UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





xQUARTERLY REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended June 30, 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 x  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 x





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





The
numbers of shares outstanding of each of the issuer's classes of common equity,
as of August 13, 2008, 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 Consolidated Financial
    Statements:Condensed Consolidated Balance Sheets as of June 30, 2008
      (unaudited) and March 31, 2008
            3Condensed Consolidated Statements of Operations for the three
      months ended June 30, 2008 and 2007 (unaudited)
            4Condensed Consolidated Statements of Cash Flows for the
      three months ended June 30, 2008 and 2007 (unaudited)
            5Notes to Unaudited Condensed Consolidated Financial
      Statements
            6Item
      2.
            
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            10Item
      3.
            
            Quantitative and Qualitative Disclosures About Market
      Risk
            15Item
      4.
            
            Controls and Procedures
            15PART
      II. OTHER INFORMATIONItem
      1.
            
            Legal Proceedings
            16Item
      1A.
            
            Risk Factors
            16Item
      2.
            
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            19Item
      3.
            
            Defaults Upon Senior Securities
            19Item
      4.
            
            Submission of Matters to a Vote of Security
      Holders
            19Item
      5.
            
            Other Information
            19Item
      6.
            
            Exhibits
            19Signatures
            20





Table of Contents





PART
1.  FINANCIAL INFORMATION


ITEM
1.   CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS







ENTERCONNECT INC.


Condensed
Balance Sheets




June
      30,
              2008
            
            
            March
      31,
              2008(unaudited)ASSETSCurrent
      Assets:Cash
            
            $
            1,207,764
            
            
            $
            2,131,711Restricted
      cash
            
            
            202,736
            
            
            
            200,569Accounts
      receivable
            
            
            37,985
            
            
            
            -Prepaid
      expenses and other current assets
            
            
            237,042
            
            
            
            204,614Total
      current assets
            
            
            1,685,527
            
            
            
            2,536,894Property
      and equipment, net
            
            
            39,334
            
            
            
            36,955Intangible
      assets, net
            
            
            642,856
            
            
            
            749,999Deposits
            
            
            15,500
            
            
            
            15,500TOTAL
      ASSETS
            
            $
            2,383,217
            
            
            $
            3,339,348LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      Liabilities:Accounts
      payable
            
            $
            263,560
            
            
            $
            306,525Accrued
      expenses
            
            
            114,566
            
            
            
            114,401Deferred
      revenue
            
            
            79,685
            
            
            
            -Convertible
      notes payable, net
            
            
            821,677
            
            
            
            342,536Total
      current liabilities
            
            
            1,279,488
            
            
            
            763,462Stockholders'
      Equity: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; 27,205,261and
      20,266,112 shares issued and outstanding, respectively
            
            
            27,205
            
            
            
            27,205Additional
      paid-in capital
            
            
            10,511,763
            
            
            
            10,514,261Deferred
      compensation
            
            
            (1,931,345
            )
            
            
            (1,931,345
            )Accumulated
      deficit
            
            
            (7,503,894
            )
            
            
            (6,034,235
            )Total
      stockholders’ equity
            
            
            1,103,729
            
            
            
            2,575,886TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
            
            $
            2,383,217
            
            
            $
            3,339,348





See
accompanying notes to condensed financial statements.





3
 Table of Contents





ENTERCONNECT INC.


Condensed
Statements of Operations


(unaudited)





Three
      months endedJune
      30,2008
            
            
            2007Revenues:Subscription
      and support
            
            $
            70,397
            
            
            $
            25,000Professional
      services
            
            
            16,000
            
            
            
            -Total
      revenues
            
            
            86,397
            
            
            
            25,000Cost
      of revenues
            
            
            23,392
            
            
            
            -Gross
      profit
            
            
            63,005
            
            
            
            25,000Operating
      Expenses:General
      and administrative
            
            
            326,835
            
            
            
            225,157Sales
      and marketing
            
            
            201,704
            
            
            
            113,304Research
      and development
            
            
            467,542
            
            
            
            306,149Total
      operating expenses
            
            
            996,082
            
            
            
            644,610Loss
      from operations
            
            
            (933,077
            )
            
