Future Now 10-Q 2010 Q3 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(MARK ONE)

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

for the quarterly period ended: March 31, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the transition period from ____________ to ____________

COMMISSION FILE NUMBER 000-52274

FUTURE NOW GROUP INC.

(Exact name of small business issuer as specified in its charter)

NEVADA	20-4237445
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

80 Mountain Laurel Rd

Fairfield, CT 06824

(Address of principal executive offices)

877-643-7244

(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨  

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

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition 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 smaller reporting company)	Smaller reporting company x

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

As of May 21, 2010, there were 97,125,063 shares of our common stock, par value $0.001 per share, outstanding.

FUTURE NOW GROUP INC.

Form 10-Q

Quarterly Report

March 31, 2010

Table of Contents

		Page
PART I. FINANCIAL INFORMATION		3
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	14
ITEM 4.	CONTROLS AND PROCEDURES	14
PART II.  OTHER INFORMATION		15
ITEM 1.	LEGAL PROCEEDINGS	15
ITEM 1A.	RISK FACTORS	15
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.	15
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	15
ITEM 4.	SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS	15
ITEM 5.	OTHER INFORMATION.	15
ITEM 6.	EXHIBITS	15
SIGNATURES		16

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PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

Index to the Financials

Consolidated Balance Sheets as of Mach 31, 2010 (Unaudited) and June 30, 2009	4
Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended March 31, 2010 and 2009	5
Consolidated Statement of Changes in Stockholders’ Equity (Deficit) (Unaudited) as of March 31, 2010	6
Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended March 31, 2010 and 2009	7
Notes to Consolidated Financial Statements (Unaudited)	8

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FUTURE NOW GROUP INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2010 (UNAUDITED) AND JUNE 30, 2009

	3/31/10			6/30/09
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	37,176		$	34,138
Investment in available for sale marketable securities		206,186			39,212
Accounts receivable, net		12,848			10,650
Note receivable		6,200			58,132
Prepaid expenses		42			73,333
TOTAL CURRENT ASSETS		262,452			215,465
Fixed assets, net		1,058			-
Intangible asset, net		133,886			236,387
Goodwill		185,717			185,717
TOTAL ASSETS	$	583,113		$	637,569
LIABILIATIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	624,339		$	585,468
Accrued interest		205,055			13,094
Derivative liability		833,176			4,712,227
Deferred revenue		-			41,477
Income tax payable		1,500			1,500
Due to shareholder and director		75,000			-
Current portion of long-term debt		2,171,995			1,442,103
TOTAL CURRENT LIABILITIES		3,911,065			6,795,869
Convertible debentures, net of discount		0			41,568
TOTAL LIABILITIES		3,911,065			6,837,437
STOCKHOLDERS' (DEFICIT):
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and outstanding		-			-
Common stock, $.001 par value, 900,000,000 shares authorized, 97,125,063 and 77,125,063 shares issued and outstanding, as of March 31, 2010 and June 30, 2009, respectively		97,125			77,125
Additional paid-in capital		4,209,078			4,209,079
Retained deficit		(7,603,157	)		(10,340,284	)
Accumulated other comprehensive loss		(30,998	)		(145,788	)
TOTAL STOCKHOLDERS' DEFICIT		(3,327,952	)		(6,199,868	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	583,113		$	637,569

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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FUTURE NOW GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

MARCH 31, 2010 AND 2009 (UNAUDITED)

