UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 
 QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 
 For the
quarterly period ended December 31, 2008
 
 TRANSITION
REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
 
 For the
transition period from ___________ to _____________
 
 Commission
file number 333-145487
 
 ENTERCONNECT
INC.
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
                
                20-8002991(State
      or other jurisdiction of incorporation or organization)
                
                (IRS
      Employer Identification No.)
 
 100
Century Center Court
 Suite
650
 San
Jose, California 95112-4537
 (Address
of principal executive offices)
 
 
 (408)
      441-9500(Issuer's
      telephone number)
 
 (Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (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 T  No £
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 
 Large
      accelerated filer £
                
                Accelerated
      filer £Non-accelerated
      filer £ (Do
      not check if a smaller reporting company)
                
                Smaller
      reporting company T
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes £ No T
 
 The
numbers of shares outstanding of each of the issuer's classes of common equity,
as of February 10, 2009, are as follows:
 
 Class
      of Securities
              
              Shares
      OutstandingCommon
      Stock, $0.001 par value
              
              27,205,261
  
 
 
 ENTERCONNECT INC.
 
 Page
                  No.PART I.
      FINANCIAL INFORMATIONItem
      1.
                Condensed
      Financial Statements:Condensed Balance
      Sheets as of December 31, 2008 (unaudited) and March 31,
      2008
                3Condensed
      Statements of Operations for the three and nine months ended December 31,
      2008 and 2007 (unaudited)
                4Condensed
      Statements of Cash Flows for the nine months ended December 31, 2008 and
      2007 (unaudited)
                5Notes to
      Unaudited Condensed Financial Statements
                6Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                11Item
      3.
                Quantitative and
      Qualitative Disclosures About Market Risk
                16Item
      4.
                Controls and
      Procedures
                16PART
      II. OTHER INFORMATIONItem
      1.
                Legal
      Proceedings
                17Item
      1A.
                Risk
      Factors
                17Item
      2.
                Unregistered
      Sales of Equity Securities and Use of
      Proceeds
                20Item
      3.
                Defaults Upon
      Senior Securities
                20Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                20Item
      5.
                Other
      Information
                20Item
      6.
                Exhibits
                20Signatures
                21
  2
 Table of Contents
  PART
1.  FINANCIAL INFORMATION
 Item
1.   CONDENSED FINANCIAL
STATEMENTS
 
 ENTERCONNECT
INC.
 Condensed
Balance Sheets
 
 December31, 2008
                          
                          
                          March31, 2008(unaudited)ASSETSCurrent
      Assets:Cash
                          
                          $
                          89,509
                          
                          
                          $
                          2,131,711Restricted
      cash
                          
                          
                          25,142
                          
                          
                          
                          200,569Accounts
      receivable, net
                          
                          
                          72,600
                          
                          
                          
                          -Prepaid
      expenses and other current assets
                          
                          
                          167,130
                          
                          
                          
                          204,614Total
      current assets
                          
                          
                          354,381
                          
                          
                          
                          2,536,894Property
      and equipment, net
                          
                          
                          28,327
                          
                          
                          
                          36,955Intangible
      assets, net
                          
                          
                          428,571
                          
                          
                          
                          749,999Deposits
                          
                          
                          15,878
                          
                          
                          
                          15,500TOTAL
      ASSETS
                          
                          $
                          827,157
                          
                          
                          $
                          3,339,348LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
                          
                          $
                          429,470
                          
                          
                          $
                          306,525Accrued
      expenses
                          
                          
                          381,883
                          
                          
                          
                          114,401Deferred
      revenue
                          
                          
                          19,400
                          
                          
                          
                          -Convertible
      notes payable, net
                          
                          
                          1,782,277
                          
                          
                          
                          342,536Total
      current liabilities
                          
                          
                          2,613,030
                          
                          
                          
                          763,462Stockholders'
      Equity (Deficit):Preferred
      stock: $0.001 par value; 10,000,000 shares authorized; no shares issued or
      outstanding
                          
                          
                          -
                          
                          
                          
                          -Common
      stock: $0.001 par value; 100,000,000 shares authorized; 27,205,261 shares
      issued and outstanding
                          
                          
                          27,205
                          
                          
                          
                          27,205Additional
      paid-in capital
                          
                          
                          10,511,763
                          
                          
                          
                          10,514,261Deferred
      compensation
                          
                          
                          (1,928,291
                          )
                          
                          
                          (1,931,345
                          )Accumulated
      deficit
                          
                          
                          (10,396.550
                          )
                          
                          
                          (6,034,235
                          )Total
      stockholders’ (deficit) equity
                          
                          
                          (1,785,873
                          )
                          
                          
                          2,575,886TOTAL
      LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
                          
                          $
                          827,157
                          
                          
                          $
                          3,339,348
 
 See
accompanying notes to condensed financial statements.
 3
 Table of Contents
  ENTERCONNECT
INC.
 Condensed
Statements of Operations
 (unaudited)
 
 Three months
      ended December31,
                  
                  
                  Nine
      months ended December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:Subscription
      and support
                  
                  $
                  76,134
                  
                  
                  $
                  37,300
                  
                  
                  $
                  170,666
                  
                  
                  $
                  67,300Professional
      services
                  
                  
                  30,750
                  
                  
                  
                  15,000
                  
                  
                  
                  56,125
                  
                  
                  
                  50,998Total
      revenues
                  
                  
                  106,884
                  
                  
                  
                  52,300
                  
                  
                  
                  226,791
                  
                  
                  
                  118,298Cost
      of revenues
                  
                  
                  15,161
                  
                  
                  
                  -
                  
                  
                  
                  60,981
                  
                  
                  
                  -Gross
      profit
                  
                  
                  91,723
                  
                  
                  
                  52,300
                  
                  
                  
                  165,810
                  
                  
                  
                  118,298Operating
      expenses:General
      and administrative
                  
                  
                  336,534
                  
                  
                  
                  289,700
                  
                  
                  
                  1,147,672
                  
                  
                  
                  833,709Sales
      and marketing
                  
                  
                  51,314
                  
                  
                  
                  117,287
                  
                  
                  
                  516,582
                  
                  
                  
                  358,930Research
      and development
                  
                  
                  328,768
                  
                  
                  
                  292,513
                  
                  
                  
                  1,284,714
                  
                  
                  
                  940,732Total
      operating expenses
                  
                  
                  716,616
                  
                  
                  
                  699,500
                  
                  
                  
                  2,948,968
                  
                  
                  
                  2,133,371Loss
      from operations
                  
                  
                  (624,893
                  )
                  
                  
                  (647,200
                  )
                  
                  
                  (2,783,158
                  )
                  
                  
                  (2,015,073
                  )Other
      (income) expenses:Interest
      expense, net
                  
                  
                  543,298
                  
                  
                  
                  1,087,568
                  
                  
                  
                  1,610,510
                  
                  
                  
                  1,101,532Other
      (income) expense
                  
                  
                  (210,620)
                  
                  
                  
                  -
                  
                  
                  
                  (32,953
                  )
                  
                  
                  -Total
      other expenses
                  
                  
                  332,678
                  
                  
                  
                  1,087,568
                  
                  
                  
                  1,577,557
                  
                  
                  
                  1,101,532Loss
      from operations before income taxes
                  
                  
                  (957,571
                  )
                  
                  
                  (1,734,768
                  )
                  
                  
                  (4,360,715
                  )
                  
                  
                  (3,116,605
                  )Income
      taxes
                  
                  
                  1,600
                  
                  
                  
                  -
                  
                  
                  
                  1,600
                  
                  
                  
                  -Net
      loss
                  
                  $
                  (959,171
                  )
                  
                  $
                  (1,734,768
                  )
                  
                  $
                  (4,362,315
                  )
                  
                  $
                  (3,116,605
                  )Net
      loss per common share - basic and diluted
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.13
                  )Weighted
      average number of common shares outstanding – basic and
      diluted
                  
                  
                  27,205,261
                  
                  
                  
                  25,020,928
                  
                  
                  
                  27,205,261
                  
                  
                  
                  23,482,097
 
 See
accompanying notes to condensed financial statements.
 4
 Table of Contents
  ENTERCONNECT
INC.
 Condensed
Statements of Cash Flows
 (unaudited)
 
 Nine
      months ended
                    December 31,2008
                  
                  
                  2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (4,362,315
                  )
                  
                  $
                  (3,116,605
                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Allowance
      for doubtful accounts
                  
                  
                  19,978
                  
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  337,528
                  
                  
                  
                  201,611Accretion
      of discount on convertible notes payable
                  
                  
                  1,253,241
                  
                  
                  
                  440,098Common
      stock issued for services
                  
                  
                  -
                  
                  
                  
                  136,443Changes
      in assets and liabilities:Increase
      in accounts receivable
                  
                  
                  (92,578
                  )
                  
                  
                  (67,480
                  )Decrease
      (increase) in other current assets
                  
                  
                  37,106
                  
                  
                  
                  (139,261
                  )Increase
      (decrease) in accounts payable
                  
                  
                  122,949
                  
                  
                  
