation of damaging ice crystals during a vacuum drying process. We currently plan to exercise our right to license the UST preservation technology provided that we have the necessary financing to do so and the technology performs as expected during our evaluation period. Testing results obtained to date confirm the value of the technology for extending the shelf-life of our E. coli M17 probiotic in a dry form. Based on these results, we believe that the technology will enable us to produce a shelf-stable, dry dosage form of E. coli M17 for clinical testing purposes. We plan to undertake this work as soon as the technology license agreement is executed.
 
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 biologics license application (“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 that 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.
 
 
18

 
 
On or about May 15, 2011, we entered into a one-year non-binding development agreement for UST to conduct suitability studies and protocols to produce data demonstrating the suitability of its stabilization technology to produce a thermostable, commercially viable formulation of an E. coli probiotic satisfying their specifications. We have made monthly payments of CA$8,333 (which amount may be increased depending on the scope of the work) to UST pursuant to the agreement. We will recommence making such monthly payments on May 1, 2013. In lieu of cash payments for the first four months of 2013, we issued UST 200,000 shares of common stock. Our right to enter into a definitive license agreement with UST will terminate if we fail to make such monthly payments. The development program has proceeded according to plan, and as stated earlier, the UST preservation technology has extended the shelf-life of our E. coli M17 probiotic in a dry form. While the technology has performed to our expectations, 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.
 
BioBalance
 
On September 6, 2011, we completed our acquisition of all of the shares of BioBalance and its wholly owned subsidiary BioBalance LLC, from NYHC, the sole owner of BioBalance, pursuant to the Stock Purchase Agreement entered into on June 20, 2011. In connection with the completion of the acquisition and in consideration for the shares acquired, we paid NYHC $300,000 in cash at closing and issued to NYHC (i) 393,391 shares of common stock and (ii) a three-year promissory note in the original principal amount of $100,000. 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. If there is an event of default under the note, interest will accrue at 10%. We have the right to prepay the note, in whole or in part, at any time without premium or penalty. In connection with the acquisition, we assumed $25,000 of certain liabilities of BioBalance and BioBalance LLC.
 
This acquisition provides us with the intellectual property to develop and test biotherapeutic agents for the treatment of various gastrointestinal disorders.
 
Plan of Operation
 
Over the next twelve months, we intend to focus on obtaining the necessary financing to move E. coli M17 forward in development, including finalizing the licensing arrangement with UST, making the necessary changes in our manufacturing plan, finalizing our contract with a manufacturer, making clinical trial product, and beginning first clinical studies permitted under the IND. As reviewed above, the UST technology has performed as expected in our development program. Assuming that we are able to execute our license, we will promptly thereafter begin technology transfer for purposes of integrating the UST process into our manufacturing program and producing the dosage formulation that will be used in our clinical trial program. We also hope to recruit additional management or expert consultants to assist in our further development of E. coli M17. We also intend to utilize expert consultants for identifying additional probiotic products and intellectual property for in-licensing and further development, evaluating and expanding the intellectual property coverage for those products, and establishing the clinical and regulatory development program for these. first in-licensed product. We are not currently negotiating for or considering the acquisition of additional technology.
 
Results of Operations for the years ended December 31, 2012 and 2011
 
As of December 31, 2012, we had no cash as compared to having $17,975 in cash for the year ended December 31, 2011. Accordingly, we do not have sufficient to effectuate our development plans over the next twelve months. We will need to seek additional capital for the purpose of financing our development and marketing efforts.
 
Revenues
 
We did not generate any revenues during the years ended December 31, 2012 and 2011 and for the period from September 2, 2009 (inception) through December 31, 2012.
 
Total operating expenses
 
For the year ended December 31, 2012, totaling operating expenses were $698,906, which includes impairment expense of $481,353, research and development expense of $112,480, professional fees of $45,549, consulting fees of $27,000, and amortization expense of $5,972. For the year ended December 31, 2011, total operating expenses were $195,029, which include $47,528 for professional fees, $12,000 for consulting fees, $91,344 for research and development, $6,000 for compensation expense, $37,371 for general and administrative expenses and $786 for amortization expense. The increase was due primarily to the impairment of goodwill. The increase in total operating expenses of $698,906represents an increase of $503,877, or approximately 258%, from the total operating expenses of $195,029 for the year ended December 31, 2011. During the period from September 2, 2009 (inception) to December 31, 2011, total operating expenses were $974,350.
 
 
19

 

Net loss
 
During the year ended December 31, 2012 and the period from September 2, 2009 (Inception) to December 31, 2012, we had a net loss of $932,953 and $1,236,676, respectively. During the year ended December 31, 2011, we had a net loss of $223,013.
 
Liquidity and Capital Resources
 
As of December 31, 2012, we had no cash. We currently have no agreements, arrangements or understandings to obtain funds through bank loans, lines of credit or any other sources. We estimate we will require approximately $1,000,000 to adequately fund operations and execute our business plan in the next twelve months. We do not believe that such funds will be sufficient to fund our expenses over the next twelve months when we plan to initiate clinical testing. Since we have no other such arrangements or plans currently in effect, our inability to raise funds for the above purposes will have a severe negative impact on our ability to remain a viable company.
 
