Unified Signal, Inc. - FORM 10-Q

Attached files

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EX-32.1 - Unified Signal, Inc.	ex32-1.htm
EX-31.1 - Unified Signal, Inc.	ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2014

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

For the transition period from ________ to ________

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

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

Nevada	000-31757	90-0781437
(State of Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

14911 Quorum Drive, Suite 370, Dallas, Texas		75254
(Address of Principal Executive Office)		(Zip Code)

(972) 361-1980

(Issuer’s telephone number, including area code)

Indicate whether the issuer (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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 [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 12-b2 of the Exchange Act. (Check One):

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	Smaller reporting company [X]

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

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of each of the issuer's classes of common equity as of May 6, 2014 is 128,868,156.

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

Table of Contents

	Page

Part I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION	3

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK	24

ITEM 4. CONTROLS AND PROCEDURES	24

Part II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	25

ITEM 1A. RISK FACTORS	25

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	25

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	26

ITEM 4. MINE SAFETY DISCLOSURES	26

ITEM 5. OTHER INFORMATION	26

ITEM 6. EXHIBITS	26

SIGNATURES	27

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL INFORMATION

INDEX TO FINANCIAL STATEMENTS

	Page

Condensed Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013	4

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2014 and 2013	5

Unaudited Condensed Consolidated Statement of Shareholders' Deficit for the three months ended March 31, 2014	6

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	7

Notes to the Unaudited Condensed Consolidated Financial Statements	8

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2014			2013
	(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	148		$	21,799
Accounts receivable, net		218			12,037
Inventory		6,255			20,369
Prepaid expenses and deposits		28,475			25,876
Total current assets		35,096			80,081

Restricted cash		150,000			150,000
Property and equipment, net		119,024			135,026
Deferred cost, net		185,185			296,296
Intangibles, net		35,365			36,878

TOTAL ASSETS	$	524,670		$	698,281

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
Accounts payable	$	521,812		$	521,465
Accrued expenses		32,743			374,875
Advances from related parties		-			420,711
Current portion of notes payable, net of debt discount		672,782			1,310,506
Legal settlement liabilities		437,799			328,574
Derivative liabilities		1,782,735			854,685
Total current liabilities		3,447,871			3,810,816

Noncurrent portion of notes payable		0			0

TOTAL LIABILITIES		3,447,871			3,810,816

Shareholders' deficit:
Common stock - $0.001 par value; 100,000,000 shares authorized;
24,361,728 and 9,095,058 shares issued and 24,356,728 and 9,090,058
shares outstanding at March 31, 2014 and December 31, 2013, respectively		24,362			9,095
Preferred stock - $0.001 par value; 50,000,000 shares authorized;
no shares issued and outstanding		-			-
Additional paid-in capital		24,603,422			22,369,832
Common stock subscriptions		31,500			31,500
Treasury stock, 5,000 shares		(100,000	)		(100,000	)
Accumulated (deficit)		(27,482,485	)		(25,422,962	)
Total shareholders' deficit		(2,923,201	)		(3,112,535	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	524,670		$	698,281

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended March 31,
	2014			2013

Revenues	$	285,241		$	576,520

Cost of sales		180,702			480,620

Gross profit		104,539			95,900

Operating expenses:
Compensation, consulting and related expenses		1,035,179			405,179
General and administrative expenses		332,984			192,772
Depreciation and amortization		18,596			22,309
Total operating expenses		1,386,759			620,260

Loss from operations		(1,282,220	)		(524,360	)

Other (income) expense:
Interest and financing expense		21,031			177,156
Amortization of debt discount		213,105			18,334
Loss (gain) from change in derivative liability		928,050			(470,445	)
Gain on debt settlement		(384,883	)		-
Total other expense (income), net		777,303			(274,955	)

Loss before income taxes		(2,059,523	)		(249,405	)

Income tax expense		-			-

Net loss	$	(2,059,523	)	$	(249,405	)

Basic and diluted loss per share:

Net loss per share	$	(0.20	)	$	(0.04	)

Weighted average number of shares outstanding		10,137,580			5,551,940

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT

For Three Months Ended March 31, 2014

(unaudited)

					Additional			Common
	Common stock				Paid in			Stock		Treasury			Accumulated
	Shares		Amount		Capital			Subscriptions		Stock			Deficit			Total

Balance, December 31, 2013		9,095,057	$	9,095	$	22,369,832		$	31,500	$	(100,000	)	$	(25,422,962	)	$	(3,112,535	)
Common stock issued for services		1,634,942		1,635		876,076			-		-			-			877,711
Common stock issued for related party settlement		6,426,273		6,426		394,182			-		-			-			400,608
Common stock issued for cash		11		0		-			-		-			-			0
Common stock issued for legal settlement liabilities		82,500		83		111,582			-		-			-			111,665
Common stock issued for debt settlement		75,000		75		39,450			-		-			-			39,525
Common stock issued for debt conversion		3,166,646		3,167		646,183			-		-			-			649,349
Common stock issued for iTella consulting agreement amendment, as part of deferred cost		3,375,000		3,375		166,625			-		-			-			170,000
Common stock in escrow issued		506,298		506		(506	)		-		-			-			-
Net loss for the year ended March 31, 2014		-		-		-			-		-			(2,059,523	)		(2,059,523	)
Balance, March 31, 2014		24,361,728	$	24,362	$	24,603,422		$	31,500	$	(100,000	)	$	(27,482,485	)	$	(2,923,201	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DATAJACK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three months ended March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2,059,523	)	$	(249,405	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on debt settlement		(384,883	)		-
Loss / (Gain) from change in derivative liability		928,050			(470,445	)
Depreciation and amortization		18,596			22,309
Noncash interest expense		39,370			157,712
Noncash compensation expense		666,875			-
Noncash loan fees		39,525			-
Amortization of debt discount		213,105			18,334
Changes in operating assets and liabilities:
Accounts receivable		11,820			4,610
Inventory		14,114			1,614
Prepaid expenses and deposits		(2,600	)		(7,304	)
Deferred costs		111,111			111,111
Accounts payable		183,756			190,201
Accrued expenses		(11,995	)		2,166
Related party advances		22,500			(11,393	)
Legal settlement liabilities		(197,376	)		-
Unearned revenue		-			3,990
Net cash used in operating activities		(407,555	)		(226,500	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(1,081	)		-
Proceeds from sale of assets		-			75,000
Net cash (used in) provided by investing activities		(1,081	)		75,000