	Three Months Ended March 31, 2010			Three Months Ended March 31, 2009			Nine Months Ended March 31, 2010			Nine Months Ended March 31, 2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues:
Software subscription revenues	$	161,315		$	110,500		$	572,925		$	118,757
Professional service revenues		38,750			95,475			158,195			1,399,096
Total Revenues		200,065			205,975			731,120			1,517,853
Cost of Revenues		105,897			85,304			367,516			400,490
Gross Profit		94,168			120,671			363,604			1,117,363
Operating expenses:
Marketing and sales		18,170			22,420			68,163			307,981
Research and development		48,607			155,773			129,359			309,482
Stock based compensation		-			45,834			-			512,287
General and administrative		59,207			298,344			260,284			1,067,104
Total operating expenses		125,984			522,371			457,807			2,196,854
Loss from operations		(31,816	)		(401,700	)		(94,203	)		(1,079,491	)
Other (income) expenses
Interest expense and amortization of debt discount		105,685			212,402			1,016,714			649,448
Change in the fair value of derivative liability		(83,913	)		0			(3,879,051	)		-
Amortization of deferred financing costs		-			134,944			-			250,343
Other expense		1,697			65,040			30,651			62,786
Total other expenses (income)		23,469			412,386			(2,831,686	)		962,577
Income (Loss) before taxes		(55,285	)		(814,086	)		2,737,483			(2,042,068	)
Income tax provision (benefit)		356			50			356			(269,495	)
Net income (loss) applicable to common shareholders	$	(55,641	)	$	(814,136	)	$	2,737,127		$	(1,772,573	)
Comprehensive income (loss):
Unrealized gain (loss) on available for sale marketable securities		15,395			(75,267	)		114,790			(74,439	)
Total comprehensive income (loss)	$	(40,246	)	$	(889,403	)	$	2,851,917		$	(1,847,012	)
Net income (loss) per share - basic	$	(0.00	)	$	(0.01	)	$	0.03		$	(0.02	)
Net income (loss) per share - diluted	$	0.00		$	(0.01	)	$	(0.00	)	$	(0.02	)
Weighted number of shares outstanding -
basic		97,125,063			78,563,952			89,022,873			78,130,741
diluted		97,125,063			78,563,952			1,275,836,060			78,130,741

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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FUTURE NOW GROUP INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE PERIOD ENDED MARCH 31, 2010 (UNAUDITED)

	Preferred Stock				Common						Accum Comp
	Shares		Par Value		Shares		Par Value		Paid-In Capital		Gain (Loss)			Retained (Deficit)			Stockholders' (Deficit)
Balance June 30, 2009		-	$	-		77,125,063	$	77,125	$	4,209,078	$	(145,788	)	$	(10,340,283	)	$	(6,199,868	)
Change in fair value of marketable securities												114,790						114,790
Sale of common stock						20,000,000		20,000										20,000
Net income for period															2,737,126			2,737,126
Balance March 31, 2010		-	$	-		97,125,063	$	97,125	$	4,209,078	$	(30,998	)	$	(7,603,157	)	$	(3,327,952	)

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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FUTURE NOW GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED MARCH 31, 2010 AND 2009

(UNAUDITED)

	Nine Months Ended March 31, 2010			Nine Months Ended March 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	2,737,127		$	(1,772,573	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Change in deferred tax asset		-			(269,670	)
Provision for doubtful accounts		(10,500	)		(4,500	)
Stock based compensation		-			512,287
Depreciation		-			8,900
Change in derivative liability		(3,879,051	)		-
Amortization of prepaid interest		73,333			165,000
Amortization of debt discount		738,814			307,469
Amortization of intangibles		102,500			102,501
Amortization of deferred offering costs		-			250,342
Change in operating assets and liabilities:
Accounts and notes receivable		(15,049	)		94,064
Prepaid and other current assets		-			(14,605	)
Accounts payable and accrued expenses		182,832			405,236
Deferred revenue		(41,477	)		(101,722	)
Security deposit and other assets		-			11,022
Net cash used in operating activities	$	(111,471	)	$	(306,249	)
CASH FLOW FROM INVESTING ACTIVITIES:
Equipment purchases and leasehold improvements		(1,058	)		-
Net cash (used in) investing activities	$	(1,058	)	$	-
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from loan from director and shareholder		75,000			-
Proceeds from promissory note with accredited investor		20,567			-
Proceeds from sale of common stock		20,000			100,000
Proceeds from bank credit line		0			100,000
Net cash provided by financing activities	$	115,567		$	200,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		3,038			(106,249	)
CASH AND CASH EQUIVALENTS at beginning of period		34,138			228,467
CASH AND CASH EQUIVALENTS at end of period	$	37,176		$	122,218
Supplemental disclosure of cash flow information
Cash paid for:
Interest	$	-		$	16,823
Income Taxes	$	-		$	500
Supplemental schedule of non-cash investing and financing activities
Issuance of stock for services to be provided	$	-		$	550,000
Issuance of stock for board of directors quarterly retainer	$	-		$	12,000
Contribution of deferred compensation to equity	$	-		$	241,481
Forgiveness of promissory note	$	-		$	25,000
Conversion of note receivable and accrued interest to available for sale marketable securities	$	55,486		$	-