Going Concern Consideration
 
As reflected in the accompanying audited condensed financial statements, we are in the development stage with no operations, a net loss of $1,236,676 from inception and used cash in operations from inception of $974,350. This raises substantial doubt about our ability to continue as a going concern. 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.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Critical Accounting Policies and Recently Issued Accounting Standards
 
Our consolidated financial statements are based on the selection and application of accounting principles (“GAAP”), which require us to make estimates and assumptions that affect the amounts reported in both our consolidated financial statements and the accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from these estimates and any such differences may be material to the financial statements. Our significant accounting policies are described in Note 1 to our Consolidated Financial Statements and are included in Item 8 of Part II of this Annual Report. If different assumptions were made or different conditions existed, our financial results could have been materially different.
 
See “Note 1 - Organization and Summary of Significant Accounting Policies to our financial statements included in Item 8 of Part II of this Annual Report for information regarding recently recent accounting pronouncements.
 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Smaller reporting companies are not required to provide the information required by this item.
 
 
20

 
 
Item 8. Financial Statements.
 
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
 
Stockholders of Enterologics, Inc.
 
We have audited the accompanying consolidated balance sheets of Enterologics, Inc. (a development stage Company) (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, consolidated stockholders’ deficit, and consolidated cash flows for each of the years in the two-year period ended December 31, 2012, and for the period since September 2, 2009 (inception) through December 31, 2012. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Enterologics, Inc. (a development stage Company) as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012 and for the period since September 2, 2009 (inception) through December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has been in the development stage since its inception and continues to incur significant losses.  The Company’s viability is dependent upon its ability to obtain future financing and the success of its future operations. These factors raise substantial doubt as to the Company’s ability to continue as a going concern.  Management’s plan in regard to these matters is also described in Note 8. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
/s/ Lake & Associates, CPA’s LLC
Lake & Associates, CPA’s LLC
Schaumburg, Illinois
March 29, 2013
 
 
 
 
1905 Wright Boulevard 
Schaumburg, IL 60193
Phone: 847.524.0800
Fax: 847.524.1655
 
F-1

 

 ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
             
CURRENT ASSETS
           
             
Cash
  $ -     $ 17,975  
Investment in Bio Balance
               
Prepaid expenses
    -       -  
                 
TOTAL CURRENT ASSETS
    -       17,975  
Patent, (net of Accumulated Amortization of $17,615 and $12,691 respectively)
    88,720       93,644  
Website Costs, (net of Accumulated Amortization of $1,834 and $786 respectively)
    1,311       2,359  
                 
OTHER ASSETS
               
                 
Goodwill
            481,353  
                 
TOTAL ASSETS
  $ 90,031     $ 595,331  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)
                 
CURRENT LIABILITIES
               
Accounts payable
  $ 33,514     $ 28,805  
Accounts payable - related party
    1,090       1,101  
Accrued Interest
    15,913       2,958  
Accrued Expense
    10,500          
Notes payable
    250,000          
Notes payable - related party
    65,333       133,333  
Total Current Liabilities
    376,350       166,197  
                 
LONG TERM LIABILITIES
               
Notes payable
    66,667       16,667  
                 
TOTAL LIABILITIES
    443,017       182,864  
                 
                 
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 35,413,391 shares issued and outstanding, respectively
  $ 3,716     $ 3,541  
Additional paid in capital
    879,974       662,649  
Accumulated deficit - during developmental stage
    (1,236,676 )     (303,723 )
Total Stockholders’ Equity / (Deficiency)
    (352,986 )     362,467  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY / (DEFICIENCY)
  $ 90,031     $ 545,331  

 
 
F-2

 
 
ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
For the Twelve Months Ended
   
For the Twelve Months Ended
   
For the Period September 2, 2009 Inception to
 
   
December 31 2012
   
December 31 2011
   
December 31 2012
 
                   
                   
OPERATING EXPENSES
                 
Professional fees
  $ 45,549     $ 47,528     $ 136,165  
Consulting fees
    27,000       12,000       39,000  
Research and Development
    112,480       91,344       203,824  
Compensation expense
    -       6,000       18,000  
General and administrative
    26,552       37,372       89,250  
Impairment Expense
    481,353               481,353  
Amortization Expense
    5,972       786       6,758  
  Total Operating Expenses
    698,906       195,029       974,350  
                         
LOSS BEFORE PROVISION FOR INCOME TAXES
    (698,906 )     (195,029 )     (974,350 )
                         
OTHER INCOME / (EXPENSES)
                       
Interest income
    -       -       5  
Loan amortization expense- related party
    (217,500 )     (25,000 )     (242,500 )
Interest expense
    (16,547 )     (2,984 )     (19,831 )
Total Other Income (Expenses)     (234,047 )     (27,984 )     (262,326 )
                         