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuances		-			67,900
Proceeds from promissory note issuances		395,485			124,320
Repayment of notes payable		(8,500	)		(54,684	)
Net cash provided by financing activities		386,985			137,536

Net decrease in cash and cash equivalents		(21,651	)		(13,964	)
Cash and cash equivalents at beginning of period		21,799			23,886
Cash and cash equivalents at end of period	$	148		$	9,922

Supplemental cash flow information:
Cash paid for taxes	$	-		$	-
Cash paid for interest	$	-		$	19,386

Noncash investing and financing activities:
Issuance of common stock for accounts payable, debt settlement and debt conversions	$	111,664		$	2,576
Issuance of common stock for settlement of obligation due related party	$	1,430,792		$	1,875

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

DATAJACK, INC.

(Formerly known as Quamtel, Inc.)

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2014

NOTE 1 – DESCRIPTION OF BUSINESS

Description of Business

DataJack, Inc. (formerly Quamtel, Inc.) and its subsidiaries (the “Company”) was incorporated in 1999 under the laws of Nevada as a communications company offering, a comprehensive range of mobile broadband and communications products.

The Company offers secure nationwide mobile broadband wireless data transmission services primarily under the DataJack brand. Through DataJack, the Company offers low cost, no contract, mobile broadband with various data plans. The Company’s DataJack service is offered primarily through two devices - the DataJack WiFi Mobile Hotspot that can connect up to 8 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device.

The Company’s communication product mix included an international calling service delivered under the brand WQN, through the Company’s subsidiary, WQN, Inc. (“WQN”). Effective June 5, 2013, DataJack, Inc. sold substantially all of the intangible assets of WQN which included WQN, Easy Talk, Premium, Value, Easy Talk Mexico, Easy Talk Cuba, and India Easy Talk telecommunications services, prepaid products and related technology to iTalk, Inc. for $300,000. WQN accounted for approximately 47% of the Company’s consolidated revenues in 2012.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The unaudited condensed consolidated interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The condensed consolidated balance sheet as of December 31, 2013 contained herein have been derived from audited financial statements.

Operating results for the three months ended March 31, 2014 are not necessarily indicative of results that may be expected for the year ending December 31, 2014. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on April 14, 2014.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of DataJack, Inc. and its wholly owned subsidiaries WQN Inc. and DataJack, Inc. All significant intercompany transactions and balances have been eliminated. The Company makes operating decisions, assesses performance and manages the business as one reportable segment.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities; disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of reporting cash flows, the Company considers all cash on hand, in banks, certificates of deposit and other highly liquid debt instruments with a maturity of three months or less at the date of purchase, to be cash and cash equivalents. Cash overdraft positions may occur from time to time due to the timing of making bank deposits and releasing checks, in accordance with the Company’s cash management policies. Cash overdraft positions are recorded as accounts payable in the balance sheet.

Restricted Cash

Restricted cash represents collateral on a standby letter of credit related to an agreement with one of the Company’s telecommunications service providers, effectively providing a guarantee of the Company’s payment of its account payable to this service provider.

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts based on its assessment of the current status of the individual receivables and after using reasonable collection efforts. The allowance for doubtful accounts as of March 31, 2014 and December 31, 2013 was zero.

Inventories

Inventories consist of DataJack’s proprietary USB devices which provide customers the ability to deliver nationwide mobile 3G and 4G data coverage. Inventories are stated at the lower of cost or market determined by the first in, first out (FIFO) method.

Prepaid Expenses and Deposits

At March 31, 2014 and December 31, 2013, prepaid expenses and deposits consisted primarily of cash deposit payments made to several of the Company’s service providers.

Income Taxes

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year 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 results of operations in the period that includes the enactment date. If it is more likely than not that some portion of a deferred tax asset will not be realized, a valuation allowance is recognized.

The Company accounts for uncertain tax positions in accordance with ASC 740-10. ASC 740-10-25 prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company does not believe it has any material unrecognized income tax positions.

Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing the net income (loss) for the year by the weighted-average number of shares of common stock outstanding. The calculation of fully diluted earnings per share is computed using the weighted average number of common shares outstanding and common stock equivalents with the assumption that all common stock equivalents were converted at the beginning of the year. Options, warrants, convertible debt and unvested shares are considered to be common stock equivalents and are only included in the calculation of diluted earnings per common share when their effect is dilutive. Common stock equivalents such as shares issuable on debt conversion are excluded from the computation if their effect is anti-dilutive.

Fair Value of Financial Instruments

The carrying amount of cash, accounts receivable, accounts payable and notes payable, as applicable, approximates fair value due to the short term nature of these items and/or the current interest rates payable in relation to current market conditions.

Fair Value Measurements

ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31, 2014 and December 31, 2013:

	Level 1		Level 2		Level 3		Total

Derivative liability	$	-	$	-	$	854,685	$	854,685
As of December 31, 2013	$	-	$	-	$	854,685	$	854,685

Derivative liability	$	-	$	-	$	1,782,735	$	1,782,735
As of March 31, 2014	$	-	$	-	$	1,782,735	$	1,782,735

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (derivative liability) for the three months ended March 31, 2014.

	Derivative
	Liability

Balance, December 31, 2013	$	854,685

Mark-to-market at March 31, 2014		928,050

Balance, March 31, 2014	$	1,782,735

Level 3 Liabilities were comprised of our bifurcated convertible debt features on our convertible notes.

Revenue Recognition

The Company follows the guidance in Staff Accounting Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. SAB 104 states that revenue is realized or realizable and earned when all of the following criteria are met: persuasive evidence of an arrangement exists, services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured.