The Accompanying Notes Are an Integral Part of these Consolidated Financial Statements

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FUTURE NOW GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED) AS OF MARCH 31, 2010

NOTE 1.  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Future Now Group Inc. (“FNGI”, the “Company” or “Future Now”), have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation SX. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010.  This document should be read in conjunction with the Company’s Form 10K/A filing for June 30, 2009 and other financial reports filed from time to time.

Liquidity.  As of March 31, 2010, we had $37,176 in cash.  We had $206,186 in restricted marketable securities and $12,848 in accounts receivable, $3,648,613 in working capital deficiency, and an accumulated deficit of $7,603,157.   Our operating loss for the three and nine months ended March 31, 2010 was $31,816 and $94,204, respectively.   As of March 31, 2010 we were still in default in the $1,800,000 notes we hold. These conditions raise substantial doubt about our ability to continue as a going concern.

The Company is presently in discussions with the investor that issued the default notice and is also exploring other potential financial transaction to restructure the Balance Sheet so as to continue to effectively pursue its business plan.  Once restructured the Company plans to continuing to look for additional capital as well as consider other strategic financial transaction and partnering opportunities.  Until such a time the Company plans to maintain its operations at bear minimum costs and management will continue to defer compensation as required.  No adjustment has been made in the accompanying financial statements to the carrying amount and classification of recorded assets and liabilities should we be unable to continue operations.

NOTE 2.  PROMISSORY NOTE AND FINANCING.

On October 30, 2009, two secured debenture executed with an investors on October 29, 2007 matured.  The Company was unable to repay the obligation and as such continues to be in default

On October 8, 2009, the Company received $75,000 from a board member who is also a shareholder.  The amount has been treated as a loan from shareholder and at the present time does not have an interest rate.  The Company plans to formalize the securities instrument underlying the loan along with its overall restructuring efforts.

On December 2, 2009, we issued a $20,567 secured promissory note to a single accredited investor for a purchase price of $20,567.  This note was secured by a pledge of all of our assets as well as the assets of our subsidiaries.  In addition, payment of the note was secured by a guaranty issued by our subsidiaries in favor of the secured party.  The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

NOTE 3.  COMMON STOCK

The Company is authorized to issue up to 900,000,000 shares of common stock and 50,000,000 shares of preferred stock both with par value of $0.001.  The Company had 97,125,063, and 77,125,063 shares of common stock issued and outstanding as of March 31, 2010 and June 30, 2009, respectively.

On October 20, 2009, we issued 20,000,000 shares of our common stock to a single accredited investor for an aggregate purchase price of $20,000.  The proceeds were used for general corporate purposes.  The issuance was exempt under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.

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NOTE 4.:  FAIR VALUE MEASUREMENTS

Effective July 1, 2008, we adopted ASC 820, Fair Value Measurements and Disclosures, which provides a framework for measuring fair value.  Under ASC 820 fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.

Financial assets and liabilities valued using level 1 inputs are based on unadjusted quoted market prices within active markets. Financial assets and liabilities valued using level 2 inputs are based primarily on quoted prices for similar assets or liabilities in active or inactive markets.  For certain long-term debt, the fair value was based on present value techniques using inputs derived principally or corroborated from market data. Financial assets and liabilities using level 3 inputs were primarily valued using management’s assumptions about the assumptions market participants would utilize in pricing the asset or liability. Valuation techniques utilized to determine fair value are consistently applied.