NET (LOSS) BEFORE PROVISION FOR INCOME TAXES     (932,953 )     (223,013 )     (1,236,676 )
                         
Provision for Income Taxes
    -       -          
                         
NET LOSS
  $ (932,953 )   $ (223,013 )   $ (1,236,676 )
                         
Net loss per share - basic and diluted
    (0.03 )     (0.01 )        
                         
Weighted average number of shares outstanding during the period - basic and diluted
    36,248,323       33,166,649          
 
 
F-3

 


ENTEROLOGICS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
For the Twelve Months Ended
   
For the Twelve Months Ended
   
For the Period Septemeber 2, 2009 (Inception) to
 
   
December 31 2012
   
December 31 2011
   
December 31 2012
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
Net loss
    (932,953 )     (223,013 )     (1,236,676 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Impairment Loss
    481,353               481,353  
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
    5,972       786       6,758  
Changes in operating assets and liabilities:
                       
   (Increase) in prepaid expenses
            800       -  
Increase/ (decrease) in accounts payable
    4,709       (7,421 )     6,395  
Increase / (decrease) is accounts payable - related party
    (11 )     1,101       3,213  
Increase/ (decrease) in Accrued Expenses
    23,455       2,809       26,412  
Net Cash Used In Operating Activities
    (199,975 )     (193,938 )     (451,985 )
                         
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
    83,500       130,000       229,000  
Repayments to notes payable-related party
    (151,500 )     (42,000 )     (197,000 )
Proceeds from notes payable-third party
    252,500               252,500  
Repayments to notes payable-third party
    (2,500 )             (2,500 )
                      -  
Net Cash Provided By Financing Activities
    182,000       513,000       755,130  
                         
NET INCREASE (DECREASE ) IN CASH
    (17,975 )     16,917       -  
                         
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    17,975       1,058       -  
                         
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ -       17,975       -  
                         
Cash paid for interest expense
  $ 16,547       2,984          
Cash paid for Income Taxes
    -       -       -  
                         
Supplemental disclosure of non cash investing & financing activities:
                       
                         
Issuance of common stock for loan commitment fees
  $ 217,500       25,000       242,500  
                         
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  
 
 
F-4

 
 
ENTEROLOGICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY / (DEFICIENCY)
FOR THE PERIOD FROM SEPTEMBER 2, 2009 (INCEPTION) TO DECEMBER 31, 2012
 
   
Preferred Stock
   
Common Stock
     
Additional
Paid-In
   
Subscription
   
Accumulated
Deficit - Development
   
Total
Stockholders' Equity /
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Receivable
    Stage     (Deficiency)  
                                                                 
BALANCE, September 2, 2009 (Inception)
    -     $ -       -     $ -     $ -     $ -     $ -     $ -  
                                                                 
Sale of common stock -Founders $.001 per share
    -       -       10,300,000       1,030       -       -       -       1,030  
                                                                 
Sale of common stock - private placement $.003 per share
    -       -       15,700,000       1,570       45,530       (20 )     -       47,080  
                                                                 
Net loss, for the period September 2, 2009 (Inception) to December 31, 2009
    -       -       -       -       -       -       (8,099 )     (8,099 )
                                                                 
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 Twelve months 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 Twelve months ended December 31, 2012
    -       -       -       -       -       -       (932,953 )     (932,953 )
                                                                 
BALANCE, DECEMBER 31 2012
    -     $ -       37,163,391     $ 3,716       879,974       -       (1,236,676 )     (352,986 )
 
 
F-5

 
 
ENTEROLOGICS, INC
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED NOTES TO  FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

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 December 31, 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 December 31, 2012 and 2011, the Company incurred $3,145 respectively, in website development costs. As of December 31, 2012 and 2011, amortization of $1,572 and $786 respectively has been taken.
 
(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 December 31, 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.
 
 
F-6

 
 
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 December 31, 2012 and 2011, there were 37,163,391 and 35,413,391 shares issued and outstanding, respectively.
 
(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 $112,480 and $91,344 for the twelve months ended December 31, 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.
 
(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.
 
 
F-7

 
 
(L) Impairment of Goodwill and Intangible Assets
 
We evaluate goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of the goodwill may not be fully recoverable. We evaluate goodwill for impairment at the reporting unit level and have allocated goodwill to the reporting unit based on an estimate of its relative fair value. The evaluation is a two-step approach requiring us to compute the fair value of a reporting unit and compare it with its carrying value. If the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed to measure the potential goodwill impairment. Significant judgment is involved in estimating cash flows and fair value. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected operating performance, recent market transactions and current industry trading multiples. See Note 12 for further information regarding goodwill and related impairment charges recorded during 2012 and 2011.
 
Other intangible assets are tested for impairment at least annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value may not be fully recoverable. We estimate the fair value of our Patent and Website using the best information available, using both a market approach, as well as a discounted cash flow model, commonly referred to as the income approach. If the estimated fair value is less than the carrying value, the intangible asset is written down to its estimated fair value. Significant judgment is involved in estimating fair value and long-term revenue forecasts. Management’s estimates, which fall under Level 3 of the U.S. GAAP fair value hierarchy as defined by FASB ASC Topic 820-10-35, are based on historical and projected revenue performance and industry trends. As of December 31, 2012, the estimated fair value of our other intangible assets exceeded their carrying values.
 