                  (15,250
                  )Increase
      in accrued expenses
                  
                  
                  267,480
                  
                  
                  
                  49,935Increase
      in deferred revenue
                  
                  
                  19,400
                  
                  
                  
                  28,101Interest
      accrued to convertible notes payable
                  
                  
                  186,500
                  
                  
                  
                  -Net
      Cash Used in Operating Activities
                  
                  
                  (2,210,711
                  )
                  
                  
                  (2,482,408
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
                  
                  
                  (7,472
                  )
                  
                  
                  -Net
      Cash Used in Investing Activities
                  
                  
                  (7,472
                  )
                  
                  
                  -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of convertible notes
                  
                  
                  -
                  
                  
                  
                  4,257,368Proceeds
      from issuance of common stock
                  
                  
                  -
                  
                  
                  
                  700,000Proceeds
      from short-term notes
                  
                  
                  -
                  
                  
                  
                  656,500Other
                  
                  
                  554
                  
                  
                  
                  -Net
      Cash Provided by Financing Activities
                  
                  
                  554
                  
                  
                  
                  5,613,868NET
      CHANGE IN CASH
                  
                  
                  (2,217,629
                  )
                  
                  
                  3,131,460Decrease
      in restricted cash
                  
                  
                  175,427
                  
                  
                  
                  -CASH
      AT BEGINNING OF PERIOD
                  
                  
                  2,131,711
                  
                  
                  
                  114,246CASH
      AT END OF PERIOD
                  
                  $
                  89,509
                  
                  
                  $
                  3,245,706SUPPLEMENTAL
      SCHEDULE OF NON-CASH FINANCING:Non-cash
      financing and investing activities:Common
      stock issued for deferred compensation
                  
                  $
                  -
                  
                  
                  $
                  2,000,000Accrued
      compensation converted to common stock
                  
                  
                  -
                  
                  
                  
                  136,443
 
 See
accompanying notes to condensed financial statements.
 5
 Table of Contents
  ENTERCONNECT
INC.
 NOTES
TO CONDENSED FINANCIAL STATEMENTS
 
 NOTE
1 -   NATURE OF BUSINESS AND GOING CONCERN
 
 Business
Description
 
 EnterConnect
Inc. was incorporated on November 13, 2006 under the laws of the State of Nevada
under the name Priority Software, Inc. On January 4, 2007, the stockholders
approved an amendment to the Certificate of Incorporation to change the name to
EnterConnect Inc. (“EnterConnect”, or the “Company”). The Company is the
developer of “EnterConnect” an out-of-the-box, enterprise-level
intranet/extranet solution that includes document management, content
management, collaboration, search and security. EnterConnect is an
intranet/extranet tool enabling companies to deploy internal employee, division,
department, team portals and external customer, partner, and investor portals
while leveraging a scalable portal infrastructure to accomplish present as well
as future organizational requirements, initiatives and projects.
 
 Fiscal
Year
 
 The
Company’s fiscal year ends on March 31. A reference to fiscal 2008 and fiscal
2009 refers to the fiscal years ending March 31, 2008 and 2009,
respectively.  A reference to fiscal 2007 refers to the period from
November 13, 2006 (date of inception) through March 31, 2007.
 
 Basis
of Presentation
 
 The
accompanying unaudited condensed financial statements for the interim period
ended December 31, 2008 and 2007 have been prepared in accordance with
accounting principles generally accepted in the United States of America
(“U.S. GAAP”), for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all
of the financial information and footnotes required by U.S. GAAP for complete
financial statements. In the opinion of the Company’s management, the unaudited
condensed financial statements have been prepared on the same basis as the
audited financial statements in the Form 10-KSB, and include all adjustments
(consisting of normal recurring accruals) necessary for the fair presentation of
the Company’s statement of financial position as of December 31, 2008, and its
results of operations and its cash flows for the three and Nine months ended
December 31, 2008 and 2007. All adjustments are of a normal recurring nature.
The results for the three and nine month periods ended December 31, 2008 are not
necessarily indicative of the results to be expected for any subsequent quarter
or for the fiscal year ending March 31, 2009. The accompanying statements should
be read in conjunction with the Auditor’s Report and accompanying audited
financial statements and Note 1thereto contained in the Company’s fiscal 2008
Form 10-KSB filed with the Securities and Exchange Commission (the “SEC”) on
July 14, 2008 in which the Company’s CPA firm states in its Report, and the
Company states  in Note 1, that there is substantial doubt in the
Company’s ability to continue as a going concern.
 
 Going
Concern
 
 The
accompanying condensed financial statements have been prepared in conformity
with accounting principles generally accepted in the United States, which
contemplate the Company as a going concern. However, the Company has sustained
operating losses since inception and has used substantial amounts of working
capital in its operations. These conditions raise substantial doubt in the
Company’s ability to continue as a going concern. Realization of a major portion
of the assets reflected on the accompanying condensed balance sheet is dependent
upon continued operations of the Company which, in turn, is dependent upon the
Company’s ability to meet its financing requirements and succeed in its future
operations.  While the Company is attempting to produce sufficient
sales, the Company’s cash position may not be sufficient to support the
Company’s daily operations. Management has raised funds by way of private
placement offerings and the issuance of senior convertible notes. While the
Company believes in the viability of its strategy to produce sales volume and in
its ability to raise additional funds, there can be no assurances to that
effect. The ability of the Company to continue as a going concern is dependent
upon the Company’s ability to further implement its business plan and generate
sufficient sales revenues.
 
 These
condensed financial statements do not reflect adjustments that would be
necessary if the Company was unable to continue as a going concern. While
management believes that the actions already taken or planned will mitigate the
adverse conditions and events which raise doubt about the validity of the going
concern assumption used in preparing these condensed financial statements, there
can be no assurance that these actions will be successful.
 
 If the
Company were unable to continue as a going concern, then substantial adjustments
would be necessary to the carrying values of assets, the reported amounts of its
liabilities, the reported revenues and expenses, and the balance sheet
classifications used.
 6
 Table of Contents
  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. The use of estimates and assumptions may affect the
reported amounts in the condensed financial statements and accompanying notes.
Actual results could differ from those estimates and such differences could be
material.
 
 Segment
Information
 
 The
Company operates in one segment.
 
 Cash
and Cash Equivalents
 
 Cash
equivalents include demand deposits and money market and investment funds for
purposes of the statements of cash flows. EnterConnect considers all highly
liquid monetary instruments with original maturities of three months or less to
be cash equivalents.
 
 Restricted
Cash
 
 In
February 2008, EnterConnect was required to open a $200,000 certificate of
deposit to secure for possible losses from corporate credit card
purchases.  The certificate of deposit was reduced to $75,000 and then
to $25,000 in August and October, 2008, respectively.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost. Depreciation and amortization is computed
using the straight-line method over the estimated useful lives of the respective
assets. The estimated useful lives used in computing depreciation are summarized
as follows:
 
 Class
      of Asset
                            Useful
      Life in YearsComputer
      equipment
                            3
      yearsFurniture
      and fixtures
                            5
      years
 
 Ordinary
repair and maintenance costs are charged to expense as incurred. When assets are
retired, the cost and accumulated depreciation and amortization are removed from
their respective accounts and any loss on such retirement is reflected in
operating expenses. When assets are otherwise disposed of, the cost and related
accumulated depreciation and amortization are removed from their respective
accounts and any gain or loss on such sale or disposal is reflected in other
income.
 
 Impairment
of Long-Lived Assets
 
 Long-lived
assets, including identifiable intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. EnterConnect evaluates the recoverability of its
long-lived assets based on estimated undiscounted future cash flows and provides
for impairment if such undiscounted cash flows are insufficient to recover the
carrying amount of the long-lived asset. If impaired, the long-lived asset is
written down to its estimated fair value. When alternative courses of action to
recover the carrying amount of a long-lived asset are under consideration, a
probability-weighted approach is used for developing estimates of future
undiscounted cash flows. If the carrying value of the long-lived asset is not
recoverable based on these estimated future undiscounted cash flows, the
impairment loss is measured as the excess of the asset’s carrying value over its
fair value, such that the asset’s carrying value is adjusted to its estimated
fair value. The assumptions used by management in its projections of
undiscounted cash flows involve significant judgment of material estimates of
future revenue and customer acceptance. If the assumptions utilized in the
projections do not materialize, the carrying values could become impaired
resulting in a substantial impairment expense in the future.
 
 Management
assesses the fair value of long-lived assets using commonly accepted techniques,
and may use more than one source. Sources to determine fair value may include,
but are not limited to, recent third party comparable sales, internally
developed discounted cash flow analysis and analysis from outside advisors.
Significant changes in market conditions resulting from events such as changes
in condition of an asset, or a change in management’s intent to utilize the
asset, would generally require management to re-assess the cash flows related to
the long-lived assets. At December 31, 2008, the Company determined that there
was no impairment based on management’s evaluation.
 
