UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x | Quarterly Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 |
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| For the quarterly period ended November 30, 2008 |
or
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o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| For the transition period from to |
Commission File Number 000-50480
EN2GO INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Nevada |
| 98-0389557 |
(State or other jurisdiction of |
| (I.R.S. Employer Identification No.) |
incorporation or organization) |
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2921 W Olive Ave, Burbank, California, 91505
(Address of principal executive offices)
(818) 433-7191
(Issuer’s telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESx NOo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YESo NOx
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,955,000 shares of $0.00001 par value common stock issued and outstanding as of January 12, 2009.
EN2GO INTERNATIONAL, INC.
INDEX
Part I. Financial Information | 3 |
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Item 1. Financial Statements |
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Consolidated Balance Sheets as of November 30, 2008 (Unaudited) and August 31, 2008 | 3 |
Consolidated Statements of Operations For the Three Months Ended November 31, 2008 and 2007 (Unaudited) | 4 |
Consolidated Statements of Cash Flows For the Three Months Ended November 30, 2008 and 2007 (Unaudited) | 5 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 18 |
Item 4. Controls and Procedures | 19 |
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Part II. Other Information | 19 |
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Item 1. Legal Proceedings | 19 |
Item 1A. Risk Factors | 19 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 20 |
Item 3. Defaults Upon Senior Securities | 20 |
Item 4. Submission of Matters to a Vote of Security Holders | 20 |
Item 5. Other Information | 20 |
Item 6. Exhibits | 21 |
Signatures | 21 |
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying notes are an integral part of these consolidated financial statements.
3
EN2GO INTERNATIONAL INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Operations
(Unaudited)
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| For the Three Months Ended November 30, |
| Period from inception (January 31, 2007) through November 30, | ||
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| 2008 |
| 2007 |
| 2008 |
REVENUES | $ | — | $ | — | $ | — |
COST OF GOODS SOLD |
| — |
| — |
| — |
GROSS PROFIT |
| — |
| — |
| — |
OPERATING EXPENSES |
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General and administrative expenses |
| 598,899 |
| 307,642 |
| 3,487,703 |
Stock issued for services |
| 72,435 |
| 2,366,186 |
| 5,617,203 |
Total operating expenses |
| 671,334 |
| 2,673,828 |
| 9,104,906 |
LOSS FROM OPERATIONS |
| (671,334) |
| (2,673,828) |
| (9,104,906) |
OTHER INCOME (EXPENSE): |
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Other income |
| 5,599 |
| — |
| 29,770 |
Interest expense |
| (76,400) |
| (3,740) |
| (99,720) |
Total other income (expense) |
| (70,801) |
| (3,740) |
| (69,950) |
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LOSS BEFORE PROVISION FOR INCOME TAXES |
| (742,136) |
| (2,677,568) |
| (9,174,856) |
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Provision for income taxes |
| — |
| — |
| — |
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NET LOSS APPLICABLE TO COMMON STOCKHOLDERS | $ | (742,136) | $ | (2,677,568) | $ | (9,174,856) |
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NET LOSS PER SHARE OF COMMON STOCK—Basic and diluted | $ | (0.01) | $ | (0.05) |
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WEIGHTED AVERAGE SHARES OUTSTANDING—Basic and diluted |
| 53,220,945 |
| 49,800,000 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
EN2GO INTERNATIONAL INC. AND SUBSIDIARY
(a development stage company)
Consolidated Statements of Cash Flows
(Unaudited)
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| For the Three Months Ended November 30, |
| Period from inception (January 31, 2007) through November 30, | ||
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| 2008 |
| 2007 |
| 2008 |
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | $ | (742,136) | $ | (2,677,568) | $ | (9,174,857) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation expense |
| 11,158 |
| 942 |
| 33,310 |
Options, warrants and common stock issued for services rendered |
| 72,435 |
| 2,369,447 |
| 5,617,203 |
Debt financing costs |
| 76,400 |
| - |
| 206,600 |
Changes in operating assets and liabilities: |
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Prepaid expense |
| - |
| (9,500) |
| (20,336) |
Accounts payable |
| 372,906 |
| (4,447) |
| 626,290 |
Accrued expense |
| (90,423) |
| 6,162 |
| 46,503 |
Net cash used in operating activities |
| (299,660) |
| (295,964) |
| (2,803,487) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of property and equipment |
| - |
| (14,314) |
| (133,898) |
Net cash used in investing activities |
| - |
| (14,314) |
| (133,898) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from issuance of notes payable |
| 165,000 |
| - |
| 765,000 |
Repayment of notes payable |
| - |
| - |
| (350,000) |
Proceeds from issuance of common stock, net of offering costs |
| 150,000 |
| - |
| 2,408,599 |
Net cash provided by financing activities |
| 315,000 |
| - |
| 2,961,799 |
NET (DECREASE) INCREASE IN CASH |
| 15,340 |
| (310,278) |
| 24,414 |
CASH Beginning of period |
| 9,074 |
| 556,000 |
| - |
CASH End of period | $ | 24,414 | $ | 245,722 | $ | 24,414 |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid during the period for: |
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Interest | $ | — | $ | — | $ | — |
Income taxes |
| — |
| — |
| — |
The accompanying notes are an integral part of these consolidated financial statements.
Supplemental Schedule of Noncash Investing and Financing Activities:
In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates(collectively “Genovese”) whereby Genovese purchased 1,000,000 shares of our common stock and 1,000,000 warrants with an exercise price of $0.20 for $150,000.
