UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
☒ ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended June 30, 2014
☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from ___________to ___________
Commission
File No. 333-169802
Engage
Mobility, Inc.
(Name
of small business issuer in its charter)
Florida |
|
45-4632256 |
(State
or other jurisdiction of |
|
(IRS
Employer Identification No.) |
incorporation
or organization) |
|
|
|
|
|
140
Walnut St.
Kansas
City, MO |
|
64106 |
(Address
of principal executive offices) |
|
(Zip
Code) |
(407)
329-7404
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
Title
of each class registered: |
|
Name
of each exchange on which registered: |
None |
|
None |
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, no par value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ 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 reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
|
|
|
|
Non-accelerated
filer |
☐ |
Smaller
reporting company |
☒ |
(Do
not check if a smaller reporting company) |
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
As
of October 14, 2014, the registrant had 21,772,567 shares of its common stock outstanding.
TABLE
OF CONTENTS
|
|
PAGE |
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PART I |
|
Item 1. |
Business |
3 |
Item 1A. |
Risk Factors |
6 |
Item 1B. |
Unresolved Staff
Comments |
6 |
Item 2. |
Properties |
6 |
Item 3. |
Legal Proceedings |
6 |
Item 4. |
Mine Safety Disclosures |
6 |
|
|
|
|
PART II |
|
Item 5. |
Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
6 |
Item 6. |
Selected Financial
Data |
7 |
Item 7. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operation |
8 |
Item 7A. |
Quantitative and
Qualitative Disclosures About Market Risk |
12 |
Item 8. |
Financial Statements
and Supplementary Data |
13 |
Item 9. |
Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure |
14 |
Item 9A. |
Controls and Procedures |
14 |
Item 9B. |
Other Information |
|
|
|
|
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PART III |
|
Item 10. |
Directors, Executive
Officers and Corporate Governance |
15 |
Item 11. |
Executive Compensation |
16 |
Item 12. |
Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder Matters |
17 |
Item 13. |
Certain Relationships
and Related Transactions, and Director Independence |
18 |
Item 14. |
Principal Accounting
Fees and Services |
18 |
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|
|
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PART IV |
|
Item 15. |
Exhibits, Financial
Statement Schedules |
19 |
|
|
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SIGNATURES |
20 |
CAUTIONARY
NOTE FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of
the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical
facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,”
“believe,” “estimate,” “intend,” “could,” “should,” “would,”
“may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,”
“project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions.
These forward-looking statements are found at various places throughout this Report and include information concerning possible
or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of
management; any other statements regarding future operations, future cash needs, business plans and future financial results,
and any other statements that are not historical facts.
From
time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases,
in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking
statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance
and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions
and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are
outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking
statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might
not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral
forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our
behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except
to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result
of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or
otherwise.
PART
I
Item
1. Business
We were incorporated, under the name
MarketKast, Inc., under the laws of the State of Florida on December 28, 2011. On March 22, 2013, we filed Articles of Amendment
to our Articles of Incorporation (the “Amendment”) to change our name from “MarketKast, Incorporated” to
“Engage Mobility, Inc.” The Amendment was effective as of March 22, 2013. In connection with the name change, our trading
symbol was changed from “MRKK” to “ENGA,” effective April 4, 2013.
We
function as a provider of mobile marketing systems and solutions for business. We combine relevant technologies, data management
and delivery and proprietary marketing methodology to assist business owners with marketing their products or services.
We
sell to businesses, on monthly subscription or per user basis, our Mobile Engagement System, which includes a front end augmented
reality browser to allow their business logos to come to life in video, and a back end mobile CRM that allows them to interact
with their customers in an ongoing manner in the mobile environment. We offer the Engage Mobility App as a free download to consumers
and allow the consumer to locate businesses in their area through our platform and receive information, contact the business,
receive coupons or offers or otherwise engage with that brand. Our platform also offers the business full analytics regarding
their customer base and the ability to communicate with their customer base in a contextually relevant manner.
As of October 2014
we have taken the following steps to become an operating company:
1. |
We
have experienced some revenue and have signed up a number of customers for the system, however we have not begun to
experience substantial revenue from the offering of the system as of October 2014. |
|
|
2. |
We
partnered with certain parties in China to develop and launch a Chinese version of our mobile platform, and we entered into
a Joint Venture Agreement with our partners in China in February 2014. The Chinese JV was formed in August 2014 and the
initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest
in the Chinese Joint Venture. |
|
|
3. |
We
have continued to offer our full suite of mobile marketing products to business and during the past 12 months we have begun
offering mobile responsive website design and hosting services, mobile marketing services and other related services to our
clients. We have begun to experience some recurring monthly revenues from these offerings. |
We do not own any real estate and no
real property is included in our financial statements. We lease our corporate office in Kansas City, Missouri on a three year lease
at $2,602.50 per month.