 7
 Table of Contents
  Fair
Value Measurement
 
 Effective
March 31, 2008, the Company implemented Statement of Financial Accounting
Standards No. 157,Fair Value
Measurement, or SFAS 157, for its financial assets and liabilities that
are re-measured and reported at fair value at each reporting period, and
non-financial assets and liabilities that are re-measured and reported at fair
value at least annually.
  The
adoption of SFAS 157 to the Company’s financial assets and liabilities did not
have an impact on the Company’s financial results. SFAS 157 establishes a
three-tier value hierarchy, which prioritizes the inputs used in the valuation
methodologies in measuring fair value:
 
 Level 1.
              Observable inputs that reflect
      quoted prices (unadjusted) for identical assets or liabilities in active
      markets.
 
 Level 2.
              Include other inputs that are
      directly or indirectly observable in the
    marketplace.
 
 Level 3.
              Unobservable inputs which are
      supported by little or no market
  activity.
 
 EnterConnect’s
financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable, prepaid expenses and other current assets,
accounts payable, accrued expenses and convertible notes payable. The following
represents the Company’s cash and cash equivalents and short-term investments
that are measured at fair value on a recurring basis as of December 31, 2008 and
indicates the fair value hierarchy of the valuation: Level 1: time deposits and
short-term investments – quoted market prices for identical
assets.  The carrying value of accounts receivable, prepaid expenses
and other current assets, accounts payable, and accrued expenses approximate
their fair values due to their short maturities. The fair value of
EnterConnect’s convertible notes payable approximates its carrying value as
these financial instruments are reflected net of discounts which management of
EnterConnect believes to be reflective of discounts that a willing party would
require in order to invest in a similar type of debt instrument.
 
 Revenue
Recognition
 
 The
Company derives its revenues from two (2) sources: (1) subscription revenues,
which are comprised of subscription fees from customers accessing its on-demand
application service, and from customers purchasing additional support beyond the
standard support that is included in the basic subscription fee; and (2) related
professional services revenue. Because the Company provides its application as a
service, the Company follows the provisions of the Securities and Exchange
Commission’s, or SEC, Staff Accounting Bulletin No. 104,Revenue Recognition and
Emerging Issues Task Force Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables. The Company recognizes revenue when all of the following
conditions are met:
 
 ·
              There is persuasive evidence of
      an arrangement;
 ·
              The service has been provided to
      the customer;
 ·
              The collection of the fees is
      reasonably assured; and
 ·
              The amount of fees to be paid by
      the customer is fixed or
determinable.
 
 The
Company’s arrangements do not contain general rights of return.
 
 Subscription
and support revenues are recognized ratably over the contract terms beginning on
the commencement date of each contract. Amounts that have been invoiced are
recorded in accounts receivable and in deferred revenue or revenue, depending on
whether the revenue recognition criteria have been met.
 
 Professional
services revenues, when sold with subscription and support offerings, are
accounted for separately when these services have value to the customer on a
standalone basis and there is objective and reliable evidence of fair value of
each deliverable. When accounted for separately, revenues are recognized as the
services are rendered for time and material contracts, and when the milestones
are achieved and accepted by the customer for fixed price contracts. The
majority of the Company’s consulting contracts are on a time and material basis.
For revenue arrangements with multiple deliverables, such as an arrangement that
includes subscription, premium support, consulting or training services, the
Company allocates the total amount the customer will pay to the separate units
of accounting based on their relative fair values, as determined by the price of
the undelivered items when sold separately.
 
 In
determining whether the consulting services can be accounted for separately from
subscription and support revenues, the Company considers the following factors
for each consulting agreement: availability of the consulting services from
other vendors, whether objective and reliable evidence for fair value exists for
the undelivered elements, the nature of the consulting services, the timing of
when the consulting contract was signed in comparison to the subscription
service start date, and the contractual dependence of the subscription service
on the customer’s satisfaction with the consulting work. If a consulting
arrangement does not qualify for separate accounting, the Company recognizes the
consulting revenue ratably over the remaining term of the subscription contract.
Additionally, in these situations, the Company defers only the direct costs of
the consulting arrangement and amortizes those costs over the same time period
as the consulting revenue is recognized. These deferred costs are included in
prepaid expenses and other current assets and other assets.  As of
December 31, 2008, there are no deferred costs on the accompanying balance
sheets.
 
 Income
Taxes
 
 The
Company follows Statement of Financial Accounting Standards No. 109 - Accounting
for Income Taxes, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method, deferred
tax assets and liabilities are based on the differences between the financial
statement and tax bases of assets and liabilities using 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 to the extent management
concludes it is more likely than not that the assets will not be realized.
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. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of operations in the period that includes the enactment
date.
 
 8
 Table of Contents
  As of
March 31, 2008, the Company had deferred tax assets of approximately $2.1
million resulting from temporary differences and net operating loss (“NOL”)
carry-forwards of approximately $6 million, which are available to offset future
taxable income, if any, through 2027. As utilization of the net operating loss
carry-forwards and temporary difference is not assured, the deferred tax asset
has been fully offset by a valuation allowance.
 
 The
Company recorded a provision for income taxes of $1,600 and $0 for the nine
months ended December 31, 2008 and 2007, respectively.
 
 Net
Loss Per Common Share
 
 Net loss
per common share is computed pursuant to Statement of Financial Accounting
Standards No. 128. "Earnings per Share" ("SFAS No. 128"). Basic net loss per
common share is computed by dividing net loss by the weighted average number of
shares of common stock outstanding during the period. Diluted net loss per
common share is computed by dividing net loss by the weighted average number of
shares of common stock and potentially outstanding shares of common stock during
each period. As of December 31, 2008 and 2007, 18,663,694 and 9,031,192
warrants, respectively, were excluded from the diluted loss per share
computation, as their effect would be anti-dilutive.
 
 Reclassifications
 
 Certain
amounts in the prior period financial statements have been reclassified to
conform to the current period presentation. These reclassifications had no
effect on reported losses.
 
 Recently
Issued Accounting Pronouncements
 
 In June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC
Release No. 33-8934 on June 26, 2008. Commencing with the Company’s Annual
Report for the year ending March 31, 2010, the Company is required to include a
report of management on the Company’s internal control over financial reporting.
The internal control report must include a statement of management’s
responsibility for establishing and maintaining adequate internal control over
financial reporting for the Company; of management’s assessment of the
effectiveness of the Company’s internal control over financial reporting as of
year-end and; of the framework used by management to evaluate the effectiveness
of the Company’s internal control over financial reporting. Furthermore, in the
following fiscal year, it is required to file the auditor’s attestation report
separately on the Company’s internal control over financial reporting on whether
it believes that the Company has maintained, in all material respects, effective
internal control over financial reporting.
 
 In
December 2007, the FASB issued FASB Statement No. 141 (Revised 2007)“Business Combinations”
(“SFAS No. 141(R)”), which requires the Company to record fair value estimates
of contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, except
for the presentation and disclosure requirements, which shall be applied
retrospectively for all periods presented.  The Company has not
determined the effect that the adoption of SFAS No. 141(R) will have on the
financial results of the Company.
 
 In
December 2007, the FASB issued FASB Statement No. 160“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS
No. 160”), which causes noncontrolling interests in subsidiaries to be included
in the equity section of the balance sheet. SFAS No. 160 applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, except for the presentation and disclosure requirements,
which shall be applied retrospectively for all periods presented.  The
Company has not determined the effect that the adoption of SFAS No. 160 will
have on the financial results of the Company.
 
 In March
2008, the FASB issued FASB Statement No. 161“Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133” (“SFAS No. 161”), which changes the disclosure requirements for
derivative instruments and hedging activities.  Pursuant to SFAS
No.161, Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008 with early
application encouraged. SFAS No. 161 encourages but does not require disclosures
for earlier periods presented for comparative purposes at initial
adoption.  In years after initial adoption, this Statement requires
comparative disclosures only for periods subsequent to initial
adoption.  The Company does not expect the adoption of SFAS No. 161 to
have a material impact on the financial results of the Company.
 9
 Table of Contents
  Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying condensed financial statements.
 
 NOTE
3 – COMMITMENTS AND CONTINGENCIES
 
 In
accordance with the registration rights in favor of investors associated with
the December 6, 2007 private placement (“December 6, 2007 Registration Rights”),
the Company was required to issues additional common stock warrants to the
investors if the registration statement is not declared effective by the SEC
within 120 days of filing.  Consequently, if the company is unable to
obtain an amendment and waiver from all of the December 6, 2007 investors,
additional warrants of up to 93,333 (or up to 10% of the total shares purchased
under the December 6, 2007 offering) may be issued by the Company.
 