In October 2008, we entered into an agreement with Euro Trend Trader, Inc. (“ETT”) to provide investor relations and public relations. We agreed to pay ETT $5,000 start up fees and $3,000 per month thereafter. Additionally, we paid ETT 200,000 shares of our common stock for coverage of the Company by a registered market maker. Also in October we issued 100,000 shares to NSC Investments Ltd. related to investor relations.
In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25.
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EN2GO INTERNATIONAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(UNAUDITED)
Note 1 – ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements represent the accounts of En2Go International, Inc. (“Parent”), incorporated in the State of Nevada on August 23, 2002 (formerly Medusa Style Corporation) and En2Go, Inc. (“Subsidiary”), incorporated in the State of Nevada on January 31, 2007, collectively (“the Company”).
On July 17, 2007, Parent completed an exchange agreement with Subsidiary wherein Parent issued 27,800,000 shares of its common stock in exchange for all the issued and outstanding common stock of Subsidiary. The Acquisition was accounted for as a recapitalization of Subsidiary in a manner similar to a reverse purchase as the former shareholders of Subsidiary controlled the combined Company after the acquisition. Following the acquisition and the transfer of an additional 10,750,000 shares from the shareholders of parent to the former shareholders of the subsidiary, the former shareholders of subsidiary control approximately 77% of the total outstanding stock of the combined entity. There was no adjustment to the carrying values of the assets or the liabilities of Parent or Subsidiary as a result of the recapitalization.
The operations of Parent are included only from the date of recapitalization. Accordingly, the previous operations and retained deficits of Parent prior to the date of recapitalization have been eliminated. The financial history prior to the recapitalization is that of the subsidiary.
Basis of Presentation and Going Concern Uncertainty
Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, we have sustained losses and as of November 30, 2008, we have no business operations and have a net working capital deficiency and a negative cash flow from operations. These conditions, among others, give rise to substantial doubt about our ability to continue as a going concern. Management is continuing to seek additional equity capital. Until such time, we anticipate our working capital needs will be funded through notes payable. Management believes these steps will provide us with adequate funds to sustain our continued existence. There is, however, no assurance that the steps taken by management will meet all of our needs or that we will continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Development Stage Activities
Since inception we have not conducted any business operations. All of our operating results and cash flows reported in the accompanying consolidated financial statements from January 31, 2007 through November 30, 2008 are considered to be those related to development stage activities and represent the 'cumulative from inception' amounts from our development stage activities required to be reported pursuant to Statements of Financial Accounting Standards (SFAS) No. 7, Development Stage Enterprises.
Note 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of Parent and Parent’s wholly-owned Subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
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Fiscal year end
The Company’s fiscal year end is August 31.
Cash Concentration
We consider all short-term securities purchased with a maturity of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured limits. Management does not believe the Company is exposed to significant credit risk. Management, as well, does not believe the Company is exposed to significant interest rate and foreign currency fluctuation risks during the period presented in these consolidated financial statements. As of November 30, 2008, there are no amounts that exceed the federally insured limits.
Property and Equipment
Property and equipment are stated as cost less accumulated depreciation. Depreciation is provided on a straight line basis over the estimated useful lives of the assets from one to five years. Maintenance and repairs are charged to expense as incurred and major improvements are capitalized. Gains or losses on sales or retirements are recognized in income.
Revenue Recognition
Through the period from inception through November 30, 2008, the Company had not yet generated any revenues. However, the Company plans to recognize its revenue according to the provisions of Staff Accounting Bulletin 104, which takes into account the completion of the transaction, delivery of the product, a final fixed or determinable price, and that collectability is reasonably assured.
Loss per Share
The Company computes loss per share in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share,” which requires the Company to present basic and dilutive loss per share when the effect is dilutive.
Impairment of Long-Lived Assets
The Company has adopted the provisions of SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets to be Disposed of”. SFAS No. 144 established procedures for review of recoverability, and measurement of impairment whenever events of changes in circumstances indicated that the carrying amount of long-lived assets may not be recoverable. SFAS No. 144 also requires that long-lived assets to be disposed of other than by sale shall continue to be classified as held and used until disposal. Further, SFAS No. 144 specifies the criteria for classifying long-lived assets as “held for sale” and requires that long-lived assets to be disposed of by sale be reported at the lower of carrying amount or fair value less estimated selling costs. Management believes that there has not been any impairment of the Company’s long-lived assets at November 30, 2008 and 2007.
Advertising Costs
Advertising costs are charged to operations in the period incurred. During the quarters ended November 30, 2008 and 2007, the Company incurred $1,356 and $-0- in advertising costs, respectively.
Financial Instruments
The fair value of cash, accounts payable and accrued liabilities and notes payable were estimated to approximate their carrying values due to the immediate short-term maturity of these financial instruments. Financial instruments that potentially subject the Company to credit risk consist principally of cash.
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Income Taxes
We account for income taxes in accordance with SFAS 109,Accounting for Income Taxes. Under this standard, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when we cannot make the determination that it is more likely than not that some portion or all of the related tax asset will be realized.
Stock-Based Compensation
In December 2004, the FASB issued SFAS No. 123R, (SFAS 123R),Share-Based Payment, amending SFAS 123 to require companies to record as expense the fair value of equity-based compensation, including stock options and warrants, over the applicable vesting period. SFAS 123R also requires more extensive disclosures concerning stock options than required under previous standards. The new standard applies to option grants made after adoption, as well as options that have not vested at the date of adoption.
Comparative Financial Statements
Certain amounts in the comparative financial statements have been reclassified from financial statements previously presented to conform to the 2008 consolidated financial statements.