            
            (619,610
            )Other
      expenses:Interest
      expense, net
            
            
            536,580
            
            
            
            -Total
      other expenses
            
            
            536,580
            
            
            
            -Loss
      from operations before income taxes
            
            
            (1,469,657
            )
            
            
            (619,610
            )Income
      taxes
            
            
            -
            
            
            
            -Net
      loss
            
            $
            (1,469,657
            )
            
            $
            (619,610
            )Net
      loss per common share - basic and diluted
            
            $
            (0.05
            )
            
            $
            (0.03
            )Weighted
      average number of common shares outstanding – basic and
      diluted
            
            
            27,205,261
            
            
            
            20,711,514





See
accompanying notes to condensed financial statements.





4
 Table of Contents





ENTERCONNECT INC.


Condensed
Statements of Cash Flows


(unaudited)




Three
      months endedJune
      30,2008
              
              
              2007CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (1,469,657
              )
              
              $
              (619,610
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
              
              
              112,236
              
              
              
              54,531Accretion
      of discount on convertible notes payable
              
              
              417,749
              
              
              
              -Common
      stock issued for services
              
              
              -
              
              
              
              105,655Changes
      in assets and liabilities:Increase
      in accounts receivable
              
              
              (37,986
              )
              
              
              (10,000
              )(Increase)
      decrease in prepayments and other current assets
              
              
              (32,428
              )
              
              
              25,616(Decrease)
      increase in accounts payable
              
              
              (42,962
              )
              
              
              141,119Increase
      in accrued expenses
              
              
              162
              
              
              
              99,379Increase
      in deferred revenue
              
              
              79,685
              
              
              
              20,000Interest
      accrued to convertible notes payable
              
              
              61,393
              
              
              
              -Net
      Cash Used in Operating Activities
              
              
              (911,808
              )
              
              
              (183,310
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
              
              
              (7,471
              )
              
              
              -Net
      Cash Used in Investing Activities
              
              
              (7,471
              )
              
              
              -CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from short-term notes
              
              
              -
              
              
              
              71,000Other
              
              
              (2,501
              )
              
              
              -Net
      Cash (Used in) Provided by Financing Activities
              
              
              (2,501
              )
              
              
              71,000NET
      CHANGE IN CASH
              
              
              (921,780
              )
              
              
              (112,310
              )Decrease
      in restricted cash
              
              
              (2,167
              )
              
              
              -CASH
      AT BEGINNING OF PERIOD
              
              
              2,131,711
              
              
              
              114,246CASH
      AT END OF PERIOD
              
              $
              1,207,764
              
              
              $
              1,936SUPPLEMENTAL
      SCHEDULE OF NON-CASH FINANCING:Noncash
      financing and investing activities:Common
      stock issued for deferred compensation
              
              $
              -
              
              
              $
              2,000,000





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 refers to the
fiscal year ending March 31, 2008.  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 condensed balance sheet as of June 30, 2008 and the condensed
statements of operations and the condensed statements of cash flows for the
three months ended June 30, 2008 and 2007, respectively, are unaudited. The
condensed balance sheet data as of March 31, 2008 was derived from the audited
financial statements which are included in the Company’s Form 10-KSB for the
fiscal year ended March 31, 2008, which was filed with the Securities and
Exchange Commission (the “SEC”) on July 14, 2008. The accompanying statements
should be read in conjunction with the audited financial statements and related
notes contained in the Company’s fiscal 2008 Form 10-KSB.





The
accompanying condensed financial statements have been prepared in accordance
with U.S. generally accepted accounting principles, or 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 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 necessary for the
fair presentation of the Company’s statement of financial position as of June
30, 2008, and its results of operations and its cash flows for the three months
ended June 30, 2008 and 2007. All adjustments are of a normal recurring nature.
The results for the three months ended June 30, 2008 are not necessarily
indicative of the results to be expected for any subsequent quarter or for the
fiscal year ending March 31, 2009.





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 additional funds by way of
private placement offerings. 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 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 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




EnterConnect
was required to open a $200,000 certificate of deposit to secure for possible
losses from corporate credit card purchases.





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 June 30, 2008, the Company determined that there was
no impairment based on management’s evaluation.





