NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
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 Presentation
The
Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”).
The
unaudited interim financial statements of the Company as of September 30, 2016 and for the three months ended September 30, 2016
and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America and the
rules and regulations of the SEC which apply to interim financial statements.
Accordingly,
they do not include all of the information and footnotes normally required by accounting principles generally accepted in the
United States of America for annual financial statements. The interim financial information should be read in conjunction with
the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended
June 30, 2016, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The
results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results to be expected
for future quarters or for the year ending June 30, 2017.
Use
of Estimates
In
preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from
those estimates.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash
and Cash Equivalents
The
Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents.
At September 30, 2016 and June 30, 2016, the Company had no cash and cash equivalents.
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.
The
Company’s revenues have principally been from video distribution and advertising fees via the platform. However, since July
1, 2015 until the date of this report, the Company did not report any revenues.
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.
Property,
Plant and Equipment
Property,
plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct
the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the
assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve
productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.
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. During the three months ended September 30, 2016 and 2015, the Company did not report
any impairment loss.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
Value of Financial Instruments
The
Company’s short-term financial instruments consist of cash, accounts receivable, 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 the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”),
“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 September 30, 2016 and June 30, 2016, the Company
does not have a liability for any unrecognized tax benefits.
All
tax periods from inception remain open to examination by taxing authorities.
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.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basic
and Diluted Loss per Share
The
Company reports loss per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings
per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per
share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed
by applying the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised,
and funds thus obtained were assumed to be used to purchase Common Stock at the average market price during the period. There
were no dilutive instruments outstanding during the three months ended September 30, 2016 and the year ended June 30, 2016. However,
if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents
would have been anti-dilutive due to the Company’s net loss.
Recently
Issued Accounting Pronouncements
Accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption.
NOTE
3—GOING CONCERN
The
accompanying unaudited condensed 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 unaudited condensed financial statements, the Company has an accumulated deficit of approximately
$6,681,000 and a working capital deficit of approximately $698,000 at September 30, 2016. In addition, the Company continues to
generate operating losses and negative cash flows from operations. This raises substantial doubt about the Company’s ability
to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s
ability to raise additional capital and implement its business plan, which is now to seek, investigate and, if such investigation
warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders.
The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going
concern. Management intends to provide the Company with additional loans as needed and is seeking a merger target to implement
its strategic plans. Management feels these actions provide the opportunity for the Company to continue as a going concern.
NOTE
4—PROPERTY, PLANT AND EQUIPMENT
The
Company currently does not have any property, plant or equipment. During the year ended June 30, 2015, the Company disposed
of all its property and equipment and recognized a loss on disposal of $3,909. Depreciation expense charged to operations for
both the three months ended September 30, 2016 and 2015 was $0.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
5—INTANGIBLE ASSETS
Intangible
assets consisted of the following:
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Mobile platform
|
|
$
|
98,000
|
|
|
$
|
98,000
|
|
Patents
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
|
99,000
|
|
|
|
99,000
|
|
Less:
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
|
(80,538
|
)
|
|
|
(80,538
|
)
|
Impairment reserve
|
|
|
(18,462
|
)
|
|
|
(18,462
|
)
|
Intangible assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization
expense charged to operations for the three months ended September 30, 2016 and 2015 was $0 and $8,167, respectively. During the
year ended June 30, 2016, the Company reported an impairment loss of $18,462 over its intangible assets. The impairment loss was
due to the cessation of the Company’s plan of operation as a mobile technology provider, and corresponding write down of
the Company’s intangible assets.
NOTE
6—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.
|
|
September 30,
|
|
|
June 30,
|
|
|
|
2016
|
|
|
2016
|
|
Shenzhen Engage Mobile Technology Co., Ltd. (“Engage Technology”)
|
|
$
|
470,000
|
|
|
$
|
470,000
|
|
Shenzhen Datang Engage Telecom Co., Ltd. (“Engage Telecom”)
|
|
|
188,759
|
|
|
|
188,759
|
|
|
|
$
|
658,759
|
|
|
$
|
658,759
|
|
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.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
7—COMMITMENTS AND CONTINGENCY
From
time to time the Company may be a party to litigation matters involving claims against the Company. Management believes
that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
NOTE
8—STOCKHOLDERS’ DEFICIT
Equity
During
the three months ended September 30, 2016, the Company did not issue any new shares of Common Stock to the stockholders.
Stock
Options
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 125,000 options were scheduled to vest each year over the next 4 years. The options were 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. These two employees left the Company in April 2015 and the remaining unvested options were
cancelled. No stock based compensation was recorded during the three months ended September 30, 2016 and 2015 due to the cancellation
of options in April 2015.
A
summary of the status of the stock options granted to employees and others as of September 30, 2016 is as follows:
|
|
Number of Shares
|
|
Options outstanding at June 30, 2016
|
|
|
207,750
|
|
Changes:
|
|
|
|
|
Granted
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
Options outstanding at September 30, 2016
|
|
|
207,750
|
|
|
|
|
|
|
Options exercisable at September 30, 2016
|
|
|
207,750
|
|
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015
(UNAUDITED)
NOTE
8—STOCKHOLDERS’ DEFICIT (CONTINUED)
Stock
Warrants
Stock
warrants outstanding at September 30, 2016 were as follows:
|
|
Number of Shares
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
Warrants outstanding at June 30, 2016
|
|
|
525,000
|
|
|
|
0.53
|
|
Changes:
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
Warrants outstanding at September 30, 2016
|
|
|
525,000
|
|
|
|
0.28
|
|
|
|
|
|
|
|
|
|
|
Warrants exercisable at September 30, 2016
|
|
|
525,000
|
|
|
|
0.28
|
|
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. As of
the date of this report, the 525,000 shares of warrants were forfeited.
NOTE
9—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
reported an impairment loss of $18,462 during the fiscal year ended June 30, 2016. 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.
Management
has evaluated all activity and concluded that no other subsequent events occurred as of March 20, 2017 that would require recognition
in the financial statements or disclosure in the notes to the financial statements.