(M) Income Taxes
 
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
 
   
2012
   
2011
 
               
Expected income tax recovery (expense) at the statutory rate of 38.6%
 
$
(174,318)
   
$
(84,052
)
Tax effect of expenses that are not deductible for income tax purposes
             
(net of other amounts deductible for tax purposes)
   
14
     
2,365
 
Change in valuation allowance
   
174,304
     
81,688
 
               
Provision for income taxes
 
$
-
   
$
-
 
 
The components of deferred income taxes are as follows:
               
     
2012
     
2011
 
               
Deferred income tax asset:
             
Net operating loss carry forwards
 
$
255,992
   
$
109,715
 
Valuation allowance
   
(255,992)
     
(109,715
)
Deferred income taxes
 
$
-
   
$
-
 

As of December 31, 2012, the Company has a net operating loss carry forward of $663,191 available to offset future taxable income through 2030.  This results in deferred tax assets of $255,992 as of December 31, 2012. The valuation allowance at December 31, 2011 was $109,715. The change in the valuation allowance for the year ended December 31, 2012 was an increase of $146,227.
 
 
F-8

 
 
(N) 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.
 
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 years ended December 31, 2012 and 2011.  All of the Company’s intangible assets are valued using the level 3 inputs as of December 31, 2012. 
 
(O) Recent Accounting Pronouncements
 
In July 2012 the FASB issued ASU No. 2012-02, Intangibles - Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment, which simplifies how entities test indefinite-lived intangible assets for impairment. ASU 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test currently required by ASC Topic 350-30 on general intangibles other than goodwill. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, provided that the entity has not yet issued its financial statements. The Company does not anticipate any material impact from the adoption of ASU 2012-02.
 
In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010 in ASU No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
 
 
F-9

 
 
In October 2012, FASB issued ASU 2012-04, Technical Corrections and Improvements in ASU No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
 
Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material to the Company.
 
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 $5,069 and $347 of interest expense was recognized for the years ended December 31, 2012 and 2011, respectively. 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, 2012
   
Enterologics Corp and subsidiary year ended December 31, 2011
 
                 
Gross revenue
    -     $ -  
Total expenses
    (451,600 )     (234,542 )
Net income (loss) before taxes
    (451,600 )   $ (243,542 )
Earnings (loss) per share
    (0.01 )   $ (0.01 )

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).
 
 
F-10

 
 
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. On October 15, 2012 the loan and accrued interest of $3,192 were repaid. (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).
 
 
F-11

 
 
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).
 
On November 20, 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%. As of December 31, 2012 the loan accrued interest of $87. (See note 5).
 
On November 29, 2012 a related party loaned $7,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $33. (See note 5).
 
On December 7, 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $24. (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 twelve months ended December 31, 2012, the Company sold a total of 1,750,000 shares of common stock to 3 entities for cash of $217,500 ($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 $5,069 of interest expense was recognized for the twelvemonths ended December 31, 2012.
 
 
F-12

 
 
(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.
 
On January 11, 2012 the Company issued 500,000 shares of common stock valued at ($.19 per share) the most recent cash offering price, as a loan commitment fee. The commitment ends on October 1, 2012. The Company is amortizing the value over the term of the commitment.
 
On May 10, 2012 the Company issued 250,000 shares of common stock valued at ($.05 per share) the most recent cash offering price, as a loan commitment fee. The commitment ends on November 10, 2012. The Company is amortizing the value over the term of the commitment.
 
On July 31 , 2012 the Company issued 1,000,000 shares of common stock valued at ($.11 per share) the most recent cash offering price, as a loan commitment fee. The commitment ends on the six months anniversary or earlier from the proceeds of a capital raise. The Company is amortizing the value over the term of the commitment
 
(D) Imputed Compensation
 
During the twelve months ended December 31, 2012 and 2011, an individual contributed services to the Company at a fair value of $0 and $6,000 respectively.
 
(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.
 
 
F-13

 
 
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. On October 15, 2012 the loan and accrued interest of $3,192 were repaid.
 
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.
 
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.
 
On November 20, 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%. As of December 31, 2012 the loan accrued interest of $87. (See note 5).
 
 
F-14

 
 
On November 29, 2012 a related party loaned $7,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $33. (See note 5).
 
On December 7, 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $24. (See note 5).
 
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. As of December 31, 2012 the period for the Company to enter into a License agreement was extended to April 30, 2013. No payments will be made for months of January to April 2013. In lieu of payments for these months the company has agreed to issue 200,000 shares of its common stock par value $0.001 in favor of Universal Stabilization Technologies, Inc.
 
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 twelve months ended December 31, 2012 the company made payments to UST totaling $103,543 US Dollars.
.
 
F-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 .The company did not borrow additional funds from the lender under the agreement and the commitment to fund additional loans expired on November 30, 2012.
 