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:





7
 Table of Contents




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, 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 that are measured at fair value on a
recurring basis as of June 30, 2008 and indicates the fair value hierarchy of
the valuation: Level 1: time deposits – quoted market prices for identical
assets; Level 2: corporate notes – significant other observable
inputs.  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 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
June 30, 2008, there are no deferred costs on the accompanying balance
sheet.





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 $0 for the three months ended
June 30, 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 June 30, 2008 and 2007, 18,663,694 and 9,052,359 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
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are required to be
reported in earnings at each reporting date. We adopted SFAS No. 159 effective
April 1, 2008 and there was no impact on our financial position or results of
operations.





In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3“Accounting for Nonrefundable
Advance Payments for Goods or Services to be Used in Future Research and
Development Activities”  (“EITF Issue No. 07-3”) which requires
that nonrefundable advance payments for future research and development
activities be deferred and capitalized. Such amounts are recognized as an
expense as the goods are delivered or the related services are
performed. We adopted SFAS No. 159 effective April 1, 2008 and there was no
impact on our financial position or results of operations.





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 agreement associated with the December
6, 2007 private placement, the Company is required to issue additional warrants
to purchase our common stock to the private placement investors if the
registration statement is not declared effective within 120 days.  As
of June 30, 2008, the registration statement is not
effective.  Consequently, if the Company is unable to obtain an
amendment and waiver from these investors, additional warrants of up to 93,333
shares (or up to 10% of the total shares purchased) may be issued.





9
 Table of Contents





NOTE
4 – LEGAL PROCEEDINGS





We are
not currently a party to any material legal proceedings.





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 developer in enterprise portal
strategies and best practices to deliver proprietary, ‘business-ready’ employee,
customer and partner portal solutions.  Our products and
software-as-a-service (SaaS) offerings are deployed through our propriety
application exchange, which SaaS enables other Independent Software Vendors
(ISVs) and their applications - enabling global mid-market companies to find,
try and buy software or services that meet their needs and budget.





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; increasing 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 expanding 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 June
30, 2007, our cash position was $1.4 million. At its current rate of
expenditures, we should have cash available to maintain operations for the next
six months of operations. We may seek to offer our securities in one or more
public or private offerings to fund our operations for the next 12
months.  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 scale down our sales
and marketing and research and development expense.





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 81 percent of our total
revenues for the three months ended June 30, 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 73 percent of our revenues during the three months
ended June 30, 2008.





10
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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
noncancelable, 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 annual or quarterly 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 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.





Research and Development.
Research and development expenses consist primarily of salaries 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 enables 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.





Marketing and Sales.
Marketing and sales 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 marketing and sales 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, marketing
and sales expenses will increase in absolute dollars.





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.





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.





11
 Table of Contents





Revenue
Recognition





We derive
our revenues from two 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 June 30, 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.





12
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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.





Results
of Operations





The
following tables set forth selected data for each of the periods indicated. All
data is unaudited.





Three
      months endedJune
      30,2008
            
            
            2007Revenues:Subscription
      and support
            
            $
            70,397
            
            
            $
            25,000Professional
      services
            
            
            16,000
            
            
            
            -Total
      revenues
            
            
            86,397
            
            
            
            25,000Cost
      of revenues
            
            
            23,392
            
            
            
            -Gross
      profit
            
            
            63,005
            
            
            
            25,000Operating
      Expenses:General
      and administrative
            
            
            326,835
            
            
            
            225,157Sales
      and marketing
            
            
            201,704
            
            
            
            113,304Research
      and development
            
            
            467,542
            
            
            
            306,149Total
      operating expenses
            
            
            996,082
            
            
            
            644,610Loss
      from operations
            
            
            (933,077
            )
            
            
            (619,610
            )Other
      expenses:Interest
      expense, net
            
            
            536,580
            
            
            
            -Total
      other expenses
            
            
            536,580
            
            
            
            -Loss
      from operations before income taxes
            
            
            (1,469,657
            )
            
            
            (619,610
            )Income
      taxes
            
            
            -
            
            
            
            -Net
      loss
            
            $
            (1,469,657
            )
            
            $
            (619,610
            )





Overview
of the Three Months Ended June 30, 2008





Total
revenues for the three months ended June 30, 2008 increased to $86,397, or 245%,
from $25,000 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 $63,005 during the three months ended June 30, 2008 from $0
in the same year ago period.  The gross profit percentage was 73% for
the three months ended June 30, 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.