 The
Company also executed a registration rights agreement (“December 20, 2007
Registration Rights Agreement”) in connection with issuance of its December 20,
2007 senior secured convertible notes (“December 20, 2007
Notes”).  Under the December 20, 2007 Registration Rights Agreement,
the Company is required to file a registration statement with the SEC for an
amount equal to 130% of the shares underlying the December 20, 2007 Notes within
30 days of the offering date, and have the registration statement declared
effective by the SEC within 120 days of filing (“Registration Effective Date
Requirement”).  On June 19, 2008, the Company entered into a Waiver
and Amendment Agreement with the majority holder of the December 20, 2007 Notes
to extend the Registration Effective Date Requirement from 120 days to 240 days
from the filing date, and to register 2,369,176 warrant shares and no shares
underlying the December 20, 2007 Notes.  In addition, the December 20,
2007 Registration Rights Agreement provides for penalties of up to 3% per month
on the outstanding December 20, 2007 Note balance if certain registration
covenants are not met by the Company, including the Registration Effective Date
Requirement.  Since the Company was not previously in compliance with
all of the covenants in the December 20, 2007 Registration Rights Agreement, the
Company recorded a penalty in accrued expenses during the previous quarter ended
September 30, 2008.  The registration statement was declared effective
by the SEC on October 3, 2008.
 
 The
December 20, 2007 Notes outstanding on December 31, 2008 had an optional
redemption provision whereby the Note holders had the right to give notice to
the Company by December 20, 2008 to redeem the outstanding principal balance of
their Notes in cash, plus interest (“Redemption Notices”).  The
Company received Redemption Notices from certain Note holders exercising that
right.  On December 17, 2008, the Company entered into a Waiver and
Amendment Agreement with the majority holder of the December 20, 2007 Notes to
(i) extend the optional redemption date of the Notes from December 20, 2008 to
June 20, 2009; (ii) amend the conversion price of the Notes from $0.60 to $0.10
per share, (iii) provided for an optional redemption by the Company for a
portion of the Notes prior to the optional redemption date; (iv) waived any
adjustment to the number of warrant shares issuable upon exercise of the SPA
Warrants that would occur as a result of adjustment to the exercise price under
the Warrants, and (v) waived the event of default associated with the Company’s
failure to have the registration statement declared effective on or before the
additional effectiveness deadline.  As a result of the waiver of the
event of default, the Company reversed the previously recorded penalty from
accrued expenses in the condensed financial statements as of December 31,
2008.  The Company was in compliance with all of the covenants in
the December 20, 2007 Registration Rights Agreement as of December 31,
2008.
 
 On June
19, 2007, the Company entered into a Memorandum of Understanding (“MOU”) with
Global Media Fund, Inc. (“Global”) under which Global agreed to distribute
newspaper features, radio features and other marketing media regarding the
Company in return for 1,000,000 shares of Company Common Stock (the “Global
Shares”) with an agreed-upon value of $2,000,000.  The MOU provides
that if the market value of the Global Shares falls below an aggregate value of
$700,000, (“the minimum threshold”), then all work by Global under the MOU shall
cease.  The Company then has the option to issue an additional number
of shares or to give cash to Global sufficient to bring the aggregate value of
the Global Shares up to $1 million, failing which Global has the right to
terminate the MOU.  Global sold the Global Shares in
2007.  The Company and Global disagree whether the minimum threshold
provision in the MOU remains applicable.  As of December 31, 2008 the
value of the Global Shares was less than $700,000.  Global has
informed the Company that it does not intend to exercise its right to terminate
the MOU and will continue to provide all services to the Company under the MOU
through December 31, 2009.
 
 NOTE
4 – LEGAL PROCEEDINGS
 
 During
the period November 2008 through January 2009, three civil claims have been
filed against the Company in the State of California for unpaid
services.  The claims total approximately $120,000 and are accrued in
the balance sheet as of December 31, 2008.  The Company intends to
pursue settlement of the claims.
 
 NOTE
5 – SUBSEQUENT EVENTS
  As discussed in Part 1, Item 1, Note 1
and in Part I, Item 2 hereof, there is substantial doubt in the Company’s
ability to continue as a going concern.  The Company is presently
facing a severe cash flow challenge.  It is the opinion of Company
Management that there is a reasonable possibility for the Company to raise
sufficient funds in the near term to enable the Company to continue as a going
concern.  However, Management can offer no assurances of such a
result.  The Company is currently in the process of seeking additional
funding in the form of debt or equity.  In connection with these
efforts, the Company has entered into a Financial & Strategic Advisory
Agreement with John Thomas Financial, Inc. under which the Company will receive
investment banking and management consulting services, including without
limitation, sale of equity or debt securities by the Company, corporate
partnering by the Company, potential Company transactions with target or
acquiring companies, and review of the Company’s business, operations and
financial condition (the “JFT Advisory Agreement”).  A copy of the JFT
Advisory Agreement is attached hereto as Exhibit 10.1.
 10
 Table of Contents
  ITEM
2.
 
 MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
 
 Safe Harbor
Statement under the Private Securities Litigation Reform Act of
1995
 
 Information
set forth herein contains "forward-looking statements" which can be identified
by the use of forward-looking terminology such as "believes," "expects," "may,”
“should" or "anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. No assurance can be given
that the future results covered by the forward-looking statements will be
achieved. The Company cautions readers that important factors may affect the
Company’s actual results and could cause such results to differ materially from
forward-looking statements made by or on behalf of the
Company.      These factors include the Company’s
lack of historically profitable operations, dependence on key personnel, the
success of the Company’s business, ability to manage anticipated growth and
other factors identified in the Company's filings with the Securities and
Exchange Commission, press releases and/or other public
communications.
 
 OVERVIEW
 
 EnterConnect
Inc. (“EnterConnect”, or the “Company”) is a leading provider of
enterprise-proven on-demand business portals that improve communication,
collaboration and business processes to help companies increase customer
satisfaction, growth and productivity. Our portals enable customers, employees,
partners, suppliers and other stakeholders to securely consolidate, collaborate
and connect online - at anytime, from anywhere - to accelerate business
on-demand. EnterConnect solutions are based on a rich technology foundation in
use at more than 50 Fortune 1000 companies.
 
 EnterConnect
Inc. was incorporated in accordance with the laws of the State of Nevada to
acquire, develop, market and sell EnterConnectTM, a software program that
provides document management, content management, collaboration, search and
security (“EnterConnect”).  In November 2006, the Company commenced a
Regulation D Offering of its securities to acquire the EnterConnect platform
from Enterpulse, Inc., a Georgia corporation.  On December 21, 2006,
the Company and Enterpulse consummated an Asset Purchase Agreement whereby the
Company acquired the EnterConnect platform and certain related assets and
personnel for the aggregate purchase price of $1.1 million.
 
 Our plan
of operation is to add substantial numbers of paying subscriptions and provide
high quality technical support to our customers.  We intend to sell
our EnterConnect Product Suite to marketplace partners and marketplace
customers.  Additionally, we intend to generate revenues from sharing
fees we collect from the partners doing business through the marketplace and
from referral fees and partner storefront hosting fees.
 
 To
continue active business operations we will need to:
 ·
              hire additional personnel,
      particularly in sales and other customer-related
    areas;
 ·
              expand our selling and marketing
      activities;
 ·
              increase our research and
      development activities to upgrade and extend our service offerings and to
      develop new services and
technologies;
 ·
              add to our infrastructure to
      support our growth; and
 ·
              expand our operational systems to
      manage a growing business.
 
 Additionally,
in our effort to further strengthen and extend our service offering, we may in
the future acquire or make investments in complementary companies, services and
technologies. We anticipate that these activities will require $4 million
of funding. There can be no assurance that we will have raised sufficient
funds or generate sufficient revenues to implement any of these growth
strategies.
 
 At
December 31, 2008, our cash position was $0.1 million. At our current rate of
expenditures, we should have cash available to maintain operations through
February 28, 2009.  Please refer to Part I, Item 1, Note 5 (Subsequent
Events) hereof.  We are seeking additional sources to fund our
operations for the next 12 months in the form of debt or equity in one or more
public or private offerings of Company securities.  Such additional
funds may not become available on acceptable terms, if at all, and there can be
no assurance that any additional funding that we do obtain will be sufficient to
meet our needs in the long term.
  In the
event that we do not have sufficient funds necessary to fund our plan of
operations for the next 12 months, we may be required to further scale down our
sales and marketing and research and development expense.
 
 11
 Table of Contents
  Sources
of Revenues
 
 We derive
our revenues from two sources: (1) subscription revenues, which are comprised of
subscription fees from customers accessing our on-demand application service;
and (2) related professional services and other revenues. Other revenues consist
primarily of implementation and other hosting fees. Subscription revenues
accounted for approximately 75 percent of our total revenues for the nine months
ended December 31, 2008. Subscription revenues are driven primarily by the
number of paying subscribers of our service and the subscription price of our
service. One of our customers, who is also a related third-party, accounted for
51 percent of our revenues during the nine months ended December 31,
2008.
  Subscription
and support revenues are recognized ratably over the contract terms beginning on
the commencement dates of each contract. The typical subscription and support
term is 12 to 24 months. Our subscription and support contracts are
non-cancelable, though customers typically have the right to terminate their
contracts for cause if we materially fail to perform. We generally invoice our
customers in advance, in quarterly or monthly installments, and typical payment
terms provide that our customers pay us within 30 days of invoice. Amounts that
have been invoiced are recorded in accounts receivable and in deferred revenue,
or in revenue depending on whether the revenue recognition criteria have been
met. In general, we collect our billings in advance of the subscription service
period.
 