The tables below presents a reconciliation of assets and liabilities measured at fair value on a recurring basis at March 31, 2010 and June 30, 2009:

	Fair Value Measurements Using
	Quoted Prices in Active Markets (Level 1)
	March 31, 2010		June 30, 2009
Marketable securities	$	206,186	$	39,212

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	Derivative Liability
	March 31, 2010		June 30, 2009
Beginning balance	$	4,712,227	$	—
Increase (Decrease) in Derivative Liability		(3,879,051)		3,861,262
Initial Derivative Liability		—		850,965
Ending balance	$	833,176	$	4,712,227

Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.  Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.

NOTE 5.:  EARNINGS PER SHARE

Basic income (loss) per common share (“EPS”) is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.   Diluted EPS reflects the potential dilution that could occur if certain outstanding stock options are exercised, restrictions lapse on restricted stock awards and convertible debenture is converted.   Anti-dilutive securities are excluded from diluted EPS.

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The following is a reconciliation of the number of shares used in the basic and diluted EPS computations for the three and nine months ended March 31, 2010.

	Three Months Ended 3/31/10			Nine Months Ended 3/31/10
Net income (loss) attributable to common stockholders for basic computation		(55,641	)		2,737,127
Net income (loss) attributable to common stockholders for basic computation
Net income(loss) attributable to common stockholders		(55,641	)		2,737,127
Diluted effective of conversion feature of notes		(871,707	)		(3,749,755	)
Net income(loss) for dilutive computation		(927,348	)		(1,012,628	)
Basic income (loss) per common share:
Weighted average common shares outstanding		97,125,063			89,022,873
Basic income (loss) per common share	$	(0.00	)	$	0.03
Diluted income (loss) per common share:
Weighted average common shares outstanding		97,125,063			89,022,873
Dilutive effect of conversion feature of notes		0			1,186,813,187
Weighted average diluted common shares outstanding		0			1,275,836,060
Diluted income (loss) per common share		0.00		$	(0.00	)

As of March 31, 2010, the Company has 10,867,618 and 9,324,757 outstanding options and warrants, respectively, the effects of which are anti-dilutive at March 31, 2010.

NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS

     In October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company does not expect adoption of ASU 2009-13 to have a material impact on the Company’s results of operations or financial condition.

     In April 2010, the FASB issue ASU 2010-17, Revenue Recognition – Milestone Method (“ASU 2010-17”). ASU 2010-17 provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The following criteria must be met for a milestone to be considered substantive. The consideration earned by achieving the milestone should 1. be commensurate with either the level of effort required to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from the vendor’s performance to achieve the milestone; 2. be related solely to past performance; and 3. be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. Accordingly, an arrangement may contain both substantive and nonsubstantive milestones. ASU 2010-17 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Management is currently evaluating the potential impact of ASU 2010-17 on our financial statements.

     Management does not believe there would have been a material effect on the accompanying financial statements had any other recently issued, but not yet effective, accounting standards been adopted in the current period.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Special Note Regarding Forward-Looking Statements

Except for historical facts, the statements in this quarterly report are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. We assume no obligation to update our forward-looking statements to reflect new information or developments or for any other reason, or reflect any events or circumstances after the date of this quarterly report or the date of any applicable amendment to this quarterly report. We urge readers to review carefully the risk factors described in our filings with the Securities and Exchange Commission. These documents can be read at www.sec.gov ..

Our Business

Future Now Group, Inc. (the “Company”) through its wholly-owned subsidiaries, Future Now, Inc (“FNI”), Intellectual Property Licensing Group, Inc, (“IPLG”), Future Now Consulting, Inc (“FNCI”) and Elemental Business, Inc (“EBI”), provides online marketing optimization services and software solutions utilizing a proprietary methodology and supporting set of software tools that help businesses improve their online marketing to generate more sales, leads, and subscriptions. The Company’s proprietary Persuasion Architecture® framework delivers clients “blueprints” to plan, measure and improve their online sales and marketing initiatives.