On October 5, 2012 an unrelated party loaned $2,500 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 3%.The note was repaid with interest on October 11, 2012.
 
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 $1,236,676 from inception, used cash in operations from inception of $451,985. 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 GOODWILL AND INTANGIBLE ASSETS
 
In accordance with accounting standards for goodwill and other intangible assets, goodwill is not amortized but requires testing for potential impairment, at a minimum on an annual basis, or when indications of potential impairment exist. The impairment test for goodwill utilizes a fair value approach. The impairment test for identifiable intangible assets not subject to amortization is also performed annually or when impairment indications exist, and consist of a comparison of the fair value of the intangible asset with its carrying amount. Identifiable intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate other long-lived assets. Our annual impairment analysis is performed at the last day of our accounting period each year.
 
 
F-16

 
 
We perform our annual goodwill and intangible impairment test required under accounting standards at the last day of our accounting period each year, or when an indication of potential impairment exists. The goodwill impairment test involves a two-step process as described in the “Summary of Significant Accounting Policies” in Note 1. The first step is a comparison of each reporting unit's fair value to its carrying value. If the carrying value of the reporting unit is higher than its fair value, there is an indication that impairment may exist and the second step must be performed to measure the amount of impairment loss.
 
After performing the first step of the process, we determined goodwill recorded in 2012 were potentially impaired. The company has not had any revenue generated from related goodwill. After performing the second step of the process, we determined that the total amount of goodwill recorded at these reporting units was impaired and recorded charges of $481,353 and $0 in 2012 and 2011, respectively.
 
A significant amount of judgment is involved in determining if an indicator of impairment has occurred at a date other than the annual impairment test date. Such indicators may include, among others: a significant decline in our stock price and market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a reporting unit; and slower growth rates.
 
NOTE 10 SUBSEQUENT EVENTS
 
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.
 
As of December 31, 2012 the period for the Company to enter into a License agreement was extended to April 30, 2013. No payments will be made for months of January to April 2013. On January 30, 2013 in lieu of payments for these months the company issued 200,000 shares of its common stock par value $0.001 in favor of Universal Stabilization Technologies, Inc.
 
On January 11, 2012, the Company entered into a letter agreement to loan the company for $100,000. The first 5% promissory note for $50,000 was issued on January 16, 2012. The second 5% promissory note for $25,000 was issued on February 1, 2012. The third and final 5% promissory note for $25,000 was issued on March 14, 2012.The principal and accrued interest under the notes are due and payable on May 1, 2013. In consideration of the loan, On February 1, 2013 the Company issued the lender 500,000 shares of common stock with a fair value of $6,000 ($.012 per share) based on the most recent cash offering price
 
On January 11, 2012, the Company entered into a letter agreement to loan the company for $50,000. The 5% promissory note for $50,000 was issued May 10, 2012. In consideration of the loan, On January 15, 2013 the Company issued the lender 150,000 shares of common stock with a fair value of $3,000 ($.02 per share) based on the most recent cash offering price
 
 
F-17

 
 
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A. Controls and Procedures
 
Evaluation of Disclosure Controls
 
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2011. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
Management’s Report On Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control of financial reporting is designed to provide reasonable assurance to our management and our board of directors regarding the preparation and fair presentation of published financial statements in accordance with GAAP, including those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and our directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use, or disposition of our assets that could have a material effect on the financial statements.
 
Our management conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2012 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment and COSO criteria, our management concluded that our internal control over financial reporting was effective as of December 31, 2012.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
 
21

 
 
There were no changes in our internal controls over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permits us to provide only management’s report in this annual report.
 
The Company’s management, including the Principal Executive Officer and Principal Financial Officer, do not expect that its disclosure controls or internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.
 
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management’s override of the control. The design of any systems of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Individual persons perform multiple tasks which normally would be allocated to separate persons and therefore extra diligence must be exercised during the period these tasks are combined. Management is aware of the risks associated with the lack of segregation of duties at the Company due to the small number of employees currently dealing with general administrative and financial matters. Although management will periodically reevaluate this situation, at this point it considers the risks associated with such lack of segregation of duties and that the potential benefits of adding employees to segregate such duties do not justify the substantial expense associated with such increases. It is also recognized the Company has not designated an audit committee and no member of the board of directors has been designated or qualifies as a financial expert. The Company may consider taking steps to address these concerns.

Item 9B. Other Information.
 
None.
 
 
22

 
 
PART III

Item 10.   Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Set forth below are the names, ages and present principal occupations or employment, and material occupations, positions, offices or employments for the past five years of our current directors and executive officers.

Name and Business Address
 
Age
 
Position
         
Robert Hoerr, M.D., PhD.
 
63
 
President and Director
Lawrence Levitan, M.D.
 