Revenues are primarily derived from fees charged to terminate voice services over the Company’s network and from related monthly recurring charges. Variable revenue is earned based on the number of minutes during a call and is recognized upon completion of a call. Revenue from each customer is calculated from information received through the Company’s network switches. The Company tracks the information received from the switch and analyzes the call detail records and applies the respective revenue rate for each call. Fixed revenue is earned from monthly recurring services provided to customers that are fixed and recurring in nature, and are connected for a specified period of time. Revenues are recognized as the services are provided and continue until the expiration of the contract or until cancellation of the service by the customer. Cash fees received prior to call completion are recorded on the Company’s consolidated balance sheets as unearned revenue. As of March 31, 2014 and December 31, 2013, the Company did not have any recorded unearned revenue.

Economic Dependency

The Company utilizes a limited number of suppliers. The Company is vulnerable to the risk of renewing favorable supplier contracts and timeliness of the supplier in processing the Company’s orders for customers, and is at risk related to regulation and regulatory developments that govern the rates to be charged to the Company and, in some instances, whether certain facilities are required to be made available to the Company.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight line method. The useful lives of assets range from three to five years. The company reviews the recoverability of its property and equipment when events or changes in circumstances occur that indicate that the carrying value of the asset group may not be recoverable.

Costs for the internal development of computer software related to the Company’s proprietary systems are expensed as development stage costs until technological feasibility has been established. Thereafter, all additional software development costs are capitalized and amortized on a straight-line basis over their estimated useful lives.

Long-Lived Assets

Property, equipment and definite lived intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell, and depreciation ceases.

Goodwill and Other Intangible Assets

The Company records the excess of the fair value of companies acquired over the amounts assigned to their identified assets and liabilities as goodwill. The Company determines the fair value of a reporting unit using a combination of the income approach, which is based on the present value of estimated future cash flows, and the market approach, which compares the business unit's financial multiples to its competitors. In accordance with ASU 350-20-35, “Goodwill and Other Intangible Assets,” the Company does not amortize its goodwill, and amortizes its identifiable intangible assets over 10 years. The Company tests its goodwill and other intangible assets for impairment at least annually by comparing the fair value of these assets to their carrying value. The Company has elected to perform its annual impairment test as of December 31 of each calendar year. An interim impairment test would be performed if an event occurs or circumstances change between annual tests that would more likely than not reduce the fair value of an intangible asset below its carrying amount. If in the future the carrying value of goodwill or anther intangible asset exceeds its related fair value, the Company will recognize an impairment charge in an amount equal to that excess.

Deferred Costs

The amount of cash paid and the value of common stock issued that are related to contract renegotiations and debt issuances are capitalized, and classified as a noncurrent deferred cost on the Company’s consolidated balance sheet. These deferred costs are amortized to expense over the term of the underlying contracts or debt instruments.

Stock-Based Compensation

Compensation costs related to share-based payment transactions are recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. The Company’s common shares issued as additional compensation and for consulting services have been valued at the shares’ exchange-quoted market prices at their respective dates of issuance or commitment. Compensation cost will be recognized over the period that an employee provides service in exchange for the award.

Embedded Derivatives

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 – GOING CONCERN

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company has reported a recurring net loss of $2,059,523 and $249,405 for the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, the Company has reported an accumulated deficit of $27,482,485 and a working capital deficit of $3,412,775, and has been dependent on issuances of debt and equity instruments to fund its operations.

The Company intends to increase its future profitability and seek new sources or methods of revenue to pursue its business strategy. If the Company’s financial resources from operations are insufficient, the Company will require additional financing in order to execute its operating plan and continue as a going concern. The Company cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. The Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, the Company may be unable to implement its current plans for expansion, repay its debt obligations as they become due, or respond to competitive pressures, any of which circumstances would have a material adverse effect on its business, prospects, financial condition and results of operations.

The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 4 – PROPERTY AND EQUIPMENT, NET

At March 31, 2014 and December 31, 2013, respectively, property and equipment consisted of the following:

	March 31,			December 31,
	2014			2013

Computers and equipment	$	452,105		$	451,140
Furniture & Fixtures		12,274			12,274
Total		464,379			463,414
Less accumulated depreciation		(345,355	)		(328,388	)
Total	$	119,024		$	135,026

Depreciation expense for the three months ended March 31, 2014 and 2013 amounted to $17,083 and $20,740, respectively.

NOTE 5 – INTANGIBLES

At March 31, 2014 and December 31, 2013, respectively, intangible assets consisted of the following:

	March 31,			December 31,
	2014			2013

Domain names		119,827			119,827
Less accumulated amortization		(4,777	)		(3,264	)
Less impairment charges		(79,685	)		(79,685	)

Intangibles, net of accumulated amortization	$	35,365		$	36,878

Amortization expense for the three months ended March 31, 2014 and 2013 amounted to $1,513 and $1,569, respectively.

NOTE 6 – RELATED PARTY TRANSACTIONS

From time to time, Steven Ivester, the Company’s former sole shareholder, who is currently the Assistant Secretary of and also a consultant to the Company through a Consulting Services Agreement with iTella, Inc., has made personal advances to the Company under an Unsecured Revolving Promissory Note (the "Unsecured Note"). The Unsecured Note has a maximum amount of $1,000,000, is repayable upon demand, is non-interest bearing and is unsecured. Advances of $181,007 under this unsecured note were assigned to another shareholder. Advances under the Unsecured Note amounted to $0 at March 31, 2014 and December 31, 2013, which is included in advances from related parties in the Company’s condensed consolidated balance sheet.

Effective April 1, 2012 and subsequently amended on June 7, 2012, the Company executed a Restated Consulting Services Agreement with iTella, Inc., whereby iTella, Inc. provides, at the reasonable request of the Company’s management, advanced business strategy, financing, product development and marketing advice including but not limited to day to day operations.

The annual payout of the contract was reduced from $250,000 to $150,000. Also, the revenue sharing provision of the previous consulting agreement was terminated. In consideration of the reductions of compensation, the Company accrued a $280,000 payable to the Consultant. Also, in consideration of the reduction of compensation the Company issued 400,000 of restricted shares. The shares were recorded on the Company’s balance sheet at a value of $720,000. The $1,000,000 combined total of the $280,000 payable and the $720,000 of restricted stock issuance are recorded on the Company’s balance sheet as a deferred cost. The Consultant can call the $280,000 payable on demand. For the three months ended March 31, 2014 and 2013, the Company amortized $111,111, respectively, of this deferred cost to consulting expense.