 Professional
services and other revenues consist of fees associated with consulting,
implementation, training and hosting services. Our professional services
engagements are typically billed on a fixed fee basis. Our typical payment terms
provide that our customers pay us within 30 days of invoice.
 
 We
recognize revenue in accordance with the provisions of SEC Staff Accounting
Bulletin No. 104,“Revenue
Recognition,” or SAB 104, and Emerging Issues Task Force, or EITF, Issue
No. 00-21,“Revenue Arrangements with Multiple
Deliverables,”  or EITF 00-21. In determining whether
professional services can be accounted for separately from subscription and
support revenues, we consider a number of factors, which are described in
“Critical Accounting Policies and estimates —Revenue Recognition”
below.
 
 Cost
of Revenues and Operating Expenses
 
 Cost of Revenues. Cost of
subscription and support revenues primarily consists of expenses related to
hosting our service and providing support.
 
 We intend
to continue to invest additional resources in our on-demand application service
and in our consulting services. The timing of these additional expenses will
affect our cost of revenues, both in terms of absolute dollars and as a
percentage of revenues, in a particular quarterly period.
 
 General and Administrative.
General and administrative expenses consist of salaries and related expenses for
the senior management team, finance and accounting, legal costs, professional
fees, other corporate expenses and allocated overhead. We expect that in the
future, general and administrative expenses will increase in absolute dollars as
we add personnel and incur additional professional fees and insurance costs
related to the growth of our business.
 
 Sales and Marketing. Sales
and marketing expenses consist primarily of salaries and related expenses for
our sales and marketing staff and marketing programs consisting of advertising,
events, corporate communications and brand building and product marketing
activities.
 
 We plan
to continue to invest heavily in sales and marketing by increasing the number of
direct sales personnel in order to add new customers, build brand awareness and
sponsor additional marketing events. We expect that in the future, sales and
marketing expenses will increase in absolute dollars.
 
 Research and Development.
Research and development expenses consist primarily of salaries, contractors,
and related expenses and allocated overhead. We continue to focus our research
and development efforts on increasing the functionality and enhancing the ease
of use of our on-demand application service. Our scalable and secure
multi-tenant architecture enables us to provide all of our customers with a
service based on a single version of our application. As a result, we do not
have to maintain multiple versions, which enable us to have relatively low
research and development expenses as compared to traditional enterprise software
companies. We expect that in the future, research and development expenses will
increase in absolute dollars as we upgrade and extend our service offerings and
develop new technologies.
 
 Critical
Accounting Policies and Estimates
 
 Management’s
discussion and analysis of our financial condition and results of operations are
based upon our condensed financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities. 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.
Actual results may differ from these estimates under different assumptions or
conditions.
 
 Critical
accounting policies are those that we believe are both significant and that
require us to make difficult, subjective or complex judgments, often because we
need to estimate the effect of inherently uncertain matters. We base our
estimates and judgments on historical experiences, which are of a limited
duration given our status as an early stage company. We also consider factors
and assumptions we believe to be appropriate under the circumstances, but in
some cases we do not control the implementation timelines associated with the
assumptions we must formulate. Actual results may differ from our current and
previous estimates, and we might obtain or formulate different estimates if we
used different assumptions or conditions. We believe the critical accounting
polices briefly described below affect our current evaluations and the estimates
used in the preparation of our financial statements. We believe the following
critical accounting policies affect our more significant judgments and estimates
used in the preparation of our financial statements.
 12
 Table of Contents
  Revenue
Recognition
 
 We derive
our revenues from two (2) sources: (1) subscription revenues, which are
comprised of subscription fees from customers accessing its on-demand
application service and (2) related professional services revenue. Because the
Company provides its application as a service, the Company follows the
provisions of the Securities and Exchange Commission’s, or SEC, Staff Accounting
Bulletin No. 104,Revenue
Recognition and Emerging Issues Task Force Issue No. 00-21,Revenue Arrangements with Multiple
Deliverables . The Company recognizes revenue when all of the following
conditions are met:
 
 ·
              There is persuasive evidence of
      an arrangement;
 ·
              The service has been provided to
      the customer;
 ·
              The collection of the fees is
      reasonably assured; and
 ·
              The amount of fees to be paid by
      the customer is fixed or
determinable.
 
 Our
arrangements do not contain general rights of return.
 
 Subscription
and support revenues are recognized ratably over the contract terms beginning on
the commencement date of each contract. Amounts that have been invoiced are
recorded in accounts receivable and in deferred revenue or revenue, depending on
whether the revenue recognition criteria have been met.
 
 Professional
services revenues, when sold with subscription and support offerings, are
accounted for separately when these services have value to the customer on a
standalone basis and there is objective and reliable evidence of fair value of
each deliverable. When accounted for separately, revenues are recognized as the
services are rendered for time and material contracts, and when the milestones
are achieved and accepted by the customer for fixed price contracts. The
majority of our consulting contracts are on a fixed fee basis. For revenue
arrangements with multiple deliverables, such as an arrangement that includes
subscription, premium support, consulting or training services, we allocate the
total amount the customer will pay to the separate units of accounting based on
their relative fair values, as determined by the price of the undelivered items
when sold separately.
 
 In
determining whether the consulting services can be accounted for separately from
subscription and support revenues, we consider the following factors for each
consulting agreement: availability of the consulting services from other
vendors, whether objective and reliable evidence for fair value exists for the
undelivered elements, the nature of the consulting services, the timing of when
the consulting contract was signed in comparison to the subscription service
start date, and the contractual dependence of the subscription service on the
customer’s satisfaction with the consulting work. If a consulting arrangement
does not qualify for separate accounting, we recognize the consulting revenue
ratably over the remaining term of the subscription contract. Additionally, in
these situations, we defer only the direct costs of the consulting arrangement
and amortizes those costs over the same time period as the consulting revenue is
recognized. These deferred costs are included in prepaid expenses and other
current assets and other assets.  As of December 31, 2008, there are
no deferred costs on the accompanying condensed balance sheet.
 
 Impairment
of Long-Lived Assets
 
 Long-lived
assets, including identifiable intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. We evaluate the recoverability of its long-lived assets
based on estimated undiscounted future cash flows and provides for impairment if
such undiscounted cash flows are insufficient to recover the carrying amount of
the long-lived asset. If impaired, the long-lived asset is written down to its
estimated fair value. When alternative courses of action to recover the carrying
amount of a long-lived asset are under consideration, a probability-weighted
approach is used for developing estimates of future undiscounted cash flows. If
the carrying value of the long-lived asset is not recoverable based on these
estimated future undiscounted cash flows, the impairment loss is measured as the
excess of the asset’s carrying value over its fair value, such that the asset’s
carrying value is adjusted to its estimated fair value. The assumptions used by
management in its projections of undiscounted cash flows involve significant
judgment of material estimates of future revenue and customer acceptance. If the
assumptions utilized in the projections do not materialize, the carrying values
could become impaired resulting in a substantial impairment expense in the
future.
 
 Management
assesses the fair value of long-lived assets using commonly accepted techniques,
and may use more than one source. Sources to determine fair value include, but
are not limited to, recent third party comparable sales, internally developed
discounted cash flow analysis and analysis from outside advisors. Significant
changes in market conditions resulting from events such as changes in commodity
prices or the condition of an asset, or a change in management’s intent to
utilize the asset would generally require management to re-assess the cash flows
related to the long-lived assets.
 13
 Table of Contents
  Results
of Operations
 
 The
following tables set forth selected data for each of the periods indicated. All
data is unaudited.
 
 Three months
      ended December31,
                  
                  
                  Nine
      months ended December 31,2008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues:Subscription
      and support
                  
                  $
                  76,134
                  
                  
                  $
                  37,300
                  
                  
                  $
                  170,666
                  
                  
                  $
                  67,300Professional
      services
                  
                  
                  30,750
                  
                  
                  
                  15,000
                  
                  
                  
                  56,125
                  
                  
                  
                  50,998Total
      revenues
                  
                  
                  106,884
                  
                  
                  
                  52,300
                  
                  
                  
                  226,791
                  
                  
                  
                  118,298Cost
      of revenues
                  
                  
                  15,161
                  
                  
                  
                  -
                  
                  
                  
                  60,981
                  
                  
                  
                  -Gross
      profit
                  
                  
                  91,723
                  
                  
                  
                  52,300
                  
                  
                  
                  165,810
                  
                  
                  
                  118,298Operating
      expenses:General
      and administrative
                  
                  
                  336,534
                  
                  
                  
                  289,700
                  
                  
                  
                  1,147,672
                  
                  
                  
                  833,709Sales
      and marketing
                  
                  
                  51,314
                  
                  
                  
                  117,287
                  
                  
                  
                  516,582
                  
                  
                  
                  358,930Research
      and development
                  
                  
                  328,768
                  
                  
                  
                  292,513
                  
                  
                  
                  1,284,714
                  
                  
                  
