NOTES
TO FINANCIAL STATEMENTS
NOTE
1—ORGANIZATION, BUSINESS AND OPERATIONS
Engage
Mobility, Inc. (the “Company”) was incorporated on December 28, 2011 under the laws of the State of Florida
as MarketKast Incorporated. On March 22, 2013, the Company changed its name to Engage Mobility, Inc. Since formation, the Company
functioned as a provider of mobile marketing services, online and mobile video production, distribution, syndication and marketing
services for business owners.
On
April 9, 2015, a Stock Purchase Agreement (“Stock Purchase Agreement”) was entered into by and among Engage International
Technology Co. Ltd. (“Engage International”), James S. Byrd, Jr. (“Byrd”) and Douglas S. Hackett (“Hackett”)
(Byrd and Hackett, collectively, the “Sellers”), who were the principal stockholders of the Company, pursuant to which
Engage International acquired from the Sellers a total of 16,462,505 shares of the Company’s Common Stock, representing
75.61% of the Company’s issued and outstanding shares on that date. Pursuant to the Stock Purchase Agreement, a change in
control of the Company occurred.
The
Company was not able to raise sufficient capital to execute its original business plan and has decided to cease its plan of operation
as a mobile technology provider. As a result, the Company is now a “shell company” (as such term is defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Going
forward, the Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a
private entity whose business presents an opportunity for the Company’s stockholders.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Accounting Presentation
The
Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on
the accompanying statements of operations and cash flows.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to
be cash equivalents. Bank overdrafts are presented in the financial statements under the caption “Due to
Bank”.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during
the reporting period. Actual results could differ from these estimates. Significant estimates include the valuation of options
and warrants issued for services and compensation and deferred income taxes.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
In
general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The
following reflects specific criteria for the various revenues streams of the Company:
Revenue
for services is recognized at the time the services are rendered.
Where
the Company has entered into a revenue sharing agreement with a third party, the Company records their proportionate share of
the revenue.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company
estimates doubtful accounts based on historical bad debts, factors related to specific customers’ ability to pay and current
economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.
Intangible
Assets and Long Lived Assets
The
Company reviews for impairment its long-lived assets and certain identifiable intangible assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when
estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying
amount. The Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, are
being amortized over a period of three years.
Fair
value of financial instruments
The
Company’s short-term financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses,
and other current liabilities. The carrying amounts of these financial instruments approximate fair value because of their short-term
maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue
interest rate or leveraged derivative financial instruments. The carrying value of the Company’s long-term debt approximates
fair value based on the terms and conditions at which the Company could obtain similar financing.
Income
Taxes
In
accordance with FASB ASC 740,
“Income Taxes”
(“ASC 740”), deferred tax assets and liabilities
are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the
enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income
tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it
is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required
to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation
allowance are included in the provision for deferred income taxes in the period of change. The Company has recorded a valuation
allowance against its deferred tax assets based on the history of losses incurred.
ASC
740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in
the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is
more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical
merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on
the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance
on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities,
and accounting for interest and penalties associated with tax positions. As of June 30, 2016 and 2015, the Company does not have
a liability for any unrecognized tax benefits.
All
tax periods from inception remain open to examination by taxing authorities.
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation
The
Company records the cost resulting from all share-based transactions in the financial statements. The Company applies
a fair-value-based measurement in accounting for share-based payment transactions with employees and when the Company acquires
goods or services from non-employees in share-based payment transactions.
Basic
and Diluted Earnings per Share
Basic
earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of
common shares and dilutive Common Stock equivalents outstanding. During periods in which the Company incurs losses, Common Stock
equivalents, if any, are not considered, as their effect would be anti-dilutive.
NOTE
3—RECENTLY ISSUED ACCOUNTING STANDARDS
In
May 2014, as part of its ongoing efforts to assist in the convergence of U.S. GAAP and International Financial Reporting Standards,
the Financial Accounting Standards Board (“FASB”) issued a new standard related to revenue recognition. FASB issued
Accounting Standards Update (“ASU”) No. 2014-9, “Revenue from Contracts with Customers” (“ASU 2014-9”).
ASU 2014-9 provides for a single comprehensive principles-based standard for the recognition of revenue across all industries
through the application of the following five-step process:
Step
1: Identify the contract(s) with a customer.
Step
2: Identify the performance obligations in the contract.
Step
3: Determine the transaction price.
Step
4: Allocate the transaction price to the performance obligations in the contract.