The initial term of this agreement is for five years, and renews for additional one year terms if approved by both parties. During this agreement’s term and at the Company’s expense, iTella, Inc. will be provided an office and administrative support in Weston, Florida. iTella, Inc’s. compensation consists of the following:

Annual cash payments of $150,000, payable monthly;

Employees of Consultant may be eligible for grants of stock options pursuant to the Company’s 2009 Equity Incentive Plan, in such amounts as may from time to time be determined by the Company, at its sole discretion; and

Reimbursement of reasonable, related business expenses.

Expenses under the Restated Consulting Services Agreement (excluding the amortization of deferred costs referred to above) for three months ended March 31, 2014 and 2013, respectively, were $37,500 in consulting expense. In addition, health and insurance benefits were paid by the Company on behalf of Steven Ivester, which totaled approximately $2,807 and $2,571 for the three months ended March 31, 2014 and 2013.

Advances of $92,204 owed to iTella were assigned to another shareholder. As of March 31, 2014 and December 31, 2013, advances from iTella (a related party) were $0 and $239,704, respectively, which is included in advances from related parties in the Company’s condensed consolidated balance sheet.

During the three months ended March 31, 2014, the Company issued 5,829,773 shares of its common stock in settlement of related party obligations to Steve Ivester and an additional 3,375,000 shares for obligations to iTella. In addition, Steve Ivester has provided additional unsecured, noninterest bearing, short term advances to the company totaling $90,485.

On March 31, 2014, the Company owed $119,300 in accrued consulting fees to Warren Gilbert, which was converted into 596,500 shares. In addition, the outstanding loan principal and interest balance of $316,665 owed to Warren Gilbert was converted into 1,583,323 shares.

On March 31, 2014, the Company also converted Gerry Sperling’s loan with an outstanding principal and interest balance of $332,977 into 1,583,323 shares.

At various times during 2014, Gerry Sperling, Barry Ahron and Steven Ivester have provided unsecured notes and cash advances to the Company. The balance of these unsecured notes and cash advances as of March 31, 2014 is $378,085.

NOTE 7 – NOTES PAYABLE

At March 31, 2014 and December 31, 2013, notes payable consisted of the following:

	March 31,			December 31,
	2014			2013

Promissory notes payable - shareholders	$	651,296		$	347,409
Secured note payable - Gilbert/Sperling		-			610,397
Convertible note payable - St George		-			544,738
Note payable – LG Capital		21,486			21,067
Original issue discounts					(213,105	)
Total notes payable		672,782			1,310,506
Less current portion of notes payable		(672,782	)		(1,310,506	)
Noncurrent portion of notes payable	$	-		$	-

Promissory Notes Payable - Shareholders

As of March 31, 2014 and December 31, 2013, the Company had short-term unsecured promissory notes from various shareholders totaling $651,296 and $347,409, respectively. These unsecured advances do not accrue interest.

Secured Note Payable – Gilbert/Sperling

Effective October 1, 2012, the Company issued and sold $700,000 in secured notes to two accredited investors in a private placement, for a cash purchase price of $700,000. The investors also received 750,000 shares of the Company's common stock. These notes are secured by substantially all of the Company's assets, bear interest at 12% per year, and are due in equal weekly installments through October 1, 2015. The outstanding loan and principal balance of $649,349 was converted into 3,166,646 common stock shares on March 31, 2014 and the remaining debt discount of $213,105 was written off to interest expense.

Convertible Notes Payable – St George Investments

On March 30, 2012, the Company entered into a convertible promissory note with St George Investments (the “St George Note”) for a principal balance of $465,000. The note was originally a short-term note payable to Warren Gilbert, one of the primary shareholders of the Company. On March 30, 2012, Warren Gilbert sold the note to St. George Investments for an amount which was not disclosed to the Company. The St George Investments note conversion notice contains a Beneficial Conversion Feature (BCF). The Company accordingly recorded a BCF of $298,077, as a credit to additional paid in capital with offsetting amounts of $187,500 to other expense and $110,577 to debt discount, a contra liability account, which was written off by September 30, 2012, the maturity date of the St George Note. The Company also recognized an additional original-issue debt discount of $135,127, which was charged to other expense by September 30, 2012.

The St George Note bears interest at the rate of 8% per annum, compound daily. All interest and principal was due on September 30, 2012. The St George Note was convertible into common stock, at St George Investments’ option, at a fixed conversion price of $0.375 per share from March 30, 2012 until September 1, 2012, and commencing September 2, 2012 the conversion price is 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion. Upon the occurrence of an event of default, (i) the outstanding balance shall increase to 112.5% of the outstanding balance immediately prior to the occurrence of such event of default; provided, however, that such increase may not be applied more than twice, and (ii) this St George Note shall accrue interest until the outstanding balance is repaid in full at the rate of 1% per month (or 12% per annum), compounding daily, whether before or after judgment.

St George Investments shall have the option, in its sole discretion, to return all or any part of the conversion shares or cancelled shares to the Company by providing one or more written notices thereof to the Company but not exceed 47,692 shares. The St George Investments converted a total of $426,206 of accrued interest, penalty and principal amount during the year ended December 31, 2012 and returned $58,486 or 47,692 shares of conversion made in September 2012. See Note 8 for related litigation.

The Company has identified embedded derivatives related to the St George Note. These embedded derivatives include certain conversion features and reset provisions. See Note 9.

Note Payable – LG Capital

On June 19, 2013, the Company entered into a $32,000, 8% note payable with LG Capital Funding. The principal and interest of the note is due and payable on March 19, 2014. The note has a conversion feature which commences 180 days prior to the maturity date. LG Capital Funding can convert the loan for common stock at a conversion price of 51% of the market price which is calculated utilizing the two lowest trading places. LG Capital converted a total of $12,090 of accrued interest and principal amounts during the year ended December 31, 2013 for 109,649 shares. The outstanding principal balance as of March 31, 2014 and December 31, 2013 is $21,486 and $21,067, respectively.