Our
Service
We
provide a full menu of mobile and online marketing services for business owners who want to grow or maintain their customer base,
with the focus being on using video content as a marketing platform for driving customer acquisition.
Our
Strategy
Our
objective is to become the leader in mobile marketing, data delivery and customer engagement for business owners. We believe that
the mobile marketing industry is growing rapidly and with our augmented reality platform, MCRM, data delivery and marketing system
we have the potential to take advantage of that growth.
Acquire
and Retain Clients. We believe a strong and diverse client base is critical to the success of our company. The
use of mobile marketing is growing rapidly, and our ability to acquire business owners as clients during this growth phase is
important to developing market share. Subject to availability of capital, we intend to focus on client acquisition through a variety
of means including e-mail marketing, national and local sales marketing, telemarketing, development of agreements with channel
partners, as well as the use of conventional Internet marketing methods such as pay per click and cost per acquisition programs.
Additionally, and subject to availability of capital, we intend to use our own marketing efforts for our video content and video
syndication for the purpose of driving customer acquisition and revenues. Once we have acquired the client initially, we intend
to continue to work with the client to deepen the relationship as we assist the client in using our services to enhance their
business. If we do a good job for clients and help their business grow, we should be able to expand our relationship with the
client as well, resulting in greater long term sustainable revenue for us. However, we cannot be certain that sufficient
capital will be available to us to accomplish the above objectives, or that we will be able to expand our relationships with our
clients in order to create such revenue and that we will be able to generate long term sustainable revenue from such relationships.
Distribution
and Marketing
Subject
to availability of capital, we plan to distribute our products and services through national and local sales efforts, independent
reps, channel partners, online marketing, and video marketing, as well as through email, our website, social networks, telemarketing
and by affiliating with channel partners such as advertising and other marketing companies. We intend to use both internal
and outsourced sales groups and programs to sell our products and offerings to qualified client lists and databases.
Operations
Our
business operations are divided into the following core functions:
Sales
and Marketing
We
intend, subject to availability of capital, to implement all of the above stated programs in fiscal 2015 for purposes of driving
customer acquisition and building our revenue base. Our sales and marketing initiatives will include deployment and oversight
of our internal sales and marketing personnel, our outsourced telesales and channel partner sales organizations, and our email
and direct marketing partners to deploy an array of marketing programs as set forth above and herein.
Fulfillment
We
will deploy both internal product fulfillment and outsourced fulfillment services that will fulfill all sales and service obligations
to our customers.
Customer
Service
We
will have a dedicated customer services group with two primary functions. One is to answer questions about products, procedures
and our business philosophy. In addition, our customer service group will monitor fulfillment and solve fulfillment
issues and handle other aspects of post purchase issues that may arise.
Competition
In
the past few years, the number of online and mobile video technologies, offerings and companies has grown rapidly. The markets
for the products and services that we offer are very competitive, are rapidly evolving and have relatively low barriers to entry.
In addition to other video production and technology companies, we compete with all general advertising and marketing companies
who eventually will want to include video marketing in their suite of product offerings, and who may develop their own similar
products and compete with us for market share. These potential competitors may have more mature lines of distribution than us,
be better financed than us, or may create a product offering that is superior to ours. Any of these factors can cause a competitor
to take market share away from us or otherwise substantially hurt our business. We believe that competition in our market is based
predominantly on:
|
● |
product
and service components and deliverables; |
|
● |
track
record of creating and keeping satisfied clients; |
|
● |
success
of underlying marketing programs for online video content; |
order
delivery performance and customer service.
We
believe that we will enjoy the following competitive advantages, provided that we have sufficient access to capital:
|
● |
Our
President, Chief Executive Officer and Chief Financial Officer, Douglas S. Hackett, has experience in internet marketing including
video driven internet marketing. We believe his knowledge of design and sales strategy gleaned from previous experience
with online marketing products and services, will be critical to our success. |
|
● |
We
intend, subject to capital availability, to provide a suite of products that will allow all business owners to use our Mobile
Engagement System including the pricing of our product offerings based on per user or performance based pricing.
By developing a user based pricing model, we believe that we will make mobile marketing business video affordable
for all business owners, even small proprietors or home based business owners. By opening this door to a larger
group of potential users, we believe that we have the ability to gain market share rapidly and take a leadership
role in this growing space. |
|
● |
We
will attempt to use our outsourced relationships to keep costs down, which will allow us to offer competitive pricing. We
have outsourced certain sales and fulfillment functions, including the outsourcing of certain fulfillment functions
to offshore contractors, and that will allow us to keep our sales and fulfillment costs low and marginal. This will
allow us to maintain margin and pricing integrity, and this should give us a competitive advantage. |
Government
Regulation
We
are subject to a number of laws and regulations that affect companies generally and specifically those conducting business on
the internet, many of which are still evolving and could be interpreted in ways that could harm our business. Existing
and future laws and regulations may impede our growth. These regulations and laws may cover online marketing, e-mail marketing,
telemarketing, taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic
contracts and other communications, consumer protection, web services, the provision of online payment services, unencumbered
internet access to our services, the design and operation of websites, and the characteristics and quality of products and services.