                  940,732Total
      operating expenses
                  
                  
                  716,616
                  
                  
                  
                  699,500
                  
                  
                  
                  2,948,968
                  
                  
                  
                  2,133,371Loss
      from operations
                  
                  
                  (624,893
                  )
                  
                  
                  (647,200
                  )
                  
                  
                  (2,783,158
                  )
                  
                  
                  (2,015,073
                  )Other
      (income) expenses:Interest
      expense, net
                  
                  
                  543,298
                  
                  
                  
                  1,087,568
                  
                  
                  
                  1,610,510
                  
                  
                  
                  1,101,532Other
      (income) expense
                  
                  
                  (210,620)
                  
                  
                  
                  -
                  
                  
                  
                  (32,953
                  )
                  
                  
                  -Total
      other expenses
                  
                  
                  332,678
                  
                  
                  
                  1,087,568
                  
                  
                  
                  1,577,557
                  
                  
                  
                  1,101,532Loss
      from operations before income taxes
                  
                  
                  (957,571
                  )
                  
                  
                  (1,734,768
                  )
                  
                  
                  (4,360,715
                  )
                  
                  
                  (3,116,605
                  )Income
      taxes
                  
                  
                  1,600
                  
                  
                  
                  -
                  
                  
                  
                  1,600
                  
                  
                  
                  -Net
      loss
                  
                  $
                  (959,171
                  )
                  
                  $
                  (1,734,768
                  )
                  
                  $
                  (4,362,3154
                  )
                  
                  $
                  (3,116,605
                  )Net
      loss per common share - basic and diluted
                  
                  $
                  (0.03
                  )
                  
                  $
                  (0.07
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.13
                  )Weighted
      average number of common shares outstanding – basic and
      diluted
                  
                  
                  27,205,261
                  
                  
                  
                  25,020,928
                  
                  
                  
                  27,205,261
                  
                  
                  
                  23,482,097
  Overview
of the Three Months Ended December 31, 2008
 
 Total
revenues for the three months ended December 31, 2008 increased to $106,884, or
104%, from $52,300 in the same period in 2007.  The revenues are not
significant and we are beginning in fiscal 2009 to invest in our sales efforts
to generate new subscribers.
 
 Gross
profit increased to $91,723 during the three months ended December 31, 2008 from
$52.300 in the same year ago period.  The gross profit percentage was
86% for the three months ended December 31, 2008 and 100% for the same period in
2007. Cost of revenues will increase in absolute dollars as we add new
subscribers and add personnel to support an increased customer
base.
  
 14
 Table of Contents
  Sales and
marketing expense decreased (44)% to $51,314 during the three months ended
December 31, 2008 from $117,287 in the same period in 2007.  The
decrease resulted from a reduction in sales and marketing
personnel.  Sales and marketing expense is expected to increase in
absolute dollars in fiscal 2009 as we add new sales and marketing personnel to
support revenue growth.
 
 Research
and development expense increased 12% to $328,768 during the three months ended
December 31, 2008 from $292,513 in the same period in 2007.  Effective
April 1, 2008, the Company reduced the amortization period prospectively of its
acquired technology down to a total useful life of 36
months.  Consequently, amortization expense increased to $107,000 for
the three months ended December 31, 2008 from $50,000 in the same period in
2007.  Research and development expense in expected to increase in absolute
dollars in fiscal 2009 in order to upgrade and extend our service
offerings.
 
 Overview
of the Nine Months Ended December 31, 2008
 
 Total
revenues for the nine months ended December 31, 2008 increased to $226,791, or
92%, from $118,298 in the same period in 2007.  The revenues are not
significant and we are beginning in fiscal 2009 to invest in our sales efforts
to generate new subscribers.
 
 Gross
profit increased to $165,810 during the nine months ended December 31, 2008 from
$118,298 in the same year ago period.  The gross profit percentage was
73% for the nine months ended December 31, 2008 and 100% for the same period in
2007. Cost of revenues will increase in absolute dollars as we add new
subscribers and add personnel to support an increased customer
base.
 
 General
and administrative expense increased 39% to $1,147,672 during the nine months
ended December 31, 2008 from $833,709 in the same period in 2007.  The
increase resulted from expenses associated with being a public company and
additional personnel costs.  General and administrative costs are
expected to increase in absolute dollars in fiscal 2009 in order to support
expected revenue growth.
 
 Sales and
marketing expense increased 44% to $516,582 during the nine months ended
December 31, 2008 from $358,930 in the same period in 2007.  The
increase resulted from sales personnel hired during the nine months ended
December 31, 2008 and an increase in marketing and trade show
expenses.  Sales and marketing expense is expected to increase in
absolute dollars in fiscal 2009 as we add new sales and marketing personnel to
support revenue growth.
 
 Research
and development expense increased 37% to $1,284,714 during the nine months ended
December 31, 2008 from $940,732 in the same period in 2007.  Effective
April 1, 2008, the Company reduced the amortization period prospectively of its
acquired technology down to a total useful life of 36
months.  Consequently, amortization expense increased to $321,000 for
the nine months ended December 31, 2008 from $150,000 in the same period in
2007.   The increase was also attributable to the increase in
personnel and consultant costs.  Research and development expense in
expected to increase in absolute dollars in fiscal 2009 in order to upgrade and
extend our service offerings.
 
 Recently
Issued Accounting Pronouncements
 
 In June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as amended by SEC
Release No. 33-8934 on June 26, 2008. Commencing with the Company’s Annual
Report for the year ending March 31, 2010, the Company is required to include a
report of management on the Company’s internal control over financial reporting.
The internal control report must include a statement of management’s
responsibility for establishing and maintaining adequate internal control over
financial reporting for the Company; management’s assessment of the
effectiveness of the Company’s internal control over financial reporting as of
year-end; and the framework used by management to evaluate the effectiveness of
the Company’s internal control over financial reporting. Furthermore, in the
following fiscal year, the Company is required to file its auditor’s attestation
report on the Company’s internal control over financial reporting stating
whether the auditor believes that the Company has maintained effective internal
control over its financial reporting in all material respects.
 
 In
December 2007, the FASB issued FASB Statement No. 141 (Revised 2007)“Business Combinations”
(“SFAS No. 141(R)”), which requires the Company to record fair value estimates
of contingent consideration and certain other potential liabilities during the
original purchase price allocation, expense acquisition costs as incurred and
does not permit certain restructuring activities previously allowed under
Emerging Issues Task Force Issue No. 95-3 to be recorded as a component of
purchase accounting. SFAS No. 141(R) applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, except
for the presentation and disclosure requirements, which shall be applied
retrospectively for all periods presented.  The Company has not
determined the effect that the adoption of SFAS No. 141(R) will have on the
financial results of the Company.
 15
 Table of Contents
  In
December 2007, the FASB issued FASB Statement No. 160“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51” (“SFAS
No. 160”), which causes noncontrolling interests in subsidiaries to be included
in the equity section of the balance sheet. SFAS No. 160 applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008, except for the presentation and disclosure requirements,
which shall be applied retrospectively for all periods presented.  The
Company has not determined the effect that the adoption of SFAS No. 160 will
have on the financial results of the Company.
 
 In March
2008, the FASB issued FASB Statement No. 161“Disclosures about Derivative
Instruments and Hedging Activities an amendment of FASB Statement No.
133” (“SFAS No. 161”), which changes the disclosure requirements for
derivative instruments and hedging activities.  Pursuant to SFAS
No.161, Entities are required to provide enhanced disclosures about (a) how and
why an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows. SFAS No. 161 is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008 with early
application encouraged. SFAS No. 161 encourages but does not require disclosures
for earlier periods presented for comparative purposes at initial
adoption.  In years after initial adoption, this Statement requires
comparative disclosures only for periods subsequent to initial
adoption.  The Company does not expect the adoption of SFAS No. 161 to
have a material impact on the financial results of the Company.
  Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying condensed financial statements.
 
 Liquidity
and Going Concern
 
 The
condensed financial statements included in this Form 10-Q have been prepared
assuming that we will continue as a going concern, however, there can be no
assurance that we will be able to do so, and our condensed financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. At December 31, 2008, the Company had an accumulated deficit of
$(10.4) million and $0.1 million in non-restricted cash. Cash flows used in
operations was $2.3 million during the nine month period ended December 31,
2008.  We have incurred net losses since our inception and we
anticipate that we will continue to operate in a deficit position for the
foreseeable future. We believe that our existing funds will be sufficient to
fund our current operations through February 28, 2009 based upon our estimated
future operations. Due to our inability to generate sufficient revenue to cover
operating expenses, we will require additional financing in order to conduct our
normal operating activities and cover our monthly expenses. There can be no
assurance that we will be able to obtain the additional financing we require, or
be able to obtain such additional financing on terms favorable to our Company.
These circumstances raise substantial doubt about our ability to continue as a
going concern.  The financial statements in this Report should be read
in conjunction with the Auditor’s Report and accompanying audited financial
statements and Note 1thereto contained in the Company’s fiscal 2008 Form 10-KSB
filed with the Securities and Exchange Commission on July 14, 2008 in which the
Company’s CPA firm states in its Report, and the Company states  in
Note 1, that there is substantial doubt in the Company’s ability to continue as
a going concern.
 