Selling,
general and administrative expense increased 45% to $326,836 during the three
months ended June 30, 2008 from $225,157 in the same period in
2007.  The increase resulted from expenses associated with being a
public company and additional personnel costs.  Selling, 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 78% to $201,704 during the three months ended June
30, 2008 from $113,304 in the same period in 2007.  The increase
resulted from sales personnel hired during the three months ended June 30, 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.





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Research
and development expense increased 52% to $467,542 during the three months ended
June 30, 2008 from $306,149 in the same period in 2007.  Effective of
April 1, 2008, the Company amended the amortization period prospectively of its
acquired technology.  Consequently, amortization expense increased to
$107,000 for the three months ended April 30, 2008 from $50,000 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; 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
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits
entities to choose to measure, on an item-by-item basis, specified financial
instruments and certain other items at fair value. Unrealized gains and losses
on items for which the fair value option has been elected are required to be
reported in earnings at each reporting date. We adopted SFAS No. 159 effective
April 1, 2008 and there was no impact on our financial position or results of
operations.





In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3“Accounting for Nonrefundable
Advance Payments for Goods or Services to be Used in Future Research and
Development Activities”  (“EITF Issue No. 07-3”) which requires
that nonrefundable advance payments for future research and development
activities be deferred and capitalized. Such amounts are recognized as an
expense as the goods are delivered or the related services are
performed. We adopted SFAS No. 159 effective April 1, 2008 and there was no
impact on our financial position or results of operations.





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 June 30, 2008, the Company had an accumulated deficit of $(7.5)
million and $1.2 million in non-restricted cash. Cash flows used in operations
was $0.9 million.  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 for the next six months 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.





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,
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.





14
 Table of Contents





Our
minimum rental commitment under a non-cancelable operating lease as of June 30,
2008 is as follows:





2009
            
            $
            63,3202010
            
            
            86,9602011
            
            
            36,679Total
            
            $
            186,959








ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





Interest
rate sensitivity





We had
cash, cash equivalents and marketable securities totaling $1.4 million at June
30, 2008. These amounts were invested primarily in certificates of deposits and
corporate notes and bonds with credit ratings of at least single A or better.
The cash, cash equivalents are held for working capital purposes with capital
preservation as the primary objective. We do not enter into investments for
trading or speculative purposes.








ITEM 4.  CONTROLSAND 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.





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 March 31, 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, 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.





15
 Table of Contents





PART
II — OTHER INFORMATION








ITEM 1.  LEGALPROCEEDINGS





None.




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 $7.5 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.





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:





16
 Table of Contents





●
            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 the
      United States or 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 the prohibited
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.





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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.





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.





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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.





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.  UNREGISTEREDSALES OF SECURITIES AND USE OF
PROCEEDS





Not
applicable.




ITEM 3.  DEFAULTSUPON SENIOR SECURITIES





Not
applicable.




ITEM 4.  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY
HOLDERS





Not
applicable.




ITEM 5.  OTHER INFORMATION





Not
applicable




Item 6.   EXHIBITS AND REPORTS ON FORM
8-K.





Exhibits





Exhibit Number
            
            Description31.1
            
            Section
      302 Certification Of Chief Executive Officer31.2
            
            Section
      302 Certification Chief Financial Officer32.1
            
            Certification
      of Chief Executive Officer and Chief 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 June 30, 2008, the Company filed a Current Report on
Form 8-K on April 8, 2008 disclosing the appointment of its Chief Financial
Officer; and Current Reports on Forms 8-K and 8-K/A on June 11, 2008 and June
20, 2008, respectively, disclosing an amendment and waiver associated with its
senior secured convertibles notes.





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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/s/
      Carolyn ZelnioCarolyn ZelnioTitle:
            Chief
      Financial Officer and Principal Financial OfficerDate:
            August
      14, 2008






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