NOTE 8 – LEGAL SETTLEMENT OBLIGATIONS

The Company has entered into settlement agreements with note holders, former employees and vendors. As of March 31, 2014 and December 31, 2013, the legal settlement obligation was $437,799 and $328,574, respectively. The following is a summary of the recent settlement transactions:

DataJack, Inc. was a defendant in litigation titled St George Investments LLC v. Quamtel, Inc. and Transfer Online, Inc., Case No. 1:12-cv-09186, pending in the United States District Court for the Northern District of Illinois, Eastern Division (the “St George Litigation”). The St. George Litigation was commenced on November 15, 2012, and amended on January 29, 2013. Generally, the Amended Complaint alleges that DataJack failed to pay a purported debt to Plaintiff as and when due and that DataJack and its transfer agent failed to honor a notice from the Plaintiff to exercise its claimed contractual right to convert $20,000 of the alleged debt to shares of stock in DataJack. The Amended Complaint alleges that DataJack is indebted to the Plaintiff in the amount of $391,704, plus penalties, interest, attorney’s fees and costs. The Amended Complaint also seeks injunctive relief and unspecified amounts of compensatory, consequential, indirect and punitive damages. DataJack has disputed its alleged liability to the Plaintiff, and the Company has responded to the Amended Complaint. A settlement agreement has been reached and is dated January 16, 2014, which includes dismissal of the lawsuit. An initial payment is due on January 16, 2014, with a final payment for the balance due on February 15, 2014. An amended agreement was reached and dated February 14, 2014, which states the initial payment was made on or prior to January 16, 2014 and the balance is to be paid on February 18, 2014 and March 18, 2014. The Company has made the February 18, 2014 payment. An extension was granted on March 17, 2014 for the final payment to be made on or before April 25, 2014. An issuance of 60,000 shares was made on March 17, 2014 as an extension fee. The Company has not made the April 25, 2014 payment and is in default of the settlement agreement.

The Company was a defendant in an action styled Robert Picow vs. Quamtel, Inc. and Steven Ivester, in the Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida. Picow asserts he is entitled to damages as a consequence of an alleged breach of a consulting agreement and for an alleged interference with his ability to trade his Quamtel shares. A settlement agreement was reached and the Company paid the claim in January 2014.

The Company was a defendant in an action styled The Balancing Act TV, LLC vs. Quamtel, Inc., filed on July 24, 2012 in the Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida. The Balancing Act TV, LLC asserts that it is entitled to damages in the amount of approximately $50,000 as a consequence of an alleged breach by us of a contract with us. A settlement agreement has been reached and is dated January 16, 2014. The agreed settlement was paid in January 2014.

DataJack, Inc. was a defendant in litigation titled RFP Mainstreet Park / Cypress, LLC v. Quamtel, Inc., Case No. 12-034366, pending in the Seventeenth Judicial Court Circuit of Florida. RFP Mainstreet Park / Cypress, LLC alleged DataJack failed to pay for office space leased. A settlement agreement was reached and dated October 24, 2013, which includes dismissal of the lawsuit. The agreement requires the Company to pay the settlement amount over twelve months commencing in November 2013. The Company has been making the monthly payments during 2014.

The Company entered into a debt settlement agreement with Windell Thelusma on November 26, 2013. Windell Thelusma had provided a loan to DataJack. The agreement provides for the extinguishment of all outstanding amounts owed in exchange for a cash payment upon signing of the agreement, which was completed in January 2014.

On August 22, 2012, the Company entered into a convertible promissory note with JMJ Financial (the “JMJ Note”) for an aggregate principal balance of $220,000. The principal sum of the notes consisted of $200,000 of consideration paid, plus a $20,000 original issue discount (OID) or 10% OID. The note has a provision which allows the Company to draw down the available principal over time. The JMJ Note bears a one-time interest charge of 10% of the principal amount. The maturity date is one year from the Effective Date of each payment received by the Company and is the date upon which the principal sum of this JMJ Note, as well as any unpaid interest and other fees, shall be due and payable. The JMJ Note is convertible into common stock, at JMJ Financial’s option at any time after the Effective Date, at the conversion price of lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion. In the event of any default, the outstanding principal amount of this JMJ Note, plus accrued but unpaid interest, liquidated damages, fees and other amounts owing in respect thereof through the date of acceleration, shall become, at JMJ Financial’s election, immediately due and payable in cash at the Mandatory Default Amount. On December 11, 2013, the Company entered an amended Debt Settlement agreement with JMJ for settlement of the outstanding $88,174 balance on the promissory note. The Company has signed various amendments to the Debt Settlement agreement extending the final payment date to March 14,2014. The Company is in default of the Debt Settlement agreement, as the payment has not been made as of the date of this filing. The Company has identified embedded derivatives related to the JMJ Note. These embedded derivatives include certain conversion features and reset provisions. See Note 9.

On June 22, 2012, the Company entered into a $25,000, zero percent, note payable with Gene and Lois Vanderbur. The principal of the note was due and payable on December 22, 2012. The Company was required to pay a $5,000 participation fee to execute the note and the Company issued the bearer 3,125 shares of DataJack common stock as additional cost of entering the note. The total loan cost of $8,750 was capitalized to deferred cost, all of which amortized to non-interest expenses by December 31, 2012. On September 7, 2012, the Company entered into a $15,000, zero percent, note payable with Gene and Lois Vanderbur. The principal of the note was due and payable on October 20, 2012, and remains unpaid. The Company has committed to pay a $5,000 participation fee to execute the note and the Company has committed to issue the bearer 1,000 shares of DataJack common stock as additional cost of entering the note. The total loan cost of $7,400 was capitalized to deferred cost, all of which amortized to non-interest expenses by December 31, 2012. On December 31, 2013, the Company entered into a Debt Settlement agreement with Gene and Lois Vanderbur for a cash payment and 12,500 common shares. The Company issued the 12,500 common shares of stock on February 21, 2014.

On January 7, 2014, the Company entered into a debt settlement agreement with Gottbetter & Partners, LLP. The Company had received legal services from Gottbetter & Partners, LLP for its public filings, in the normal course of business. The agreement provides for the extinguishment of all outstanding amounts owed in exchange for the issuance of stock after the completion of the reverse stock split. 25,000 shares were issued to Gottbetter & Partners, LLP on March 19, 2014.