 We expect
to increase our revenues during fiscal 2009. However, we cannot be certain that
the anticipated revenues and corresponding cash flows will materialize. If our
revenues and cash flows are not adequate to enable us to meet our obligations;
we will need to raise additional funds to cover the shortfall through either
commercial loans or additional public or private offerings of our securities. We
are currently investigating additional funding opportunities, talking to
potential investors who could provide financing.
 
 Based on
our prior success in raising capital when required through private placements
and the issuance of convertible notes, we are hopeful that we will be able to
secure appropriate financing in the future. We have no current commitments for
additional financing, and there can be no assurance that any private or public
offering of debt or equity securities or other funding arrangements could be
effected on a timely basis or to an extent sufficient to enable us to continue
to satisfy our capital requirements. If we fail to demonstrate an ability to
generate sufficient revenue to meet our obligations and sustain our operations,
our ability to continue to raise capital may be impaired and we may not be able
to continue as a going concern.
 
 Our
minimum rental commitment under a non-cancelable operating lease as of December
31, 2008 is as follows:
 
 2009
                  
                  $
                  21,3662010
                  
                  
                  86,9602011
                  
                  
                  36,679Total
                  
                  $
                  145,005
 
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Interest
rate sensitivity
 
 We had
cash and cash equivalents totaling $0.1 million at December 31, 2008. These
amounts were invested primarily in direct deposits or certificates of deposits
with credit ratings of at least single A or better. The cash and cash
equivalents are held for working capital purposes with capital preservation as
the primary objective.
  ITEM
4. CONTROLS AND PROCEDURES
 
 (a)           Evaluation
of disclosure controls and procedures
 
 We
performed an evaluation under the supervision and with the participation of our
management, including our chief executive and chief financial officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
as of March 31, 2008. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that it will
detect or uncover failures within our company to disclose material information
otherwise required to be set forth in our periodic reports. Based on this
evaluation, we concluded that the Company's controls were ineffective as of the
end of the fiscal year due to inherent weaknesses present in the Company’s
financial controls which led to the Company’s Chief Executive Officer being
reimbursed in excess of the expenses paid on the Company’s behalf. The Company
believes that it has taken steps for remediation of these weaknesses including
the retention of a permanent Chief Financial Officer and the institution of
additional financial controls.
 
 
 16
 Table of Contents
  During
fiscal 2008, the Company began its project to become compliant with the
requirements of Section 404 of the Sarbanes-Oxley Act. While not fully compliant
with Section 404 requirements as of December 13, 2008, activities to date
involve reviewing the Company’s documentation of control procedures being
followed and improving or strengthening those controls where necessary. The
Company plans to continue with assessment, documentation, testing and
improvement of internal controls over financial reporting and expects to become
Section 404 compliant during fiscal 2009.
 
 (b)           Changes
in internal control over financial reporting
 
 Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, during the
Company’s third fiscal quarter we conducted an evaluation of any changes in our
internal control over financial reporting (as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most
recently completed fiscal quarter. Based on that evaluation, our principal
executive officer and principal financial officer concluded that there has not
been any material change in our internal control over financial reporting during
the quarter covered by this report that materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
 
 PART
II — OTHER INFORMATION
 
 ITEM
1.  LEGAL PROCEEDINGS
 
 During
the period November 2008 through January 2009, three civil claims have been
filed against the Company in the State of California for unpaid
services.  The claims total approximately $120,000 and are accrued in
the balance sheet as of December 31, 2008.  The Company intends to
pursue settlement of the claims.
 
 Item
1A.  RISK FACTORS
 
 A
restated description of the risk factors associated with our business is set
forth below. This description includes any material changes to and supersedes
the description of the risk factors included in our Annual Report on Form 10-KSB
for the fiscal year ended March 31, 2008. The risks and uncertainties described
below are not the only ones facing us. Other events that we do not currently
anticipate or that we currently deem immaterial also may affect our results of
operations and financial condition.
 
 We
Have a Limited Operating History
 
 We were
only recently formed and have no significant operating history in our intended
field of endeavor and have sustained substantial losses. Since inception, we
have suffered net losses of $(10.4) million.  There can be no
assurance that we will be successful in building our business or that our
business model will prove to be successful.
 
 We
Have Material Future Financing Needs
 
 Our
business model requires additional financing in order to expand our marketing
and sales efforts. No assurance can be given that additional financing will be
available to us on acceptable terms, if at all. If we raise additional funds by
issuing additional equity securities, further dilution to existing equity
holders will result. If adequate additional funds are not available, we may be
required to curtail significantly our long-term business objectives and our
results from operations may be materially and adversely
affected.  Accordingly, there is substantive doubt whether we can
fulfill our business plan or commence revenue generating
operations.
 
 If
We Are Unable To Raise Capital In The Future, We May Be Unable To Fund Operating
Cash Shortfalls
 
 There can
be no assurance that additional financing may be available to us on acceptable
terms, or at all. Our inability to obtain any needed financing could hinder our
ability to fund our operations and our sales efforts.  Any financing
may cause significant dilution to existing shareholders. Any debt financing or
other financing of securities senior to common stock likely will include
financial and other covenants that will restrict our flexibility. At a minimum,
we expect these covenants to include restrictions on our ability to pay
dividends on our common stock.
 
 Our
Directors, Executive Officers and Principal Stockholders have Effective Control
of the Company, Preventing Non-Affiliate Stockholders from Significantly
Influencing Our Direction and Future
 
 Our
directors, officers, 5% stockholders and their affiliates control a majority of
our outstanding shares of common stock and are expected to continue to control a
majority of our outstanding common stock following any financing transactions
projected for the foreseeable future. These directors, officers and affiliates
effectively control all matters requiring approval by the stockholders,
including any determination with respect to the acquisition or disposition of
assets, future issuances of securities, declarations of dividends and the
election of directors. This concentration of ownership may also delay, defer, or
prevent a change in control and otherwise prevent stockholders other than our
affiliates from influencing our direction and future.
 
 There
is Only a Limited Public Market for Our Common Stock, and even if a Market
Develops, It Will Likely be Thin and Subject To Manipulation
 
 There is
only a limited public market for our common stock and we can provide no
assurance that a public market for our common stock will develop in the future.
Even if a public market does develop, the volume of trading in our common stock
will presumably be limited and likely dominated by a few individuals. The
limited volume, if any, will make the price of our common stock subject to
manipulation by one or more stockholders and will significantly limit the number
of shares that one can purchase or sell in a short period of time. An investor
may find it difficult to dispose of shares of our common stock or obtain a fair
price for our common stock in the market.
 17
 Table of Contents
  The
Market Price for Our Common Stock Will Likely Be Volatile and May Change
Dramatically At Any Time
 
 The
market price of our common stock, like that of the securities of other
early-stage companies, may be highly volatile. Our stock price may change
dramatically as the result of announcements of our quarterly results, the rate
of our expansion, significant litigation or other factors or events that would
be expected to affect our business or financial condition, results of operations
and other factors specific to our business and future prospects. In addition,
the market price for our common stock may be affected by various factors not
directly related to our business, including the following:
 
 ●
              intentional manipulation of our
      stock price by existing or future
  stockholders;
 ●
              short selling of our common stock
      or related derivative
securities;
 ●
              a single acquisition or
      disposition, or several related acquisitions or dispositions, of a large
      number of our shares;
 ●
              the interest, or lack of
      interest, of the market in our business sector, without regard to our
      financial condition or results of
  operations;
 ●
              the adoption of governmental
      regulations and similar developments in theUnited Statesor abroad that may affect our
      ability to offer our products and services or affect our cost
      structure;
 ●
              developments in the businesses of
      companies that purchase our products;
and
 ●
              economic and other external
      market factors, such as a general decline in market prices due to poor
      economic indicators or investor
distrust.
 
 Our
Ability to Issue Preferred Stock and Common Stock May Significantly Dilute
Ownership and Voting Power, Negatively Affect the Price of Our Common Stock and
Inhibit Hostile Takeovers
 
 Under our
Articles of Incorporation, we are authorized to issue up to 10,000,000 shares of
preferred stock and 100,000,000 shares of common stock without seeking
stockholder approval. Our board of directors has the authority to create various
series of preferred stock with such voting and other rights superior to those of
our common stock and to issue such stock without stockholder approval. Any
issuance of such preferred stock or common stock would dilute the ownership and
voting power of existing holders of our common stock and may have a negative
effect on the price of our common stock. The issuance of preferred stock without
stockholder approval may also be used by management to stop or delay a change of
control, or might discourage third parties from seeking a change of control of
our company, even though some stockholders or potential investors may view
possible takeover attempts as potentially beneficial to our
stockholders.
 
 Arbitrary
Determination of Offering Price
 
 The
offering price for the shares of Common Stock was determined arbitrarily, and
such price should not be considered an indication of the actual value of the
Company as it bears no relationship to the book value, assets, or earnings to
the Company or to other recognized criteria of value.
 