Step
5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The
updated guidance related to revenue recognition affects any entity that either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope
of other standards. The guidance requires that an entity recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The guidance is effective for the Company starting on January 1, 2017. The Company is currently evaluating the impact
this guidance will have on its combined financial position, results of operations and cash flows.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities. The standard requires several targeted changes including that equity investments
(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) be measured
at fair value with changes in fair value recognized in net income. The new guidance also changes certain disclosure requirements
and other aspects of current US GAAP. Amendments are to be applied as a cumulative-effect adjustment to the balance sheet as of
the beginning of the fiscal year of adoption. This standard is effective for fiscal years starting after December 15, 2017, including
interim periods within those fiscal years. The standard does not permit early adoption with the exception of certain targeted
provisions. The Company is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements.
In
February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations
by requiring the recognition of lease assets and lease liabilities on the balance sheet. Most prominent among the amendments is
the recognition of assets and liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.
Under the new standard, disclosures are required to meet the objective of enabling users of financial statements to assess the
amount, timing, and uncertainty of cash flows arising from leases. We anticipate this standard will have a material impact on
our consolidated balance sheets, and we are currently evaluating its impact.
NOTE
3—RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
In
March 2016, the Financial Accounting Standards Board (“FASB”) issued a new standard that changes the accounting for
certain aspects of share-based payments to employees. The new guidance requires excess tax benefits and tax deficiencies to be
recorded in the income statement when the awards vest or are settled. In addition, cash flows related to excess tax benefits will
no longer be separately classified as a financing activity apart from other income tax cash flows. The standard also allows us
to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, clarifies
that all cash payments made on an employee’s behalf for withheld shares should be presented as a financing activity on our
cash flows statement, and provides an accounting policy election to account for forfeitures as they occur. The Company is currently
assessing the impact and timing of adopting this guidance on its consolidated financial statements.
In
April 2016, the FASB issued ASU 2016- 10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations
and Licensing”. The amendments add further guidance on identifying performance obligations and also to improve the operability
and understandability of the licensing implementation guidance. The amendments do not change the core principle of the guidance
in Topic 606. Public entities should apply the amendments for annual reporting periods beginning after December 15, 2017, including
interim reporting periods therein. Early application for public entities is permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within that reporting period. The Company is currently in the process
of evaluating the impact of the adoption on its consolidated financial statements.
In
May 2016, the FASB issued ASU 2016-11, “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission
of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016
EITF Meeting.” The amendment rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016 Emerging
Issues Task Force (EITF) meeting. Specifically, registrants should not rely on the following SEC Staff Observer comments upon
adoption of Topic 606: 1) Revenue and Expense Recognition for Freight Services in Process, which is codified in paragraph 605-20-S99-2;
2) Accounting for Shipping and Handling Fees and Costs, which is codified in paragraph 605-45-S99-1; 3) Accounting for Consideration
Given by a Vendor to a Customer (including Reseller of the Vendor’s Products), which is codified in paragraph 605-50-S99-1;
4) Accounting for Gas-Balancing Arrangements (i.e., use of the “entitlements method”), which is codified in paragraph
932-10-S99-5, which is effective upon adoption of ASU 2014-09. The Company is currently in the process of evaluating the impact
of the adoption on its consolidated financial statements.
In
May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and
Practical Expedients”. The amendments, among other things: (1) clarify the objective of the collectability criterion for
applying paragraph 606-10-25-7; (2) permit an entity to exclude amounts collected from customers for all sales (and other similar)
taxes from the transaction price; (3) specify that the measurement date for noncash consideration is contract inception; (4) provide
a practical expedient that permits an entity to reflect the aggregate effect of all modifications that occur before the beginning
of the earliest period presented when identifying the satisfied and unsatisfied performance obligations, determining the transaction
price, and allocating the transaction price to the satisfied and unsatisfied performance obligations; (5) clarify that a completed
contract for purposes of transition is a contract for which all (or substantially all) of the revenue was recognized under legacy
GAAP before the date of initial application, and (6) clarify that an entity that retrospectively applies the guidance in Topic
606 to each prior reporting period is not required to disclose the effect of the accounting change for the period of adoption.
The effective date of these amendments is at the same date that Topic 606 is effective. The Company is currently in the process
of evaluating the impact of the adoption on its consolidated financial statements.