Adoption of New Accounting Pronouncement
In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (“FIN 48”).” FIN 48 clarifies the accounting for uncertainties in income taxes recognized in a company’s consolidated financial statements in accordance with Statement 109 and prescribes a recognition threshold and measurement attributable for financial disclosure of tax positions taken or expected to be taken on a tax return. Additionally, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We adopted the provision of FIN 48 as of September 1, 2007. The adoption of FIN 48 did not impact our financial position, results of operations or cash flows for the twelve months ended November 30, 2008. Tax returns for the Company’s fiscal years ended November 30, 2008, and 2007 are subject to examination by the Internal Revenue Service.
Recently Issued Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141(R),Business Combinations(“SFAS 141(R)”), which replaces SFAS No. 141. SFAS 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company plans to implement this standard on September 1, 2009. The Company has not yet evaluated the potential impact of this standard.
In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — An Amendment of Accounting Research Bulletin No. 51(“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company plans to implement this standard on September 1, 2009. The Company is still evaluating the potential impact of this standard.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”, which amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, and expands disclosures to include information about the fair value of derivatives, related credit risks and a company’s strategies and objectives for using derivatives. SFAS No. 161 is effective for fiscal periods beginning on or after November 15, 2008. Based on current conditions, we do not expect the adoption of SFAS 161 to have a significant impact on our results of operations or financial position.
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In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We do not expect the FSP 142-3 to have a significant impact on our results of operations or financial position.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The implementation of this standard will not have a material impact on our financial position and results of operations.
In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-6-1). FSP EITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and diluted earnings per share must be applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of FSP EITF 03-6-1 on our financial position and results of operations.
In June 2008, the FASB ratified EITF Issue No. 07-5, “Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity’s Own Stock” (EITF 07-5). EITF 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of EITF 07-5 on our financial position and results of operations.
In June 2008, the FASB ratified EITF Issue No. 08-3, “Accounting for Lessees for Maintenance Deposits Under Lease Arrangements” (EITF 08-3). EITF 08-3 provides guidance for accounting for nonrefundable maintenance deposits. It also provides revenue recognition accounting guidance for the lessor. EITF 08-3 is effective for fiscal years beginning after December 15, 2008. We are currently assessing the impact of EITF 08-3 on our financial position and results of operations.
Note 3 – PROPERTY AND EQUIPMENT
Property and Equipment consists of the following:
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| November 30, |
| August 31, |
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| 2008 | ||
Computer Equipment | $ | 23,897 | $ | 23,897 |
Other Equipment |
| 110,000 |
| 110,000 |
Total |
| 133,897 |
| 133,897 |
Accumulated Depreciation |
| (33,309) |
| (22,151) |
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Total Property and Equipment (net) | $ | 100,588 | $ | 111,746 |
Depreciation expense was $11,158 and $943 for the quarters ended November 30, 2008 and 2007. In April 2008, we purchased person property from Orangebox Entertainment, Inc. out of receivership for $110,000. The personal property consisted of production equipment, computers and furnishings.
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NOTE 4 – NOTES PAYABLE
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| November 30, |
| August 31, |
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| 2008 | ||
The Company issued a notes payable of $165,000 and $250,000 during the quarter ended November 30, 2008 and August 31, 2008, respectively. | $ | 415,000 | $ | 250,000 |
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Discount on note payable net of amortization |
| (160,000) |
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Total | $ | 255,000 | $ | 250,000 |
Interest expense for the three months ended November 30, 2008 and 2007 and the period from January 31, 2007 (inception) through November 30, 2007 was $76,400, $3,740 and $99,720, respectively.
In August 2008, we entered into a promissory note with NSC Investments Ltd. (“NSC”) for a sum of $250,000. Under this promissory note, interest is to be prepaid at the commencement of each quarter by us issuing 16,000 share of our common stock. The unpaid principal balance of the promissory note is due and payable in full on the sale of any assets of the Company or November 1, 2008. Further consideration for the loan shall consist of 150,000 shares of our common stock at the funding, 50,000 shares of our common stock at the beginning of the next month, and 100,000 shares at the beginning of the next month. This promissory note was extended until February 1, 2009. We agreed to pay 39,000 shares of our common stock as interest and additional issuance of 100,000 shares of our common stock for additional compensation.
On January 15, 2009 we entered into an agreement with Genovese whereby Genovese will advance to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principle amount of $250,000. The Debenture shall be non-interest bearing and will mature on December 5, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agrees to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese shall be issued an additional $250,000 Convertible Debenture. The Debenture shall be non interest bearing and will mature two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”). At the Holder s sole discretion, the Holder may elect to convert the Subsequent Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Subsequent Debenture issued. We would further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years, (2) Genovese would be entitled to two board seats, (3) we would obtain directors and officers insurance, and (4) the parties would work together during December 2008 to address other matters. We offered the convertible notes and warrants in reliance on Section 506 of Regulation D and/or Regulation S of the Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws. As of November 30, 2008 a total of $160,000 had been advance against the note. The amount of the Debenture outstanding at November 30, 2008 was classified as “permanent equity” as capital in excess of par value and a corresponding amount was recorded as a discount against the note payable. This discount will be amortized over 24 months on a straight-line bases as interest expense.
NOTE 5 - COMMON STOCK
The Company has authorized 100,000,000 shares of common stock with a par value of $.00001. At November 31, 2008 and August 31, 2008, the Company had 53,716,000 and 52,316,000 shares of common stock issued and outstanding, respectively.
On April 10, 2007, the Company completed a forward stock split by issuing two additional shares of common stock for every one share previously issued. The Company’s share transactions disclosed in these financial statements have been restated retroactively to reflect the above forward stock split for all periods presented.