 We
Depend on Key Management Personnel for our Future Success
 
 Our
success depends in large part on the continued services of Sam Jankovich,
our Chief Executive Officer and Director. The loss of his services may
materially and adversely affect our business and results of
operations.  In addition, if any key management personnel resign to
join a competitor or form a competing company, the loss of such personnel,
together with the loss of any clients or potential clients to such competitor,
could materially and adversely affect the business and results of operations of
the Company.  Currently, we do not have any agreements with
Mr. Jankovich prohibiting him from joining competitors, forming competing
companies, soliciting existing clients or disclosing information deemed
confidential to us; there is no guarantee that such agreements will be effective
in preventing the key management personnel from engaging in these
actions.  We cannot guarantee that we will be able to replace any of
these individuals in the event their services become unavailable.
 
 Expansion
and Retention of Customer Accounts
 
 Our
success depends on our ability to attract and retain customers; these customers
can terminate their accounts on little or short notice. Currently, we have
engaged in only limited sales and have few customers.  Accordingly, we
may lose or gain significant accounts each year.  There can be no
assurance that we can retain our existing customers and add new customers as we
attempt to expand our business.
 
 Competition
 
 Although
we believe we will be able to compete on the basis of the quality of our
service, price and reputation, and build personal relationships with customers,
there can be no assurance that we will be able to generate or improve our
competitive position as we implement our proposed marketing
program.
 
 18
 Table of Contents
  Control
by Current Stockholders
 
 We are
currently controlled by Sam Jankovich, our Chief Executive Officer and
Director, and Private Capital Group, LLC (“PCG”), whose principal,
Michael Wainstein, serves as a Director, and who own approximately 33% and
28% of our Common Stock, respectively.  The principal stockholders
will continue to own our common stock giving them voting control over the
remaining stockholders.  Since the common stock does not have
cumulative voting rights, they will be able to determine and direct our affairs
and policies and the use of all funds available to us.  Conversely,
purchasers of common stock will have no effective voice in the management of the
Company.
 
 Absence
of Cash Dividends
 
 It is
unlikely we will declare or pay dividends on our common stock in the foreseeable
future out of future earnings, if any, even if permitted to do so under
applicable law.  We currently intend to retain earnings, if any, to
fund our continued operations and proposed expansion.
 
 If
the Protection of Intellectual Property is Inadequate, Competitors May Gain
Access to Our Content and Technology
 
 We seek
to develop and maintain the proprietary aspects of our products and technology.
To protect this proprietary content and technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade secrets
and patent, copyright, and trademark laws.
 
 We seek
to avoid disclosure of our trade secrets through a number of means including,
but not limited to, requiring those persons with access to our proprietary
information to execute confidentiality agreements.  We seek to protect
our software, documentation, and other written materials under trade secret and
copyright laws, which afford only limited protection.  We cannot be
certain that any of our proprietary rights with respect to our products and
services will be viable or of value in the future because, among other reasons,
the validity, enforceability and type of protection of proprietary rights in our
industries are uncertain and still evolving and many different entities are
simultaneously seeking intellectual property rights relevant to software based
applications.
 
 We have
no patents and may not receive a patent related to any of our products and
services.  Our future patents, if any, may be successfully challenged,
rendering them invalid or unenforceable, or may not provide us with any
competitive advantages.  We may not develop proprietary products or
technologies that are patentable and other parties may have dominating patent
claims.  Additionally, other parties may have patent rights relating
to the same subject matter covered by patents issued to us, enabling them to use
the patented technology or license it to others without our
consent.  The validity and enforceability of our future patents, if
any, may also be affected by future legislative actions or judicial
decisions.
 
 Our
trademarks may not provide us with any competitive advantages.  None
of our trademarks may be registrable, and other parties may have priority of use
of such trademarks or variants thereof.
 
 Despite
our efforts to protect our proprietary rights, unauthorized parties may attempt
to copy aspects of our products and intellectual property or to obtain and use
information that we regard as proprietary.  Policing unauthorized use
of our products is difficult, and while we are unable to determine the extent to
which piracy of our intellectual property exits, piracy can be expected to be a
persistent problem.  In addition, the laws and enforcement mechanisms
of some foreign countries do not protect our proprietary rights as much as do
the laws of the United States.  Our means of protecting our
proprietary rights may not be adequate and our competitors may independently
develop similar technology, duplicate our products, or design around patents
issued to us, our content, or other intellectual property.
 
 There has
been a substantial amount of litigation in the internet industry regarding
intellectual property rights.  It is possible that in the future third
parties may claim that we or our current or potential future products or
services infringe upon their intellectual property.  We expect that
developers and providers of e-commerce solutions will increasingly be subject to
infringement claims as the number of products and competitors in this industry
segment grows and the functionality of products in different industry segments
overlaps.  Any claims, with or without merit, could be time-consuming,
result in costly litigation, cause delays in implementation of our services or
require us to enter into license agreements.  Licenses, if required,
may not be available on terms acceptable to us, which could seriously harm our
business.
 
 Our
Business is Subject to U.S. and Foreign Government Regulation of the
Internet
 
 We are
affected by government regulation of the Internet by the United States, at the
state, local and federal government levels, and foreign governmental
bodies.  Because new legislation is continuously being created and
implemented, we are not certain how our business will be impacted and cannot
predict if or how any future legislation would impact our
business.  In addition, we may be indirectly affected by certain new
legislation to the extent it impacts our clients and potential
clients.
 
 We
Incur Increased Costs as a Result of Being a Public Company
 
 As a
public company, with a class of reporting securities, we incur significant
legal, accounting and other expenses that we did not incur as a private company.
We incur costs associated with our public company reporting requirements. We
also anticipate that we will incur costs associated with the new rules
implemented by the Securities and Exchange Commission. We expect these rules and
regulations to increase our legal and financial compliance costs and to make
some activities more time-consuming and costly.
 19
 Table of Contents
  Our
Stock is a Penny Stock and There are Significant Risks Related to Buying and
Owning Penny Stocks
 
 Rule
15g-9 under the Securities Exchange Act of 1934 imposes additional sales
practice requirements on broker-dealers that sell non-NASDAQ listed securities
except in transactions exempted by the rule, including transactions meeting the
requirements of Rule 506 of Regulation D under the Securities Act and
transactions in which the purchaser is an institutional accredited investor (as
defined) or an established customer (as defined) of the broker or dealer. For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to sale. Consequently, this rule may
adversely affect the ability of broker-dealers to sell our securities and may
adversely affect your ability to sell any of the securities you
own.
 
 The
Securities and Exchange Commission regulations define a “penny stock” to be any
non-Nasdaq equity security that has a market price (as defined in the
regulations) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to some exceptions. For any transaction by a
broker-dealer involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about commissions payable to both the broker-dealer and the
registered representative and current quotations (bid and ask prices) for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. Our market liquidity could be severely
and adversely affected by these rules on penny stocks.
 
 ITEM
2.  UNREGISTERED SALES OF SECURITIES AND USE OF
PROCEEDS
 
 Not
applicable.
 
 ITEM
3.  DEFAULTS UPON SENIOR SECURITIES
 
 Not
applicable.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 Not
applicable.
 
 ITEM
5.  OTHER INFORMATION
  In a November 17, 2008 press release,
the Company announced that it signed a Letter of Intent to purchase V-Rooms, a
division of Due Diligence Online LLC.  V-Rooms is an Internet-based,
on-demand service designed to speed completion of financial
transactions.  The Company’s acquisition of V-Rooms has been postponed
with no extension agreed upon due to lack of available financing for the
transaction.  The two companies continue to work together as strategic
partners and on joint sales opportunities.  The Company intends to
initiate a revised Letter of Intent once financing is identified.
 ITEM
6.   EXHIBITS AND REPORTS ON FORM
8-K
 
 Exhibit
                          Number
                        Description10.1
                        EnterConnect,
      Inc.-John Thomas Financial, Inc. Financial & Strategic Advisory
      Agreement dated March 5, 200931.1
                        Section
      302 Certification Of Chief Executive Officer and Principal Financial
      Officer32.1
                        Certification
      of Chief Executive Officer and Principal Financial Officer Pursuant
      To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The
      Sarbanes-Oxley Act Of
2002
 
 Reports
on Form 8-K
 
 During
the fiscal quarter ended December 31, 2008, the Company filed a Current Report
on Form 8-K on October 14, 2008 disclosing the resignation of the Company’s
Chief Financial Officer. A Current Report on Form 8-K was also filed on December
19, 2008 disclosing a waiver and amendment to the Company’s December 20, 2007
Senior Secured Convertible Notes and its December 20, 2007 Warrants to Purchase
Common Stock.
 
 
 20
 Table of Contents
  SIGNATURES
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
 
 ENTERCONNECT
      INC./s/
      Sam JankovichSam JankovichTitle:
                Chairman,
      Chief Executive Officer and Principal Financial OfficerDate:
                February
      23, 2009






21