In
June 2016, the FASB issued a new standard to replace the incurred loss impairment methodology in current U.S. GAAP with a methodology
that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to
inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, we will be required to
use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses
that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for
credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard will be effective for
us beginning July 1, 2020, with early adoption permitted beginning July 1, 2019. Application of the amendments is through
a cumulative-effect adjustment to retained earnings as of the effective date. We are currently evaluating the impact of this standard
on our consolidated financial statements.
NOTE
4—GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As
reflected in the accompanying financial statements, the Company has an accumulated deficit of approximately $6,680,000 and a working
capital deficit of approximately $697,000 at June 30, 2016. In addition, the Company continues to generate operating losses and
have limited cash flows from operations. Management believes these factors raise substantial doubt about the Company’s ability
to continue as a going concern.
NOTE
4—GOING CONCERN (CONTINUED)
While
management is attempting to execute its strategy, the Company does not have the cash to support the Company’s daily operations
and requires significant additional debt or equity financing. While the Company believes in the viability of its strategy
to increase sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to obtain additional debt
or equity financing, further implement its business plan and generate sufficient revenues to meet its obligations. The
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
During
the next 12 months, the Company anticipates to obtain loans from its related parties and management.
NOTE
5—PROPERTY, PLANT AND EQUIPMENT
As
of June 30, 2016 and 2015, the Company did not own any property, plant and equipment. Depreciation expense for the years ended
June 30, 2016 and 2015 was $0 and $6,681, respectively. During the fourth quarter of 2015, the Company disposed of all its property
and equipment and recognized a loss on disposal of $3,909.
NOTE
6—INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Mobile platform
|
|
$
|
98,000
|
|
|
$
|
98,000
|
|
Patents
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
99,000
|
|
|
|
99,000
|
|
Less:
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(80,538
|
)
|
|
|
(72,371
|
)
|
Impairment reserve
|
|
|
(18,462
|
)
|
|
|
-
|
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
26,629
|
|
Amortization
expense for the year ended June 30, 2016 and 2015 was $8,167 and $46,671, respectively. During the year ended June 30, 2016, the
Company reported an impairment loss of $18,462 over its intangible assets.
NOTE
7—DUE TO RELATED PARTY
Parties,
which can be a corporation or individual, are considered to be related if we have the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common control or common significant influence.
The
Company received advances from the following related parties, under common control, to supplement the Company’s working
capital.
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Shenzhen Engage Mobile Technology Co., Ltd. (“Engage Technology”)
|
|
$
|
470,000
|
|
|
$
|
470,000
|
|
Shenzhen Datang Engage Telecom Co., Ltd. (“Engage Telecom”)
|
|
|
188,759
|
|
|
|
92,096
|
|
|
|
$
|
658,759
|
|
|
$
|
562,096
|
|
Shenzhen
Engage Mobile Technology Co., Limited became a related party after Engage International Technology Co., Ltd. purchased
75.61% of the Company’s Common Stock from two stockholders of the Company on April 9, 2015. The advance is unsecured,
payable on demand and non-interest bearing. During the year ended June 30, 2016, the Company received $96,663, respectively,
in advances from Engage Telecom. As of June 30, 2016, the balance of the advances from related parties was $658,759. On
February 23, 2017, the payable balances to Engage Technology and Engage Telecom had been fully assumed by our sole officer
and director, Mr. Hua Zhang.
NOTE
8—NOTES PAYABLE
As
of June 30, 2014, the Company had borrowed funds pursuant to non-convertible promissory notes of $275,000, bearing interest at
10% per annum. Interest was payable monthly and the principal, together with any unpaid interest, was to be repaid 48 months from
the dates of the notes. Total interest accrued on the outstanding note was approximately $21,000 for the year ended. The Company
repaid the outstanding balance of the note along with interest on April 9, 2015.
During
the nine months ended March 31, 2015, the Company borrowed $181,000 pursuant to promissory notes from its two major stockholders
of the Company at that time. The notes were fully repaid in April 2015.
NOTE
9—CONVERTIBLE NOTES PAYABLE
During
February 2014 the holder of the $200,000 convertible note agreed to convert the note into 200,000 shares of the Company’s
Common Stock. This note holder also purchased an additional 100,000 shares of the Company’s Common Stock for $100,000 in
cash. The Company also granted the note holder warrants to purchase 200,000 common shares at $1.50 per share and 200,000 shares
at $2.00 per share for a three year period. On April 6, 2015, the holder of the $50,000 convertible note agreed to convert the
note and its interest into the 110,000 shares of the Company’s Common Stock (See Note 11). The loss on extinguishment of
the above debt was $139,230 and there was $41,722 decrease to additional paid-in capital for the value allocated to the beneficial
conversion feature of the debt.