On January 9, 2014, the Company entered into a debt settlement agreement with RBSM, LLP. The agreement provides for the extinguishment of all outstanding amounts owed in exchange for a cash payment within 30 days of the agreement and after the filing of the Company’s 2013 Form 10K, which was filed on April 14, 2014. A partial payment of the settlement was completed on January 29, 2014.

On January 10, 2014, the Company entered into a debt settlement agreement with Issuer Direct Corp. The Company had received filing services from Issuer Direct Corp. for its public filings, in the normal course of business. The agreement provides for the extinguishment of all outstanding amounts owed in exchange for a cash payment within 45 days of the agreement and the issuance of stock after the completion of the reverse stock split. The cash payment was completed on January 29, 2014 and 20,000 shares were issued on March 25, 2014.

On January 15, 2014, the Company entered into a debt settlement agreement with Novak and Macey, LLP. The Company had received legal services from Novak and Macey, LLP in the St. George Investments litigation. The agreement provides for the extinguishment of all outstanding amounts owed in exchange for a cash payment on February 15, 2014 and the issuance of shares on the same date. A partial cash payment was completed on February 18, 2014 with a balance still owing as of the date of this filing. 25,000 shares were issued to Novak and Macey, LLP on March 25, 2014.

NOTE 9 – DERIVATIVE LIABILITIES

The Company’s St George Note and JMJ Financial Note (the “JMJ Note”) can be converted into the Company’s common shares, at the holders’ option, at the conversion rates of: (a) 65% of the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion for the St George Note; and (b) at the lesser of $0.07 per share or 70% of the lowest trade price in the 25 trading days prior to the conversion for the JMJ Note.

The Company has identified the embedded derivatives related to these convertible notes. These embedded derivatives included certain conversion features and reset provisions, requiring the Company to record the fair value of the derivatives as of the inception date of these convertible notes, and to fair value as of each subsequent reporting date.

At the inception of these convertible notes, the Company determined the aggregate fair value of $467,725 of embedded derivatives. The fair values of the embedded derivatives were determined using the Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%; (2) expected volatility of 151% to 259%, (3) weighted average risk-free interest rate of 0.08 % to 0.19%, (4) expected life of 0.08 to 0.99 year, and (5) estimated fair value of the Company’s common stock of $0.065 to $0.125 per share.

At December 31, 2013, the Company marked to market the fair values of these debt derivatives and determined a fair value of $854,685. The Company recorded a gain from change in fair value of debt derivatives of $219,059. The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 158% to 299%, (3) weighted average risk-free interest rate of 0.13% to 0.17%, (4) expected life of 0.00 to 1 year, and (5) estimated fair value of the Company’s common stock of $0.0085 to $0.015 per share.

At March 31, 2014, the Company marked to market the fair values of these debt derivatives and determined a fair value of $1,782,735. The Company recorded a loss from change in fair value of debt derivatives of $928,050. The fair values of the embedded derivatives were determined using Black Scholes Option Pricing Model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 318%, (3) weighted average risk-free interest rate of 0.13% to 0.17%, (4) expected life of 1 year, and (5) estimated fair value of the Company’s common stock of $0.85 per share.

NOTE 10 – STOCKHOLDERS’ EQUITY

Reverse Stock Split

On January 24, 2014, the Company filed FORM DEF 14C announcing an amendment to the Company’s current articles of incorporation to effect a reverse split of the Company’s common stock at a ratio of twenty (20) to one (1). Neither the (i) number of authorized shares nor the par value of the shares of the Company’s common stock nor (ii) number of authorized shares or the par value of the shares of the Company’s preferred stock will be changed in connection with any such reverse split. The information contained within this Form 10-K is shown as if the reverse stock split had already occurred. All share and per share data have been retroactively restated to reflect the reverse split.

Financing and Other Transactions

During the three months ended March 31, 2014, the Company issued 9,801,273 shares of common stock in settlement of related party obligations. The Company issued 3,166,646 shares of common stock for conversion of related party loans.

During the three months ended March 31, 2014, the Company issued 11 shares of common stock for cash.

During the three months ended March 31, 2014, the Company issued 157,500 shares of common stock in settlement of litigation and debt settlements.

During the three months ended March 31, 2014, the Company issued 1,634,942 shares for consulting fees, bonuses and compensation related to 2013 board of director fees.

During the three months ended March 31, 2014, the Company issued 506,298 shares of stock which had previously been held in an escrow account.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company is involved in numerous lawsuits. The costs that may result from these lawsuits are only accrued for when it is more likely than not that a liability, resulting from past events, will be incurred and the amount of that liability can be quantified or estimated within a reasonable range. As of the date of this filing, the Company is not currently involved in or aware of any pending or threatened litigation.

Leases

The Company is obligated under two non-cancelable operating leases for its primary office facilities, located in Dallas, TX and Fort Lauderdale, FL. These leases expire on February 28, 2015 and March 31, 2016, respectively. As of March 31, 2014, the Dallas, TX lease is currently in default due to non-compliance with lease terms. The Company is not currently carrying property, auto or workers compensation insurance, as required by the terms of the lease agreement.

Letter of Credit

As of March 31, 2014 and December 31, 2013, the Company has an outstanding standby letter of credit in the amount of $150,000 for the benefit of the one of the Company’s vendors, Sprint Spectrum, L.P. This letter of credit is secured by a certificate of deposit, which at March 31, 2014 and December 31, 2013, is classified as restricted cash, a non-current asset.

Sale of ITG, Inc.

The Company disposed of its ITG, Inc..(formerly WQN, Inc) subsidiary effective November 21, 2013. In accordance with the Stock Purchase Agreement related to the sale of ITG, Inc. the purchaser assumed certain liabilities totaling $275,548 as of the date of the transaction. The purchaser has not indemnified the Company against any future claims by third party creditors or others. Management does not consider it likely that these claims will materialize and accordingly no provision has been made for these contingent liabilities.

NOTE 12 – INCOME TAXES

The Company has not filed corporate income tax returns for the year ended December 31, 2010 and years subsequent.