Trends in our Business

The market demand for our product offering continues to grow rapidly.  The down turn in the economy should only increase the demand for offerings that can improve the return on capital expenditures.  Since inception we have serviced over 400 clients.  However, with the January 2009 launch of our new software product, Ontarget™, which now puts our Company’s 10 years of expertise in a simple application and a price point for every small business we anticipate the number of clients to grow rapidly.  If our customer base does grow at the pace we expect we will be required to continue making upfront investments in personnel necessary to support this growth.  The rate at which we add new customers, along with the scale of new customer implementations, will affect the level of these upfront investments.

Results of Operations

Summary of Key Results

Total revenues, including revenues from professional services and software subscriptions for the unaudited nine months ended March 31, 2010 were $731,120, as compared to the revenues of $1,517,853 for the same period ending March 31, 2009, representing a 51.8% decrease.   This decrease was primarily due to our change in business model from professional services to software as a service offering.

Total operating expenses including sales and marketing expenses, stock based compensation, research and development and general and administrative expenses for the unaudited nine months ended March 31, 2010 were $457,807 as compared to $2,196,854 for the same period ending March 31, 2009.   Total general and administrative expenses for the nine months ended March 31, 2010 were $260,284 as compared to $1,067,104 for the same period ended March 31, 2009.

Results of Operations for the Three Months Ended March 31, 2010 and March 31, 2009

Revenues and Cost of Revenues

Total revenue for the three months ended March 31, 2010 was $200,065 as compared to revenue of $205,975 for the same period ended March 31, 2009, representing a decrease of $5,910 or 2.9%.   The three months ended March 31, 2010 and March 31, 2009 revenues include $38,750 in professional services, $161,315 in monthly software subscription fees, versus $95,475 and $110,500, respectively.   Going forward we intend to focus most of our efforts on rapidly growing revenue from our monthly subscription-based OnTarget™ product.    

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Cost of revenues for the three months ended March 31, 2010 was $105, 897 as compared to cost of revenues of $85,304 for the same period ended March 31, 2009, representing a increase of $20,593, or 24.1%.    Cost of revenues for the three months ended March 31, 2010 was 52.9% of total revenues compared with 41.4% of total revenues for the same period ended March 31, 2009.  Gross margins for the three months ended March 31, 2009 was 47.1%, as compared to 58.6% for the same period ended March 31, 2009, representing a decrease of 22.0%.   The decrease in our gross margins was primarily due to our change in business model and related lower revenue during our sales and delivery process development efforts.

Operating Expenses

Total operating expenses for the three months ended March 31, 2010 were $125,984 as compared to total operating expenses of $522,371 for the same period ending March 31, 2009, representing a decrease of $396,387 or 75.9%.  Our total operating expenses were comprised of sales and marketing expenses, stock based compensation, research and development and general and administrative expenses.  The decrease in the total operating expenses was primarily due to cost reduction efforts and lower stock based compensation. During the three months ended March 31, 2010 we recorded $0 in stock based compensation compared to $45,834 for the same period ended March 31, 2009.  

General and administrative expenses for the three months ended March 31, 2010 were $59,207, as compared to general and administrative expenses of $298,344 for the same period ending March 31, 2009, representing a decrease of $239,137, or 80.2%.  The decrease of general and administrative expenses during the three months ended March 31, 2010 was mainly due to cost reduction efforts employed by us.

Marketing and sales expenses for the three months ended March 31, 2010 were $18,170, as compared to marketing and sales expenses for the three months ended March 31, 2009 of $22,420 representing a decrease of $4,250, or 19.0%.  Marketing and sales expenses as a percentage of revenue for the three months ended March 31, 2010 was 9.1% as compared to 10.9% for the same period ended March 31, 2009.  The decrease was primarily due to reduced marketing efforts during the period of product definition and operating system development.

Research and development expenses for the three months ended March 31, 2010 were $48,607, as compared to $155,773 for the three months ended March 31, 2009 representing a decrease of $107,166, or 68.8%.   Research and development expenses as a percentage of revenue for the three months ended March 31, 2010 was 24.3% as compared to 75.6% for the same period ended March 31, 2009.    The decrease was primarily due to cost reduction measurements employed by the Company.