On July 17, 2007, in connection with its Exchange Agreement with Subsidiary, Parent issued 27,800,000 shares of its previously authorized but unissued common stock in exchange for all the issued and outstanding common stock of Subsidiary. The 27,800,000 shares have been reflected as though they were issued at the inception of the Subsidiary, with a reverse merger adjustment that represents the shareholders of the public shell at the time of the recapitalization.
10
During July, 2007, in connection with its Exchange Agreement with Subsidiary, Parent issued 1,000,000 shares of common stock to private placement subscribers at $1.00 per share.
On October 31, 2007 the Board of Directors approved the issuance of a private placement memorandum for 1,350,000 shares of common stock at $1.00 per share. On January 22, 2008, we completed a private placement of 1,350,000 shares of our common stock at a purchase price of $1.00 per share to persons who were not “U.S. Persons” within the meaning of Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Also, stock offering costs of $91,401 have been recorded against capital in excess of par value.
During November 2007, the Board of Directors authorized the granting of options to purchase 2,000,000 shares of common stock at $1.00 per share. The fair value of each option granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted-average assumptions; risk-free interest rates of 4.4%, expected dividend yields of zero, expected life of 10 years, and expected volatility of 147.95%. The options vested immediately and were valued in total at $2,366,186. Options granted under the Plan are subject to the Plan being approved by the stockholders of the Company within one year from the date the Plan was adopted.
During January 2008 the Company issued 1,000,000 warrants valued at $1,104,103, to purchase stock for consulting services. The warrants vested immediately. The fair value of each warrant granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted-average assumptions; risk-free interest rates of 4.40%, expected dividend yields of zero, expected life of 10 years, and expected volatility of 147.95%.
During August 2008, the Company issued 450,000 warrants valued at approximately $338,000 to purchase stock for services rendered. The warrants vest over various terms. During the year ended August 31, 2008, the Company recognized compensation expense of $216,479. The fair value of each warrant granted is estimated on the date granted using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rates of 3.74% to 3.97%, expected dividend yields of zero, expected life of 10 years and expected volatility of 136.94% to 140.60%.
On January 22, 2008, the Company completed a private placement of 1,350,000 shares of its common stock at a purchase price of $1.00 per share to persons who were not “U.S. Persons” within the meaning of Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). The Company received gross proceeds from the placement of $1,350,000 and net proceeds of approximately $1,258,600 after deducting $30,000 in placement fees paid to registered investment dealers in Canada and other offering costs. The foregoing sales of common stock were made in reliance on the exemption from registration provided by Regulation S. Each of the purchasers signed a subscription agreement containing the representations required by Regulation S and the certificates for the shares will be stamped with restricted stock legends indicating the shares have not been registered under the Securities Act, have been issued in reliance on the exemption from registration provided by Regulation S, and may not be reoffered or sold except in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or an available exemption from registration under the Securities Act.
In August 2008, we entered into a promissory note with NSC Investments Ltd. (“NSC”) for a sum of $250,000. Under this promissory note, interest is to be prepaid at the commencement of each quarter by us issuing 16,000 share of our common stock. The unpaid principal balance of the promissory note is due and payable in full on the sale of any assets of the Company or November 1, 2008. Further consideration for the loan shall consist of 150,000 shares of our common stock at the funding, 50,000 shares of our common stock at the beginning of the next month, and 100,000 shares at the beginning of the next month. This promissory note was extended until February 1, 2009. We agreed to pay 39,000 shares of our common stock as interest and additional issuance of 100,000 shares of our common stock.
In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates(collectively “Genovese”) whereby Genovese purchased 1,000,000 shares or our common stock and 1,000,000 warrants with an exercise price of $0.20 for $150,000.
In October 2008, we entered into an agreement with Euro Trend Trader, Inc. (“ETT”) to provide investor relations and public relations. We agreed to pay ETT $5,000 start up fees and $3,000 per month thereafter. Additionally, we paid ETT 200,000 shares of our common stock for coverage of the Company by a registered market maker.
In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25.
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NOTE 6 – OPTIONS AND WARRANTS
Stock Options
2007 Stock Plan
During November, 2007 the Board of Directors of the Company adopted and the stockholders at that time approved the 2007 Stock Plan (“the Plan”). The Plan provides both for the direct award or sale of shares and for the granting of options to purchase shares. Options granted under the plan may include qualified and non-qualified stock options. The aggregate number of shares that may be issued under the plan shall not exceed 7,500,000 shares of common stock, and are issuable to directors, officers, and employees of the Company. Awards under the plan will be granted as determined by Committees of the Board of Directors or by the Board of Directors. The options will expire after 10 years or 5 years if the option holder owns at least 10% of the common stock of the Company. The exercise price of a non-qualified option must be at least 85% of the market price on the date of issue. The exercise price of a qualified option must be at least equal to the market price or 110% of the market price on the date of issue if the option holder owns at least 10% of the common stock of the Company.
In November 2007, 2,000,000 stock options were granted with an exercise price equal to fair value at the date of grant. The term of the options granted under the Plan could not exceed 10 years and the stock options granted were vested immediately.
On August 1, 2008, we agreed to issue 300,000 stock options to certain board members for their services to the board.
The estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 10 years, a risk free interest rate of 3.97% to 4.40%, a dividend yield of 0% and volatility of 136.94% to 147.95%. During the quarter ended November 30, 2008 and 2007, the amount of the expense charged to operations for compensatory options granted in exchange for services was $30,435 and 2,366,186, respectively.