As of December 31, 2013, the Company has net operating loss carry forward of approximately $20.4 million for federal income tax purposes which will expire by 2033. In accordance with Internal Revenue Code Section 382, the Company may be limited in its ability to recognize the benefit of future net operating loss carry-forwards. Consequently, the Company did not recognize a benefit from operating loss carry-forwards.

NOTE 13 – SUBSEQUENT EVENTS

From April 1 to May 2, 2014, the Company received an aggregate of $72,542 in cash from short term related party loans.

On April 14, 2014 and May 6, 2014, the Company issued 60,000 shares to St. George investments for an extension on the April 14, 2014 debt settlement.

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

Management’s Discussion and Analysis contains various “forward-looking statements” within the meaning of the federal securities laws, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to “anticipates”, “believes”, “plans”, “expects”, “future” and similar statements or expressions, identify forward-looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company’s business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth herein and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the Securities and Exchange Commission, the ("SEC") on April 14, 2014.

When used in this quarterly report, the terms the “Company,” “DataJack,” “we,” “our,” and “us” refers to DataJack, Inc. formerly known as Quamtel, Inc., a Nevada corporation. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the unaudited condensed consolidated financial statements included herein. Further, this quarterly report on Form 10-Q should be read in conjunction with the Company’s Consolidated Financial Statements and Notes to Consolidated Financial Statements included in its Annual Report on Form10-K for the fiscal year ended December 31, 2013, filed with the SEC on April 14, 2014.

Overview

We were incorporated in 1999 under the laws of Nevada as a communications company offering, through our subsidiaries, a comprehensive range of mobile broadband and communications products and services that are designed to meet the needs of individual consumers, businesses, government subscribers and resellers. Our operations are organized to meet the needs of our targeted subscriber groups through focused communications solutions that incorporate the capabilities of our mobile broadband and communications services.

We offer secure nationwide mobile broadband wireless data transmission services primarily under the DataJack brand. Through DataJack, we offer low cost, no contract, mobile broadband with various data plans. Our DataJack service is offered primarily through two devices - the DataJack MiFi Mobile Hotspot that can connect up to 8 Wi-Fi enabled devices and the DataJack USB, a Plug and Play USB Device.

Effective June 5, 2013, DataJack, Inc. sold substantially all of the assets of WQN, Inc., our wholly-owned subsidiary, to iTalk, Inc., a Nevada corporation (the “WQN Asset Sale”). The assets included in the sale included all intellectual rights of WQN, including trade names and trademarks, and all rights and interests to and in the all customers of the International Long Distance division of DataJack , Inc., including but without limitation all the customers and/or subscribers of the following products: My WQN, Easy Talk, Premium and ValuComm and also including all current and previously registered Customers as well as all databases. The purchase price was $300,000. WQN accounted for approximately 47% of the Company’s consolidated revenues in 2012.

Effective November 21, 2013, ITG, Inc, (formerly WQN, Inc.) sold, transferred and delivered all its issued and outstanding common stock shares, with $0.01 par value, to WW Courier, Inc. for $500 and 10% of future revenue. All remaining outstanding liabilities related to WQN, Inc. were transferred with the stock sale.

Results of Operations for the Three Months ended March 31, 2014 Compared to the Same Period in 2013

Revenues

Our revenues for the three months ended March 31, 2014 and 2013 were $285,241 and $576,520, respectively. DataJack revenues decreased by $53,068 and the WQN Asset Sale caused revenues to drop substantially during the first quarter of 2014.

Cost of Sales and Gross Profit

Cost of sales totaled $180,702 and $480,620 for the three months ended March 31, 2014 and 2013, respectively. This resulted in gross profit of $104,539 (37%) and $95,900 (17%) for the respective 2014 and 2013 periods. The decrease in cost of sales and the increase gross margin in 2014 were a result of the WQN Asset Sale.

Operating Expenses

Operating expenses were $1,382,759 and $620,260 for the three months ended March 31, 2014 and 2013, respectively.

Compensation and consulting expenses increased to $1,035,179 for the three months ended March 31, 2014 compared to $405,179 for the same period in 2013. Compensation and consulting expenses are primarily a result of the issuance of common shares for board of director fees in the amount of $291,875 and bonuses in the amount of $377,000.

General and administrative (“G&A”) expenses were $332,984 and $192,772 for the three months ended March 31, 2014 and 2013, respectively.

Other Income and Expense

Other income and expenses increased to a net other expense of $777,303 for the three months ended March 31, 2014 compared to a net other income of $274,955 for the three months ended March 31, 2013. The $1,052,258 increase in expense is directly attributable to the loss from change in fair value of derivative liability of $928,050 during the three months ended March 31, 2014 as compared to a gain of $470,445 for the same period last year. The loss was offset with a gain on settlement of debt of $384,883 for the three months ended March 31, 2014 compared to nil for the same period last year. In the three months ended March 31, 2014, the Company amortized $213,105 of debt discount as compared to $18,334 the same period, last year. Interest expense has decreased in the three months ended March 31, 2014 to $21,031 compared to $177,156 for the same period last year.

Net Loss

An increase in compensation and consulting expenses, loss on derivative liability; off-set by gain on settlement of debt resulted in a net loss of $2,059,523 for the three months ended March 31, 2014, compared to a net loss of $249,405 for the same period in 2013.

Liquidity and Capital Resources

Cash and cash equivalents were $148 at March 31, 2014. Our net cash used in operating activities for the three months ended March 31, 2014 was $407,556 due primarily to our net loss during this period.

Our primary sources of funding for the three months ended March 31, 2014 have been proceeds in the amount of $386,985 from advances from related parties, net of repayments of notes of $8,500.

At March 31, 2014, restricted cash consisted of a $150,000 security deposit in the form of an irrevocable letter of credit held in escrow related to our performance under a service contract with one of our telecommunication service providers.

We believe that anticipated cash fows from operations will be insufficient to satisfy our ongoing capital requirements. Our ability to meet our obligations and continue to operate as a going concern is highly dependent on our ability to obtain new loans and/or successfully enter into settlement agreements with our vendors. We cannot predict whether this additional financing will be in the form of equity or debt, or be in another form. We may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In any of these events, we may be unable to implement our current plans which circumstances would have a material adverse effect on our business, prospects, financial condition and results of operations.