56
 
Treasurer and Director
William Welwart
 
58
 
Vice President and Director
Lisa Grossman
 
50
 
Secretary
 
Robert Hoerr, M.D., PhD. has been our President and a director of our company since its inception on September 2, 2009. From October 2004 through October 2009, Dr. Hoerr was the Chairman of the Board and Chief Executive Officer and a director of Nanocopoeia, Inc., a development stage company, which he co-founded, which is involved in the development of pharmaceutical products. He continues as a director and as Chief Scientific Officer provides research and development guidance to Nanocopoeia. From October 2004 to the present, Dr. Hoerr has been the president and owner of Nutramentals, Inc., a medical and regulatory consulting firm. Dr. Hoerr’s experience and skill in the pharmaceutical industry, with strategic planning for development stage companies as well as his qualification as a director of another company, led to the conclusion of our board that Dr. Hoerr should serve as a director of our company.
 
Lawrence Levitan, M.D. has been our Treasurer and a director of our company since its inception on September 2, 2009. Dr. Levitan has been a physician with Beth Israel Medical Center since January 1999. Dr. Levitan’s medical background facilitates his ability to contribute to medical and technical issues that are addressed by our board and led to the conclusion of our board that Dr. Levitan should serve as a director of our company.
 
William Welwart has been a Vice President and a director of our company since its inception on September 2, 2009. Since April 2007, Mr. Welwart has been a pharmaceutical consultant to the pharmaceutical industry. From February 2000 through April 2007 he was the director of operations of 15W Pharmacy Edison Inc. Mr. Welwart’s experience and skill in the pharmaceutical industry, both as a consultant and director of operations of another company, led to the conclusion of our board that Mr. Welwart should serve as a director of our company.

Lisa Grossman has been our Secretary since our inception on September 2, 2009. Ms. Grossman has been the Vice President of The Meister Group, a private financial consulting firm since July 2004.

There are no familial relationships among any of our officers or directors. None of our directors or officers is a director in any other reporting companies. None of our directors or officers has been affiliated with any company that has filed for bankruptcy within the last ten years. We are not aware of any proceedings to which any of our officers or directors, or any associate of any such officer or director, is a party adverse to us or any of our or has a material interest adverse to us or any of our subsidiaries.

 
23

 
 
Each director of the Company serves for a term of one year or until such director’s successor is duly elected and is qualified. Each officer serves, at the pleasure of the board of directors, for a term of one year and until such officer’s successor is duly elected and is qualified.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires officers and directors of the Company and persons who own more than 10% of a registered class of the Company's equity securities to file reports of ownership and changes in their ownership with the Securities and Exchange Commission, and forward copies of such filings to the Company. Based solely on our review of copies of such reports and representations from our executive officers and directors, we believe that our executive officers and directors complied with all Section 16(a) filing requirements during the fiscal year ended December 31, 2012.

Code of Ethics 

We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers. We do not have a “financial expert” on the board or an audit committee or nominating committee.
 
Potential Conflicts of Interest
 
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our directors. The Board of Directors has not established an audit committee and does not have an audit committee financial expert, nor has the Board established a nominating committee. The Board is of the opinion that such committees are not necessary since the Company has only three directors, and to date, such directors have been performing the functions of such committees. Thus, there is a potential conflict of interest in that our directors and officers have the authority to determine issues concerning management compensation, nominations, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executive officers or directors.
 
Involvement in Certain Legal Proceedings

There are no legal proceedings that have occurred within the past ten years concerning our directors, or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one's participation in the securities or banking industries, or a finding of securities or commodities law violations.

 
24

 

Item 11.   Executive Compensation.

Summary Compensation

Since our incorporation on September 2, 2009, we have not paid any compensation to our directors or officers in consideration for their services rendered to our Company in their capacity as such. We have no pension, health, annuity, bonus, insurance, stock options, profit sharing or similar benefit plans.
 
SUMMARY COMPENSATION TABLE

Name and principal position
(a)
 
Year
(b)
 
Salary ($)
(c)
   
Bonus ($)
(d)
   
Stock Awards ($)
(e)
   
Option Awards ($)
(f)
   
Non-Equity Incentive Plan Compensation ($)
(g)
   
Nonqualified Deferred Compensation Earnings ($)
(h)
   
All Other Compensation ($)
(i)
   
Total ($)
(j)
 
                                                     
Robert Hoerr, M.D., PhD
(President)
 
2012
    0       0       0       0       0       0       0       0  
   
2011
    0       0       0       0       0       0       0       0  
Lawrence Levitan, M.D
(Treasurer)
 
2012
    0       0       0       0       0       0       0       0  
 
 
2011
    0       0       0       0       0       0       0       0  
William Welwart
(Vice President)
 
2012
    0       0       0       0       0       0       0       0  
 
 
2011
    0       0       0       0       0       0       0       0  
Lisa Grossman
(Secretary)
 
2012
    0       0       0       0       0       0       0       0  
 
 
2011
    0       0       0       0       0       0       0       0  

We have no employment agreements with any of our directors or executive officers.

Long-Term Incentive Plans. As of December 31, 2012, we had no group life, health, hospitalization, or medical reimbursement or relocation plans in effect. Further, we had no pension plans or plans or agreements which provide compensation in the event of termination of employment or corporate change in control.