NOTE
10—COMMITMENTS AND CONTINGENCY
Lease
On
June 1, 2014, the Company entered into a three-year lease agreement with an unrelated third party.
Rent
expense for the years ended June 30, 2016 and 2015 was $0 and $42,964, respectively. Pursuant to a termination agreement dated
May 6, 2015 between the Company and the landlord, the lease has been terminated.
Legal
Status
The
Company was involved in one legal proceeding, a breach of contract lawsuit against IRTH Communications, LLC. On May 24, 2014,
the Company filed a lawsuit in Orange County, FL (case # 2014-CA-00-2626-O), against IRTH for breach of a contract to provide
investor relations services to them. In that lawsuit the Company sought return of $110,000 of monies paid to IRTH, and the cancellation
of 54,950 shares of stock issued to IRTH. IRTH subsequently sued the Company for breach of contract, seeking damages and also
to have their shares cleared for trading. On December 10, 2014, both parties entered into a settlement agreement to settle and
dismiss the suit. As part of the settlement, the Company reissued 54,950 shares to IRTH, which IRTH agreed not to sell, hypothecate,
pledge or otherwise transfer any of the stock until after December 15, 2015.
The
Company is currently not involved in any legal proceedings.
NOTE
11—STOCKHOLDERS’ DEFICIENCY
Equity
Common
Stock includes 100,000,000 shares authorized at no par value.
2015
On
April 6, 2015, the Company issued 110,000 shares of Common Stock pursuant to the conversion of a $50,000 note issued by the Company,
and 100,000 shares of Common Stock to a consultant in consideration for his service.
On
April 9, 2015, the Company completed a Subscription Agreement with Engage International Technology Co. Ltd. pursuant to which
Engage International purchased 1,100,000 shares of the Company’s restricted Common Stock, at the price of $0.50 per share
for a total purchase price of $550,000. The price was based on the market price of the Company’s stock prior to April 9,
2015 when the agreement was being negotiated. The issuance of the shares was in reliance upon the exemptions from securities registration
afforded by Regulation S promulgated under Regulations of the Securities Act of 1933, as amended. The sole purpose and objective
of the sale was to use the proceeds received to pay off certain outstanding debts, loans, obligations and liabilities of the Company.
NOTE
11—STOCKHOLDERS’ DEFICIENCY (CONTINUED)
2016
The
Company did not have any equity transactions occurred in the year ended June 30, 2016.
Stock
Options and Warrants
During
the year ended June 30, 2014, two employees were granted an aggregate of 614,000 five year options which vested immediately as
to 114,000 options and as to 125,000 options per year over the next 4 years. The options are exercisable at $2.50 per share for
114,000 options, $3.00 per share for 125,000 options, $3.50 per share for 125,000 options, $3.75 for 125,000 options and $4.00
for 125,000 options. The aggregate grant date fair value of the options was approximately $1,416,000, of which $0 and $225,719
has been charged to operations during the years ended June 30, 2016 and 2015. As of June 30, 2016 and 2015, respectively, the
aggregate intrinsic value of all stock options outstanding and expected to vest was approximately $0 and the aggregate intrinsic
value of currently exercisable stock options was approximately $0. The intrinsic value of each option share is the difference
between the fair market value of our Common Stock and the exercise price of such option share to the extent it is “in-the-money”.
Aggregate intrinsic value represents the value that would have been received by the holders of in-the-money options had they exercised
their options on the last trading day of the year and sold the underlying shares at the closing stock price on such day. The intrinsic
value calculation is based on the assumed market value of our Common Stock on June 30, 2016 and 2015, at $0.27 and $0.5 per share.