Our accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We have incurred operating losses and negative cash flows from operations during the past two years, have incurred an accumulated deficit of $27,482,485 through March 31, 2014, and have been dependent on issuances of debt and equity instruments to fund our operations. We intend to generate future profitability and seek new sources or methods of financing or revenue to pursue our business strategy. However, there can be no certainty that we will be successful in this strategy. These factors raise substantial doubt about our ability to continue as a going concern. Accordingly, our independent auditors added an explanatory paragraph to their opinion on our consolidated financial statements for the year ended December 31, 2013, based on substantial doubt about our ability to continue as a going concern.

Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. We expect to raise any necessary additional funds through loans and additional sales of our common stock or debt instruments. There can be no assurance that we will be successful in raising additional capital in amounts or on terms acceptable to us, if at all.

Capital Expenditure Commitments

We did not have any substantial outstanding commitments to purchase capital equipment at March 31, 2014.

Capital Needs

We expect to adjust our operations and development to the level of capitalization, but we may not have sufficient capital resources to meet projected cash flow requirements for the next three months. If during that period or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

Our future cash requirements include those associated with maintaining our status as a reporting entity. We believe that on an annual basis those costs would not exceed an average of $25,000 per month.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief operating history and lack of substantial historical operating profits, our operations have not been a source of liquidity. We will need to obtain additional capital in order to fund our operations and become profitable. In order to obtain capital, we may need to sell additional shares of our common stock or borrow funds from private lenders. There can be no assurance that we will be successful in obtaining additional funding in amounts or on terms acceptable to us, if at all.

Critical Accounting Policies

The application of our accounting policies, which are important to our financial position and results of operations, requires significant judgments and estimates on the part of management. These estimates bear the risk of change due to the inherent uncertainty attached to the estimate and are likely to differ to some extent from actual results. A description of our critical accounting policies follows:

In accordance with FASB ASC 350 (formerly Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” the Company tests its intangible asset (goodwill) for impairment at least annually by comparing the fair value of this asset to its carrying value. If in the future the carrying value of our goodwill exceeds its fair value, the Company will recognize an impairment charge in an amount equal to that excess. For purposes of these tests, the excess of the fair value of the Company over the amounts assigned to its identified assets and liabilities is the implied fair value of its goodwill. In 2012, the Company recognized related impairment charges of $749,642 in its consolidated statement of operations. No additional impairment charges were recognized in 2013 or the three months ended March 31, 2014.

The Company has identified embedded derivatives related to certain of its notes payable. These embedded derivatives include certain conversion features and reset provisions. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the above described Convertible Note Payable and to fair value as of each subsequent reporting date. For the three months ended March 31, 2014 and 2013, the Company recognized related derivative mark-to-market (charges) income of ($928,050) and $470,445, respectively, in its consolidated statement of operations.

Compensation costs related to share-based payment transactions are recognized in the statement of operations. With limited exceptions, the amount of compensation cost will be measured based on the grant- date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured each reporting period. The Company’s common shares issued as additional compensation and for consulting services have been valued at the shares’ exchange-quoted market prices at their respective dates of issuance or commitment. Compensation costs are recognized over the period that an employee provides service in exchange for the award.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

As required by Rule 13a-15(b) under the Exchange Act, as of March 31, 2014, our management conducted an evaluation with the participation of our President who also serves as our principal financial and accounting officer (the “Certifying Officer”) regarding the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act).

A control deficiency exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis.

Based on this evaluation, our Certifying Officer concluded that our disclosure controls and procedures were ineffective as of March 31, 2014. Our President, who is our sole executive officer, is not a financial or accounting professional, and we do not have a chief financial officer or sufficient accounting staff. Until we are able to engage a qualified financial officer, and/or accounting staff, we may continue to experience material weaknesses in our disclosure controls that may adversely affect our ability to timely file our quarterly and annual reports.

Our management, including the Certifying Officer, does not expect that our disclosure controls and procedures will prevent all errors and all improper conduct. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, a design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of improper conduct, if any, have been detected. These inherent limitations include the realities that judgments and decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more persons, or by management override of the control. Further, the design of any system of controls is also based in part upon assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations and a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

The Company has an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual consolidated financial statements could occur and not be prevented or detected on a timely basis. We have not achieved the optimal level of segregation of duties relative to key financial reporting functions and we do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to has an audit committee or independent audit committee financial expert, it is management’s view that an audit committee, comprised of independent board members, and an independent financial expert is an important entity-level control over the Company's financial statements. We have not achieved an optimal segregation of duties for executive officers of the Company.

(b) Changes in Internal Control over Financial Reporting.

During the quarter ended March 31, 2014, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of or a party to any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

ITEM 1A. RISK FACTORS

See the risk factors set forth in our Annual Report on Form 10-K filed with the SEC on April 14, 2014.

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

During the three months of 2014, the Company issued 15,266,660 shares of common stock valued at $2,248,856 as follows:

·	9,801,273 shares valued at $570,608 were issued to reduce related party balances;

·	3,166,646 shares valued at $649,349 were issued to two related party debt holders in settlement of debt;

·	1,333,750 shares valued at $666,875 were issued for 2014 board of directors fees and bonus compensation;

·	301,193 shares valued at $210,835 were issued for related party accrued consulting fees;

·	82,500 shares valued at $111,664 were issued to reduce legal settlement liabilities;

·	75,000 shares valued at $39,525 were issued for loan extensions;

·	506,298 shares were issued which had been held in escrow;

These securities were offered and sold pursuant to the exemption from the registration requirements of the federal securities laws provided by Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit No.		Description


31.1/31.2		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002*
32.1/32.2		Certification of Chief Executive Officer and Interim Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002**
101 INS		XBRL Instance Document***
101 SCH		XBRL Schema Document***
101 CAL		XBRL Calculation Linkbase Document***
101 LAB		abels Linkbase Document***
101 PRE		XBRL Presentation Linkbase Document***
101 DEF		Definition Linkbase Document***

*	Filed herewith.

This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference.

***	To be provided by amendment.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DATAJACK, INC.

Dated: May 20, 2014	By:	/s/ Stuart Ehrlich
		Stuart Ehrlich
		President and Chief Executive Officer,
		Principal Financial Officer

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