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.
| Shares |
| Weighted Average Exercise Price |
Outstanding, beginning of the year ended August 31, 2007 | - |
| - |
|
|
|
|
Granted | 2,300,000 | $ | 0.97 |
|
|
|
|
Expired / Cancelled | - |
| - |
|
|
|
|
Exercised | - |
| - |
|
|
|
|
Outstanding, end of the year ended August 31, 2008 | 2,300,000 | $ | 0.97 |
|
|
|
|
Exercisable at August 31, 2008 | 2,300,000 | $ | 0.97 |
|
|
|
|
Granted | 150,000 | $ | 0.71 |
|
|
|
|
Expired/Cancelled | - |
| - |
|
|
|
|
Exercised | - |
| - |
|
|
|
|
Outstanding, end of the quarter ended November 30, 2008 | 2,450,000 | $ | 0.95 |
|
|
|
|
Exercisable | 2,450,000 | $ | 0.95 |
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company. These options were granted in lieu of cash compensation for services performed or financing expenses.
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|
| Options Outstanding |
| Options Exercisable | ||||||
Year |
| Exercise Price |
| Number shares outstanding |
| Weighted Average Contractual Life (Years) |
| Number Exercisable |
| Weighted Average Exercise Price |
2008 | $ | 1.00 |
| 2,000,000 |
| 8.92 |
| 2,000,000 | $ | 1.00 |
2008 | $ | 0.60 – 0.90 |
| 300,000 |
| 9.67 |
| 120,000 | $ | 0.73 |
Total |
|
|
| 2,300,000 |
|
|
| 2,120,000 |
|
|
Stock Warrants
In connection with the January 2008 private placement, we issued as compensation for the services provided in the fund raising 1,000,000 warrants to purchase common stock at an exercise price of $1.00 per share. The warrants have a term of five years commencing with the date of issuance and are entitled to “piggy back” registration rights.
In September 2008, we entered into a subscription agreement with Richard Genovese and/or his affiliates (collectively “Genovese”) whereby Genovese purchased 1,000,000 shares or our common stock and 1,000,000 warrants with an exercise price of $0.20 for $150,000.
In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25.
The Company has determined the estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses using the Black-Scholes pricing model and the following assumptions: expected term of 1year, a risk free interest rate of 4.40%, a dividend yield of 0% and volatility of 147.95% in 2008.
The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock issued to non-employees of the Company.
|
| Warrants Outstanding |
| Warrants Exercisable | ||||||
Year |
| Exercise Price |
| Number shares outstanding |
| Weighted Average Contractual Life (Years) |
| Number Exercisable |
| Weighted Average Exercise Price |
2008 | $ | 1.00 |
| 1,000,000 |
| 3.92 |
| 1,000,000 | $ | 1.00 |
2009 |
| 0.20 |
| 1,025,000 |
| 4.75 |
| 1,025,000 |
| 0.20 |
Total |
|
|
| 2,025,000 |
|
|
| 2,025,000 |
|
|
Transactions involving the Company’s warrant issuance are summarized as follows:
| Number of Shares |
| Weighted Average Exercise Price |
Outstanding at August 31, 2007 | - | $ | - |
|
|
|
|
Granted | 1,000,000 |
| 1.00 |
Exercised | - |
| 0.00 |
Cancelled | - |
| 0.00 |
Outstanding at August 31, 2008 | 1,000,000 | $ | 1.00 |
|
|
|
|
Granted | 1,025,000 |
| 0.20 |
Exercised | - |
| 0.00 |
Cancelled | - |
| 0.00 |
Outstanding at August 31, 2008 | 2,025,000 | $ | 0.60 |
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Note 7 – EARNINGS PER SHARE
Basic Loss Per Share - The computation of basic and diluted loss per common share is based on the weighted average number of shares outstanding during each period.
|
| For the Three Months Ended November 30, | ||
|
| 2008 |
| 2007 |
NET LOSS | $ | (742,135) | $ | (2,677,568) |
|
|
|
|
|
BASIC LOSS PER COMMON SHARE | $ | (0.01) | $ | (0.05) |
BASIC WEIGHTED AVERAGE |
|
|
|
|
NUMBER OF SHARES OUTSTANDING |
| 53,220,945 |
| 49,800,000 |
The following table sets forth common stock equivalents (potential common stock) for the quarters ended November 30, 2008 and 2007 that are not included in the loss per share calculation above because their effect would be anti-dilutive for the periods indicated:
| For the Three Months Ended November 30, | ||
| 2008 |
| 2007 |
Weighted average common stock equivalents: |
|
|
|
Plan Stock Options | 2,450,000 |
| 2,000,000 |
Non-Plan Stock Options | — |
| — |
Warrants | 2,025,000 |
| — |
14
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion contains certain statements that constitute “forward-looking statements”. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition or Plan of Operation.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Our future results may differ materially from those currently anticipated depending on a variety of factors, including those described below under “Risks Related to Our Future Operations” and our filings with the Securities and Exchange Commission. The following should be read in conjunction with the unaudited Consolidated Financial Statements and notes thereto that appear elsewhere in this report and in conjunction with our 2008 annual report on Form 10-K.
The following discussion should be read in conjunction with the Financial Statements and notes thereto included in Item 1 of Part I of the Annual Report filed on Form 10-K.