Other Income and Expenses

For the three months ended March 31, 2010, we incurred interest expense of $105,685 as compared to $212,402 for the same period ended March 31, 2009.   Within the interest expense for the three-month period ended March 31, 2010, we recorded $49,685 in debt discount amortization and $0 in deferred offering cost amortization as compared to $102,705 and $134,944, respectively, for the same period ending March 31, 2009.  For the three months ended March 31, 2010 we recorded an expense of $83,913 for the change in the fair value of a derivative liability associated with the conversion feature of notes versus $0 for the same period ending March 31, 2009.

Net Income (Loss)

Our net loss for the three months ended March 31, 2010 was ($55,641) as compared to a net loss of ($814,136), for the same period ended March 31, 2009.   The decrease in net loss during the quarter ended March 31, 2009 was primarily attributable to cost reductions and the recording of the derivative liability associated with the conversion feature of notes.

Results of Operations for the Nine Months Ended March 31, 2010 and March 31, 2009

Revenues and Cost of Revenues

Total revenues for the nine months ended March 31, 2010 were $731,120 as compared to revenue of $1,517,853 for the same period ended March 31, 2009, representing a decrease of $786,733 or 51.8% primarily resulting from our change in business model.    The nine months ended March 31, 2010 revenues include $158,195 in professional services and $572,925 in monthly software subscription fees, versus $1,399,096 and $118,757 respectively, for the same period ended March 31, 2009.   Going forward we intend to focus most of our efforts on rapidly growing revenue from our monthly subscription-based OnTarget™ product.  

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Cost of revenues for the nine months ended March 31, 2010 was $367,516, as compared to cost of revenues of $400,490 for the same period ended March 31, 2009, representing a decrease of $32,974, or 8.2%.  Cost of revenues for the nine months ended March 31, 2010 was 50.3% of total revenues compared with 26.4% of total revenues for the same period ended March 31, 2009.   Gross margins for the nine months ended March 31, 2010 was 49.7%, as compared to 73.6% for the same period ended March 31, 2009, representing a decrease of 67.5%.   The decrease in our gross margins was primarily due to lower revenues associated with our change in business model and related product roll out.

Operating Expenses

Total operating expenses for the nine months ended March 31, 2010 were $457,807 as compared to total operating expenses of $2,196,854 for the same period ending March 31, 2009, representing a decrease of $1,739,047 or 79.2%.  Our total operating expenses were comprised of sales and marketing expenses, stock based compensation, research and development and general and administrative expenses.  The decrease in the operating expenses during the nine months ended March 31, 2010 was primarily due to cost reduction efforts, lower marketing expenses and stock based compensation.  During the nine months ended March 31, 2010 we recorded $0 in stock based compensation compared to $512,287 for the same period ended March 31, 2009.  Stock based compensation expense as a percentage of revenue for the nine months ended March 31, 2010 was 0% as compared to 33.8% for the same period ended March 31, 2009.

General and administrative expenses for the nine months ended March 31, 2010 were $260,285 as compared to general and administrative expenses of $1,067,104 for the same period ending March 31, 2009, representing a decrease of $806,819 or 75.6%.   The decrease of general and administrative expenses during the nine months ended March 31, 2009 was mainly due to cost reduction efforts employed by us.

Marketing and sales expenses for the nine months ended March 31, 2010 were $68,163, as compared to marketing and sales expenses for the same period ended March 31, 2009 of $307,981 representing a decrease of $239,818 or 77.9%.   Marketing and sales expenses as a percentage of revenue for the nine months ended March 31, 2010 was 9.3% as compared to 20.3% for the same period ended March 31, 2009.

Research and development expenses for the nine months ended March 31, 2010 were $129,359, as compared to $309,482 for the nine months ended March 31, 2009 representing a decrease of $180,123, or 58.2%.  Research and development expenses as a percentage of revenue for the nine months ended March 31, 2010 was 17.7% as compared to 20.4% for the same period ended March 31, 2009.   This was primarily due to decreased revenue.