The total number of in-the-money options outstanding and exercisable as of June 30, 2016 and 2015, was 0. The fair value of the
options charged to operations during the year ended June 30, 2015 was $247,430. These two employees left the Company in April
2015 and the remaining unvested options were cancelled. The options were valued using a binomial option pricing model with the
following assumptions:
Volatility
154% - Dividend rate 0% - Interest rate 1.36%-1.66% - Term 5 years
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Number of Options
|
|
|
Weighted Average Exercise
Price
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Options outstanding at beginning of year
|
|
|
207,750
|
|
|
$
|
2.73
|
|
|
|
3.42
|
|
|
|
614,000
|
|
|
$
|
3.37
|
|
|
|
4.37
|
|
Changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
406,250
|
|
|
|
3.69
|
|
|
|
|
|
Options outstanding at end of year
|
|
|
207,750
|
|
|
$
|
2.73
|
|
|
|
2.87
|
|
|
|
207,750
|
|
|
$
|
2.73
|
|
|
|
3.42
|
|
Options exercisable at end of year
|
|
|
207,750
|
|
|
$
|
2.73
|
|
|
|
2.87
|
|
|
|
207,750
|
|
|
$
|
2.73
|
|
|
|
3.42
|
|
NOTE
11—STOCKHOLDERS’ DEFICIENCY (CONTINUED)
Stock
Warrants
Stock
warrants outstanding at June 30, 2016 were as follows:
|
|
Number of Shares
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Warrants outstanding at June 30, 2015
|
|
|
525,000
|
|
|
|
1.48
|
|
Changes:
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
|
|
Warrants outstanding at June 30, 2016
|
|
|
525,000
|
|
|
|
0.53
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at June 30, 2016
|
|
|
525,000
|
|
|
|
0.53
|
|
Date Issued
|
|
Expiration Date
|
|
Exercise Price
|
|
|
Number of Warrants
|
|
July 2013
|
|
July 2016
|
|
$
|
2.00
|
|
|
|
125,000
|
|
February 2014
|
|
February 2017
|
|
$
|
1.50
|
|
|
|
200,000
|
|
February 2014
|
|
February 2017
|
|
$
|
2.00
|
|
|
|
200,000
|
|
On
April 9, 2015, in anticipation of and in connection with the share purchase by Engage International, the holder of a warrant to
purchase 1,000,000 shares of Common Stock at an exercise price of $1.00, agreed to its cancellation for no consideration.
NOTE
12—INCOME TAXES
No
provision was made for federal income taxes since the Company has significant net operating losses. At June 30, 2016, the Company
had operating loss carryforwards of approximately $3,071,000. The net operating loss carry-forwards may be used to reduce taxable
income through the year 2036. The principal difference between the net operating loss for book purposes and income tax purposes
results from non-cash charges to operations related to stock options and warrants and common shares issued for services that are
not currently deductible for income tax purposes. The availability of the Company’s net operating loss carry-forwards are
subject to significant limitation since there was more than 50% positive change in the ownership of the Company’s stock.
Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities
and assets as of June 30, 2016 and 2015, are as follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Federal net operating loss
|
|
$
|
1,001,000
|
|
|
$
|
979,000
|
|
State net operating loss
|
|
|
147,000
|
|
|
|
145,000
|
|
|
|
|
1,148,000
|
|
|
|
1,124,000
|
|
Less:
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,148,000
|
)
|
|
|
(1,124,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company has provided a 100% valuation allowance on the deferred tax assets at June 30, 2016 and 2015, to reduce such assets
to zero, since there are significant limitations on the utilization of the Company’s net operating loss carry-forwards
and there is no assurance that the Company will generate future taxable income to utilize such assets. Management reviews
this valuation allowance requirement periodically and makes adjustments as warranted. The valuation allowance increased
$24,000 and $600,000 for the years ended June 30, 2016 and 2015, respectively.
NOTE
12—INCOME TAXES (CONTINUED)
The
reconciliation of the effective income tax rate to the federal statutory rate for the years ended June 30, 2016 and 2015 is as
follows:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Federal income tax rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State tax, net of federal benefit
|
|
|
(5.0
|
)%
|
|
|
(5.0
|
)%
|
Valuation allowance
|
|
|
39.0
|
%
|
|
|
39.0
|
%
|
Effective income tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
NOTE
13—CONCENTRATION OF CREDIT RISK
There
was no revenue reported for the year ended June 30, 2016. For the year ended June 30, 2015, three customers accounted for approximately
89% of sales.
NOTE 14—SUBSEQUENT EVENTS
Through June 2015, the Company’s efforts
were primarily limited to business formation, strategic development, marketing, website and product development, negotiations with
third party sales and channel partners, and capital raising activities. However, the Company was not able to raise sufficient capital
to execute its original business plan and, on February 15, 2017, management
decided to cease the Company’s plan of operation as a mobile technology provider. In connection with this determination,
the Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, have been impaired,
and the Company has reported an impairment loss of $18,462. As a result of the foregoing, the Company is a “shell company”
(as such term is defined in Rule 12b-2 under the Exchange Act). Going forward, the Company intends to seek, investigate and,
if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for
the Company’s stockholders.