EN2GO Overview
We are a start-up company that plans to become a full service entertainment and technology company that will create and develop a variety of media and entertainment related programs and applications including cutting edge media delivery software, Internet video applications and high-end, innovative desk top applications. We believe the future of the entertainment and media industry will incorporate a combination of Internet, entertainment and communications, which we refer to as “En2go!” or “Entertainment to Go” and we plan to take part in this development by pursuing opportunities in telecommunications as both a development partner to today’s leading carriers and as an entertainment solutions provider to major entertainment companies. Capitalizing on the recent growth and explosion of digital media, wireless devices, and web 2.0, we are currently in the process of completing the development of software solutions to better manage data sets and present them in a user-friendly way. Our management and outside consultants are in the process of determining the types of programming that would most appeal to the viewing public, and utilizing developmental resources to deliver such programming via Virtual Server environments. We believe these original environments will enhance the user’s experience with superior quality video and audio Internet content. Our emphasis on video and communication technologies has enabled us to pursue digital delivery, content development and merging desktop technologies through our software applications.
Underlying this technology is our developing code in the C++, C# and Objective-C programming languages for use with Microsoft’s Vista Operating System, Windows Mobile, other mobile devices, and Apple’s Mac OSX platform. We have successfully built prototypes of these applications using our proprietary technology although we have not completed the final versions of such applications and no assurances can be given that we will be able to do so.
In addition to programming progress, we are currently attempting to establish a technical infrastructure, which we call “En2ools.” If we are successful in establishing workable version of En2ools, we plan to partner with larger organizations using our En2ools proprietary framework.
In addition to the unique aspects of our En2ools framework, we believe our uniqueness stems from our development team led by experienced management who have previously been able to attract world-class leaders in technology, music, entertainment, and communications. We believe this team will facilitate our growth and establish us as an innovative leader of entertainment and technology convergence on desktops.
Looking forward, we plan to participate in future projects and pursue targeted opportunities for partnerships, joint ventures and other forms of investment. Our plan involves licensing original content and services for other entertainment projects and continuing to develop unique solutions and technologies.
Proposed Initial Products
We are currently working to complete development of the following products and applications. Each of the below listed products are in various stages of development. However, no assurances can be given that we will be successful in completing the development of all or any such items or that if development is completed, we will be able to manufacture and market such products on a profitable basis.
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• Desktop Video: Flyxo. Flyxo is an application that delivers high-quality video to a user’s computer desktop. We will provide this service in a unique manner using the latest in compression technology, H.264, combined with our proprietary media delivery system. Flyxo is designed to enable users to watch movies, music videos and TV shows conveniently on their computer desktop, in the background with a full-screen view. Also, the consumer will be able to continue to work on other projects on the desktop while the media plays. Our software works through a simple, on-time download and then enables users to watch the media they desire as a stream, bypassing the inconvenient need to first download the video, and then delete it afterwards to free up memory. In addition, because Flyxo seamlessly delivers high quality images, music and games it also enables content owners to create their own channel of interactive media for global distribution.
• Image Search and Download: eMaculate. eMaculate is a search engine that is designed to search, download and share digital images on the Web at very high speeds. It is also to be easy-to-use with a state-of-the-art user interface. In addition, each captured image contains complete URL information, allowing the user to go straight to the source of the image. In the typical time it takes to download, save and review a single image using existing search technologies eMaculate users can instantly download 100s of images. The selected images can be enlarged, minimized, rotated, shared, burned to a disk, corners can be rounded and photo borders can be added.
• Media: VideoBlox). VideoBlox is a custom media player that is specifically designed for the entertainment industry. It plays numerous file formats including mp4, mp3, quicktime and windows media. It is designed to enable artists to communicate directly with their fan base. Instead of simple sending a video, the artist will be able to use their own branded player to distribute their music videos and keep in constant contact with their fans. Another unique aspect of this media player is the ability to provide a customized graphical look and feel of its interface.
• Kandictionary is a downloadable personalized dictionary and translator. It is designed for the desktop and allows users to choose from 80 different databases, including Wikipedia, Dictionary.com, Bible.com and the CIA reference manual. The user needs only to type in a word and see it defined or displayed in a myriad of different contexts. When the user rolls his or her cursor over different places on the user interface, the Kandictionary will perform many actions, such as streaming music from an artist that is featured on the user interface.
• En2go Jukebox. The En2go jukebox is a custom stand-alone media player designed to play the music from social networking sites. After downloading the media player, a user does not have to be on an artist’s page to hear the artist’s music. A user can add favorite songs to the media player and listen to the artist’s music while doing other things or visiting other sites. Furthermore, the user can create a custom playlist by adding songs to the player from different artists.
Critical Accounting Policies and Estimates
Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR60”) issued by the SEC, suggests that companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of the Company’s significant accounting policies, including the critical accounting policies discussed below, see the accompanying notes to the consolidated financial statements.
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates which are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. The following accounting policies require significant management judgments and estimates:
We account for our business acquisitions under the purchase method of accounting in accordance with SFAS 141, "Business Combinations." The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values. The excess of the purchase price over the estimated fair value of the tangible net assets acquired is recorded as intangibles. Determining the fair value of assets acquired and liabilities assumed requires management's judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows, discount rates, asset lives, and market multiples, among other items.
16
We assess the potential impairment of long-lived assets and identifiable intangibles under the guidance of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." which states that a long-lived asset should be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the long-lived asset exceeds its fair value. An impairment loss is recognized only if the carrying amount of the long-lived asset exceeds its fair value and is not recoverable.
We account for equity instruments issued to consultants and vendors in exchange for goods and services in accordance with the provisions of EITF Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods or Services”, and EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other than Employees”. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement. In accordance with EITF Issue No. 00-18, an asset acquired in exchange for the issuance of fully vested, non-forfeitable equity instruments should not be presented or classified as an offset to equity on the grantor’s balance sheet once the equity instrument is granted for accounting purposes. Accordingly, the Company records the fair value of the fully vested, non-forfeitable common stock issued for future consulting services as prepaid expenses in its consolidated balance sheet.