Outstanding Equity Awards at Fiscal Year-End.

Since our incorporation on September 2, 2009, no stock options or stock appreciation rights were granted to any of our directors or executive officers. We have no long-term equity incentive plans.

Compensation of Directors

Since our incorporation on September 2, 2009, no compensation has been paid to any of our directors in consideration for their services rendered in their capacity as directors.

 
25

 
 
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table lists, as of March 27, 2013, the number of shares of our common stock that are beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our common stock; (ii) each executive officer and director of our company; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of Common Stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.
 
The percentages below are calculated based on 37,163,391 shares of our common stock issued and outstanding as of March 27, 2013. Unless otherwise indicated, the address of each person listed is c/o Enterologics, Inc., 1264 University Avenue West, Suite 404, St. Paul, Minnesota 55104.
 
Name of Beneficial Owner
 
Amount and Nature of Beneficial Ownership
   
Percent of Class
 
             
Uri Dreifus
    2,088,500       5.62 %
Zachary Grossman
    2,500,000       6.73 %
Gabriel Solomon
    2,500,000       6.73 %
Robert Hoerr, M.D., PhD.
    1,500,000       4.04 %
Lawrence Levitan, M.D
    500,000    
Less than 1
%
William Welwart
    500,000    
Less than 1
%
Lisa Grossman
    6,240,000       16.79 %
Directors and officers, as a group (4 persons)
    15,828,500       42.59 %

There are no family relationships among our officers and directors. Zachary Grossman is the adult son of Lisa Grossman.

Item 13.   Certain Relationships and Related Transactions, and Director Independence.

Since January 1, 2010, we have engaged in the following transactions with our directors, executive officers, holders of more than five percent of our voting securities, and affiliates of our directors, executive officers and 5% shareholders.

On August 17, 2010, The Meister Group loaned us $5,000 for operating expenses. The loan was unsecured, accrued interest at the rate of 5%, and had a maturity of November 15, 2010 which was extended to February 1, 2011. The loan was repaid in full with accrued interest on January 10, 2011. Lisa Grossman, our Secretary is the vice president of The Meister Group.
 
On October 22, 2010, The Meister Group loaned us $5,000 for operating expenses. The loan was unsecured, accrued interest at the rate of 5% and matured on January 15, 2011. The loan was repaid in full with accrued interest on January 10, 2011. Lisa Grossman, our Secretary is the vice president of The Meister Group.

On November 24, 2010, The Meister Group loaned us $2,000 for operating expenses. The loan was unsecured, accrued interest at the rate of 5% and matured on March 23, 2011. The loan was repaid in full with accrued interest on January 10, 2011. Lisa Grossman, our Secretary is the vice president of The Meister Group.

Our executive offices consist of approximately 200 square feet of office space provided to us by our President, Dr. Hoerr. We currently do not pay rent for such space.

 
26

 
 
On January 7, 2011, we entered into a loan agreement with Surge for a series of loans up to an aggregate of $50,000 and borrowed an initial $20,000 and issued a 5% promissory note to Surge. The principal and accrued interest under the note is due and payable on the earlier of September 7, 2011 or the date we receive proceeds from the sale of our securities in a private offering or through an effective registration statement. In consideration of the loan commitment, on January 17, 2011, we issued Surge 500,000 shares of our common stock. Irv Bader, the father of Lisa Grossman, our Secretary, is President of Surge. On February 9, 2011 we borrowed an additional $10,000 from Surge and executed a substantially identical promissory note, except that the note matures on October 9, 2011. On March 21, 2011 we executed an amendment with Surge which provides that the notes only need to be repaid earlier than the maturity date, if and when the proceeds received by us are in excess of $350,000. We repaid these loans in full with accrued interest on April 11, 2011.

On September 14, 2011, BFSF LLC, loaned us $50,000 for operating expenses. The loan was evidenced by an unsecured demand promissory note which bears interest at the rate of 6% per annum, and may be demanded to be repaid on or after October 31, 2011. As of April 9, 2011, no demand has been made to have the loan repaid. Lisa Grossman, our Secretary and a significant shareholder, is a co-manager of BFSF LLC.

On each of December 2, 2011 and December 19, 2011, BSF II LLC loaned us $25,000 for operating expenses. The loan was evidenced by unsecured demand promissory notes which bear interest at the rate of 5% per annum. These loans were repaid in full with accrued interest on January 18, 2012. Lisa Grossman, our Secretary and a significant shareholder, is a co-manager of BSF II LLC, together with her husband Yitz Grossman.

In connection with our acquisition of BioBalance on September 6, 2011, NYHC was required to be the sole owner of BioBalance. Accordingly, BioBalance purchased from Yitz Grossman his 33 1/3% membership interest in BioBalance LLC pursuant to the Membership Purchase Agreement in consideration for the indemnification of Mr. Grossman for up to $75,000 in legal fees incurred by him, and not otherwise reimbursed, as a result of his prior activities on behalf of NYHC. Mr. Grossman is the husband of Lisa Grossman, our Secretary and significant shareholder.