Other Income and Expenses

For the nine months ended March 31, 2010, we incurred interest expense of $1,016,714 as compared to $649,448 for the same period ended March 31, 2009.   Within the interest expense for the nine month period ended March 31, 2010, we recorded $688,324 in debt discount amortization and $0 in deferred offering cost amortization as compared to $308,354 and $250,343, respectively, for the same period ending March 31, 2009.   For the nine months ended March 31, 2010 we recorded income of $3,879,051 for the change in the fair value of a derivative liability associated with the conversion feature of notes versus $0 for the same period ending March 31, 2009.

Net Income (Loss)

Our net income for the nine months ended March 31, 2010 was $2,737,127 as compared to a net loss of $1,772,573, for the same period ended March 31, 2009.   The increase in net income during the nine months ended March 31, 2010 was primarily attributable to the increase in fair value of derivation liability associated with outstanding convertible instruments and decrease operating expenses offset by lower revenue.

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Liquidity and Capital Resources

Cash Flow Used in Operating Activities

Operating activities used cash of $111,471 for the nine months ended March 31, 2010, as compared to $306,249 for the same period ending March 31, 2009.  The decrease in cash used for operating activities for the nine months ended March 31, 2010 was primarily a result of lowered operating expenses.

Cash Flow Used in Investing Activities

Investing activities used cash of $1,058 for the nine months ended March 31, 2010, as compared to $0 for the same period ended March 31, 2009.

Cash Flows From Financing Activities

Net cash provided from financing activities was $115,567 for the nine months ended March 31, 2010 consisting of a $75,000 loan from a director and shareholder, a $20,567 promissory note and $20,000 from the sale of 20,000,000 shares of common stock.    Net cash provided from financing activities was $200,000 for the nine months ended March 31, 2009 consisting of $100,000 for the sale of 555,556 shares of common stock and warrants to purchase 277,778 shares of common stock to a single accredited investor and a $100,000 drawdown on a credit line from the bank.

Off-Balance Sheet Arrangements

We have no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.  CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report, being March 31, 2010. This evaluation was carried out under the supervision and with the participation of our management, including our President and Chief Executive Officer. Based upon that evaluation, our President and Chief Executive Officer concluded that our disclosure controls and procedures are not effective as at the end of the period covered by this report.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act, is accumulated and communicated to management, including our president as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting during the three months ended March 31, 2010.

There were no changes in our system of internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

We are not a party to any legal proceedings. From time to time, we are involved in various routine non-material legal proceedings incidental to the conduct of our business.

ITEM 1A.  RISK FACTORS

Not applicable .

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

On April 13, 2009, the Company received two notices, each dated April 8, 2009. Each of the letters were written and signed on behalf of the lenders, Professional Traders Management LLC and Professional Offshore Opportunity Fund Ltd (collectively referred to as “PTM”). The letters stated that under Section 6 of the secured convertible debentures, the Company was in default for non-payment, as a result of which PTM intends to begin a foreclosure process within five (5) business days. As of the date of this filing no foreclosure process has begun and the Company is currently in the process of negotiating with PTM. The face value of the debt that is currently in default is $1,800,000.

In addition to the negotiations with PTM the Company is also in technical default of the convertible notes (the “Notes”) entered into on various dates between March 2007 and August 2007. Section 2 (c) of such Notes contains an automatic principal redemption feature (the “Redemption Feature”) whereby the Company will pay three and one-half percent of its gross revenues to redeem the Notes. The first measurement period for the redemption payment was from April 1, 2007 through March 31, 2008. In April 2008, the Company remitted a total of $75,891 in principal to the Note holders. The outstanding principal balance of the Notes as of March 31, 2010 was $374,109 and accrued interest of $52,671. For the period from April 1, 2008 through March 31, 2010 the Company reported $3,083,261 in gross revenue. As such a redemption payment of $107,914 is currently due on the Notes.

ITEM 4.  (REMOVED AND RESERVED).

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.  EXHIBITS

Exhibit No.	Description
31.1	Certification of Chief Executive and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	FUTURE NOW GROUP INC.
Date: May 24, 2010	By: /s/ William Schloth
	William Schloth
	Chief Executive Officer and Accounting Officer

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