We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There is no assurance that actual results will not differ from these estimates.
See footnotes in the accompanying financial statements regarding recent financial accounting developments.
Results of Operations
For the Three Months Ended November 30, 2008 and 2007:
We had a net loss of $742,135 for the three months ended November 30, 2008 compared to a net loss of $2,677,568 for the three months end November 30, 2007. The change is explained below.
Operating Expenses: Operating expenses were $671,334 and $2,673,828 for the three months ended November 30, 2008 and 2007, respectively. The decrease of $2,002,494 was primarily due to a decrease in non-cash expense related to various equity compensation of $2,293,751. This decrease was offset by an increase of $291,257 in General and Administrative expenses as a result of increase operating activities.
Other income (expense): Other income (expense) was ($70,801) and ($3,740) for the three months ended November 30, 2008 and 2007, respectively. The expense was primarily due interest expense related to notes payable partially offset by interest income.
Liquidity and Capital Resources
Net cash used in operating activities was $299,660 and $295,964 in the three months ended November 30, 2008 and 2007, respectively. The increase of $3,696 in cash used by operating activities was primarily due the increase in development activities offset by an increase in accounts payable of $377,353. Net cash used in investing activities was $0 and $14,314 in the three months ended November 30, 2008 and 2007, respectively. Investing activities for the three months ended November 30, 2007 resulted from the purchase of computers and furniture. Net cash provided by financing activities was $315,000 and $0 in the three months ended November 30, 2008 and 2007, respectively.
The Company suffered recurring losses from operations and has an accumulated deficit of $9,174,857 at November 30, 2008. Primarily as a result of our recurring losses and our lack of liquidity, the Company has received a report from our independent auditors that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. We have delayed payment of a substantial amount of accounts payable and accrued expenses and reduced our expenses to a minimum level. Our existing cash and cash equivalents will not be sufficient to fund our operations. Unless we receive liquidity from new purchase orders, obtain additional capital, loans or sell or license assets, we may be required to seek to reorganize our business or discontinue operations and liquidate our assets. There can be no assurance that the Company will be able to secure sufficient financing or on terms acceptable to the Company. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders is likely to or will be reduced.
In October 2008, we entered into an agreement with Euro Trend Trader, Inc. (“ETT”) to provide investor relations and public relations. We agreed to pay ETT $5,000 start up fees and $3,000 per month thereafter. Additionally, we paid ETT 200,000 shares of our common stock for coverage of the Company by a registered market maker.
17
In November 2008, we borrowed $5,000 from a consultant to the Company which was payable by December 6, 2008. The lender was to receive 200 shares of our common stock per month as interest and an additional consideration of 25,000 warrants with an exercise price of $0.25. At January 12, 2009, $2,500 was payable on this loan.
On January 15, 2009 we entered into an agreement with Genovese whereby Genovese will advance to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principle amount of $250,000. The Debenture shall be non-interest bearing and will mature on December 5, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agrees to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese shall be issued an additional $250,000 Convertible Debenture. The Debenture shall be non interest bearing and will mature two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”). At the Holder s sole discretion, the Holder may elect to convert the Subsequent Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share. As additional compensation, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate for each Subsequent Debenture issued. We further agreed to the following: Genovese shall be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years; Genovese shall be entitled to two board seats; we would obtain directors and officers insurance; and to work together during December to address other matters.
Going Concern Uncertainties
As of the date of this annual report, there is doubt regarding our ability to continue as a going concern as we have not generated sufficient cash flow to fund our business operations and loan commitments. Our future success and viability, therefore, are dependent upon our ability to generate capital financing. The failure to generate sufficient revenues or raise additional capital may have a material and adverse effect upon the Company and our shareholders.
Commitments and Contractual Obligations
We own no real estate. We lease 9,678 square feet of office space from John D. Howard Family Limited Partnership at a rate of $19,536 per month. Our lease started on May 1, 2008 and ends on April 30, 2010. Our corporate offices are located at 2921 West Olive Avenue, Burbank, California 91505.
Paul E. Fishkin. In connection with the En2Go Nevada acquisition, we approved an employment agreement with Paul E. Fishkin, which was entered into concurrently with the completion of the acquisition. The employment agreement was effective as of July 13, 2007. Under the terms of the agreement, Mr. Fishkin agreed to continue as EN2Go’s President, Chief Executive Officer and Director. Pursuant to the agreement, Mr. Fishkin will receive an annual base salary of not less than $90,000 per year, incentive compensation as determined by the Board and reimbursement of all ordinary and reasonable out-of-pocket business expenses he incurs. The agreement is for an initial term ending July 13, 2008 and automatically renews each year thereafter unless terminated by either party by written notice given at least 180 days prior to the expiration of the agreement. We may terminate the agreement for cause (as defined in the agreement).
Tolga F. Katas. In connection with the En2Go Nevada acquisition, we approved an employment agreement with Tolga F. Katas, which we entered into concurrently with the completion of the acquisition. The employment agreement was effective as of July 13, 2007. Prior to the agreement, Mr. Katas received no annual compensation. Under the terms of the agreement, Mr. Katas agreed to continue as a Director. Pursuant to the agreement, Mr. Katas will receive an annual base salary of not less than $90,000 per year, incentive compensation as determined by the Board and reimbursement of all ordinary and reasonable out-of-pocket business expenses he incurs. The agreement is for an initial term ending July 13, 2008 and automatically renews each year thereafter unless terminated by either party by written notice given at least 180 days prior to the expiration of the agreement. We may terminate the agreement for cause (as defined in the agreement).