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.

On November 20, 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%. As of December 31, 2012 the loan accrued interest of $87.

 
27

 
 
On November 29, 2012 a related party loaned $7,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $33.

On December 7, 2012 a related party loaned $10,000 to the Company for operating expenses. The Demand Promissory Note is unsecured, carries an interest rate of 5%. As of December 31, 2012 the loan accrued interest of $24.

Director Independence

We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.”
 
Item 14.   Principal Accounting Fees and Services.

Our principal independent accountant is Lake & Associates, CPA's LLC. Their pre-approved fees billed to the Company are set forth below:

   
Fiscal Year Ended December 31,
2012
   
Fiscal Year Ended December 31,
2011
 
                 
Audit Fees
  $ 15,000     $ 10,500  
Audit Related Fees
  $ 0     $ 0  
Tax Fees
  $ 0     $ 0  
All Other Fees
  $ 0     $ 0  

As of December 31, 2012, the Company did not have a formal documented pre-approval policy for the fees of the principal accountant. The Company does not have an audit committee. The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.

 
28

 
 
PART IV

Item 15.   Exhibits and Financial Statement Schedules.
 
Exhibit   Description
     
3.1
 
Articles of Incorporation (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on February 17, 2010).
     
3.2
 
Amendment to Articles of Incorporation (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on February 17, 2010).
     
3.3
 
By-Laws (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on February 17, 2010).
     
4.1
 
Form of Stock Certificate (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on February 17, 2010).
     
10.1
 
Letter of Intent, dated June 8, 2010 and executed and delivered June 15, 2010, by and among Enterologics, Inc., New York Health Care, Inc., and BioBalance LLC (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on June 16, 2010 )
     
10.2
 
Letter, dated September 1, 2010 from Enterologics, Inc. to New York Health Care, Inc. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on September 2, 2010)
     
10.3
 
Form of Subscription Agreement (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on February 17, 2010).
     
10.4
 
Letter of Intent, entered into on January 12, 2011, with Universal Stabilization Technologies, Inc. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on January 13, 2011)
     
10.5
 
Letter Agreement, dated January 7, 2011, with Surge Partners, Ltd. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on January 18, 2011)
     
10.6
 
5% Promissory Note, dated January 7, 2011 issued to Surge Partners, Ltd. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on January 18, 2011)
     
10.7
 
Waiver, dated January 17, 2011 from Surge Partners, Ltd. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on January 18, 2011)
     
10.8
 
Form of Subscription Agreement (Incorporated by reference to the corresponding exhibit filed with our Registration Statement on Form S-1 filed with the SEC on January 19, 2011).
     
10.9
 
5% Promissory Note, dated February 9, 2011 issued to Surge Partners, Ltd. (Incorporated by reference to the corresponding exhibit filed with our Annual Report on Form 10-K filed with the SEC on March 23, 2011)
     
10.10
 
Amendment dated March 21, 2011 between Enterologics, Inc. and Surge Partners, Ltd. (Incorporated by reference to the corresponding exhibit filed with our Annual Report on Form 10-K filed with the SEC on March 23, 2011)
     
10.11   Stock Purchase Agreement, dated June 20, 2011, between Enterologics, Inc. and New York Health Care, Inc. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on June 22, 2011)
 
 
29

 
 
10.12   Form of Promissory Note (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on June 22, 2011)
     
10.13   Form of Membership Interest Purchase Agreement (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on June 22, 2011)
     
10.14   Promissory Note dated September 6, 2011 in the principal amount of $100,000 issued to BioBalance Corp. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on September 7, 2011)
     
10.15   Membership Interest Purchase Agreement dated September 6, 2011 between Yitz Grossman and BioBalance Corp. (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on September 7, 2011)
     
10.16   Agreement, dated January 11, 2012, between Enterologics, Inc. and MBTA Management, LLC (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on January 31, 2012)
     
10.17   Promissory Note, dated January 16, 2012 in the principal amount of $50,000 issued to MBTA Management, LLC (Incorporated by reference to the corresponding exhibit filed with our Current Report on Form 8-K filed with the SEC on Janaury 31, 2012)
     
10.18   Promissory Note, dated February 1, 2012 in the principal amount of $25,000 issued to MBTA Management, LLC
     
10.19   Promissory Note, dated March 14, 2012 in the principal amount of $25,000 issued to MBTA Management, LLC
     
32.1
 
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
     
32.2
 
Certification of Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley
 
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.
 
 
30

 
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 2013
By:
/s/ Robert Hoerr, M.D., Ph.D.  
  Name: Robert Hoerr, M.D., Ph.D.  
  Title: President (Principal Executive Officer)  
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
Date:
 
Signature:
 
Name:
 
Title:
 
 
 
 
 
 
 
March 29, 2013
 
/s/ Robert Hoerr
 
Robert Hoerr, M.D., Ph.D.
 
President and Director (Principal Executive Officer)
             
March 29, 2013
 
/s/ Lawrence Levitan