Off-Balance Sheet Arrangements
As of November 30, 2008, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
18
ITEM 4. CONTROLS AND PROCEDURES
Our management with the participation and under the supervision of our Principal Executive Officer and Principal Financial Officer reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined by Rule 13a-15(e) or 15d-15(e)) of the Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based upon their evaluation, our Principal Executive Officer and Principal Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are effective and sufficient to ensure that we record, process, summarize, and report information required to be disclosed in the reports we filed under the Exchange Act within the time periods specified in the Securities and Exchange Commission's rules and regulations, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting that occurred during the three months ended November 30, 2008 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings and, to the best of its knowledge, its properties are not the subject of any such proceedings.
ITEM 1A. RISK FACTORS
Risk Factors Which May Affect Future Results
The Company wishes to caution that the following important factors, among others, in some cases have affected and in the future could affect the Company’s actual results and could cause such results to differ materially from those expressed in forward-looking statements made by or on behalf of the Company.
There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2008, other than as set forth below:
Risks Related To Our Business
We have incurred losses and anticipate continued losses for the foreseeable future.
Our net loss for the three months ended November 30, 2008 was $742,135. From inception at January 31, 2007 through November 30, 2008 we had an accumulated net loss of $9,174,856. We have not yet achieved profitability and expect to continue to incur net losses until we recognize sufficient revenues from licensing activities, customer contracts, product sales or other sources. Because we have a limited history upon which an evaluation of our prospects can be based, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies seeking to develop new and rapidly evolving technologies. To address these risks, we must, among other things, respond to competitive factors, continue to attract, retain and motivate qualified personnel and commercialize and continue to develop our technologies. We may not be successful in addressing these risks. We can give no assurance that we will achieve or sustain profitability.
Our ability to continue as a going concern is dependent on future financing.
Primarily as a result of our recurring losses and our lack of liquidity, in connection with our fiscal year ended August 31, 2008 we received a report from our independent auditors that includes an explanatory paragraph describing the substantial uncertainty as to our ability to continue as a going concern. The inclusion of a going concern explanatory paragraph in our independent accountant’s report on our financial statements could have a detrimental effect on our stock price and our ability to raise additional capital.
Our financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have not made any adjustments to the financial statements as a result of the outcome of the uncertainty described above. Accordingly, the value of the Company in liquidation may be different from the amounts set forth in our financial statements.
19
Our continued success will depend on our ability to continue to raise capital in order to fund the development and commercialization of our products. Failure to raise additional capital may result in substantial adverse circumstances, including our inability to continue the development of our products and our liquidation.
Risks Related To An Investment In Our Stock
Any future sale of a substantial number of shares of our common stock could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital.
Any sale of a substantial number of shares of our common stock (or the prospect of sales) may have the effect of depressing the trading price of our common stock. In addition, these sales could lower our value and make it more difficult for us to raise capital. Further, the timing of the sale of the shares of our common stock may occur at a time when we would otherwise be able to obtain additional equity capital on terms more favorable to us.
We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of substantial amounts of our common stock (including shares currently held by management and principal shareholders), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 15, 2009 we entered into an agreement with Genovese with an effective date of November 25, 2008, whereby Genovese advanced to the Company $250,000 for a convertible debenture (“Debenture”) for the aggregate principle amount of $250,000. The Debenture shall be non-interest bearing and will mature on December 11, 2010. At the holder’s sole discretion, the holder may elect to convert the Debenture, in whole or in part into common shares of the Company at a conversion price of $0.10 per share. As part of the Debenture financing, Genovese was issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. The Company and Genovese further agreed to establish five (5) mutually agreed upon milestones to be attained no later than September 2009 with each milestone generally occurring approximately every forty five (45) days. In conjunction with the attainment of each individual milestone, Genovese agrees to advance to the Company an additional $250,000. In connection with each $250,000 advance, Genovese shall be issued an additional $250,000 convertible Debenture. The Debenture shall be non interest bearing and will mature two years from the date of issuance of each subsequent debenture (“Subsequent Debentures”). At the Holder s sole discretion, the Holder may elect to convert the Subsequent Debentures, in whole or in part, at any time prior to maturity, into common shares of the Company at a conversion price of $0.10 per share. As part of each of the Subsequent Debenture issuances, Genovese shall be issued a share purchase warrant certificate for 2,500,000 warrants with each warrant exercisable into one common share at $0.15 per share for a period of three years commencing from the date of the issuance of the warrant certificate. We further agreed that (1) Genovese would be granted the right of first refusal/ right of participation in connection with any additional financing of the Company for two (2) years, (2) Genovese would be entitled to two board seats, (3) we would indemnify our officers and directors to the fullest extent permitted under Nevada law, and (4) we would submit 30 day budgets to our Board beginning in December 2008.We offered the convertible notes and warrants in reliance on Section 506 of Regulation D and/or Regulation S of the Securities Act, and comparable exemptions for sales to “accredited” investors under state securities laws.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
There were no changes to the procedures by which security holders may recommend nominees to our board of directors.
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ITEM 6. EXHIBITS
(a) Exhibits
10.1 |
| Convertible debenture agreement between Richard Genovese and the Company Dated January 15, 2009. * |
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10.2 |
| Form Convertible Debenture * |
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10.3 |
| Form Common Stock Warrant * |
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31.1 |
| Certification of Chief Executive Officer and Chief Financial pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * |
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32.1 |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. * |
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| *Filed herewith. |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EN2GO INTERNATIONAL, INC. |
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Date: January 16, 2009 | By /s/ Paul E. Fishkin |
| Paul E. President, Chief Executive |
| Officer and Chief Financial Officer |
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