It is not clear how existing laws governing issues such as property ownership, libel, and personal privacy apply to the internet,
e-commerce, digital content and web services. Unfavorable regulations and laws could diminish the demand for our products and
services and increase our cost of doing business.
Intellectual
Property
Although we believe that our business
methodology is proprietary in terms of how we deliver our service to our client, and how we use deploy video in a marketing context,
we currently hold no patents, copyrights or trademarks. We have filed for patent protection on our Mobile Engagement System, however
we do not know if such a patent will issue. It is our policy to enter into confidentiality agreements with any outsourced sales
or service providers so that our proprietary methodology, customer’s lists and business information are contractually protected,
and we intend to enforce any such contractual provisions as the law allows in the event of a breach. We cannot assure you that
these contractual arrangements will prevent third parties from acquiring or using our proprietary business information to compete
against us.
Employees
We
currently have 4 full time and 2 part time employees in the areas of sales, marketing, IT and tech support, financial management,
administrative, investor relations and executive management.
Item
1A. Risk Factors
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under
this item.
Item
1B. Unresolved Staff Comments
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under
this item.
Item
2. Properties
We rent our office space at 140 Walnut St,
Kansas City, Mo for $2,602.50 per month where we house our company and staff.
Item
3. 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. Other than discussed below, we are not aware of any other legal proceedings.
We
are currently involved in one legal proceeding, a breach of contract lawsuit against IRTH Communications, LLC. On May 24, 2014,
we 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 us. In that lawsuit we seek return of $110,000 of monies paid to IRTH, and we seek the cancellation of 54,950
shares of stock issued to IRTH. IRTH has subsequently sued us for breach of contract, seeking damages and also seeking to have
their shares cleared for trading, which they are not currently.
Item
4. Mine Safety Disclosures
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market
Information
Our
common stock has been trading on the Over-the-Counter (OTC) Markets under the symbol ENGA since April 4, 2013. Between February
20, 2013 and April 4, 2013 we traded under the symbol MRKK. The OTC Markets is a quotation service that displays real-time quotes,
last-sale prices, and volume information in over-the-counter, or the OTC, equity securities.
Price
range of common stock
The
following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the
OTC Markets quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.
| |
Fiscal June 30, 2014 | | |
Fiscal June 30, 2013 | |
| |
High | | |
Low | | |
High | | |
Low | |
First Quarter (July 1 – Sept 30) | |
$ | 1.84 | | |
$ | 0.80 | | |
$ | -- | (1) | |
$ | -- | (1) |
Second Quarter (October 1 – December 31) | |
$ | 3.19 | | |
$ | 1.28 | | |
$ | -- | (1) | |
$ | -- | (1) |
Third Quarter (January 1 – March 31) | |
$ | 4.50 | | |
$ | 2.05 | | |
$ | 1.30 | | |
$ |
| |
Fourth Quarter (April 1 – June 30) | |
$ | 4.00 | | |
$ | 1.30 | | |
$ | 1.59 | | |
$ | 1.25 | |
(1) A
public market for our common stock did not exist prior to February 20, 2013.
Holders
As
of October 14, 2014, we had 452 shareholders of our common stock.
Transfer
Agent and Registrar
ClearTrust,
LLC is currently the transfer agent and registrar for our common stock. Its address is 16540 Pointe Village Dr., Suite 206, Lutz,
FL 33558. Its phone number is (813) 235-4490.
Authorized
Capital Stock
Our
authorized stock consists of 100,000,000 shares of common stock, with no par value. There are currently 21,772,567 shares
of common stock issued and outstanding.
Common
Stock
Each
share of our common stock entitles its holder to one vote in the election of each director and on all other matters voted on generally
by our stockholders, other than any matter that (1) solely relates to the terms of any outstanding series of preferred stock or
the number of shares of that series and (2) does not affect the number of authorized shares of preferred stock or the powers,
privileges and rights pertaining to the common stock. No share of our common stock affords any cumulative voting rights. This
means that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors
to be elected if they choose to do so.
Holders
of our common stock will be entitled to dividends in such amounts and at such times as our Board of Directors in its discretion
may declare out of funds legally available for the payment of dividends. We currently intend to retain our entire available discretionary
cash flow to finance the growth, development and expansion of our business and do not anticipate paying any cash dividends on
the common stock in the foreseeable future. Any future dividends will be paid at the discretion of our Board of Directors after
taking into account various factors, including:
|
● |
general
business conditions; |
|
|
|
|
● |
industry
practice; |
|
|
|
|
● |
our
financial condition and performance; |
|
|
|
|
● |
our
future prospects; |
|
|
|
|
● |
our
cash needs and capital investment plans; |
|
|
|
|
● |
our
obligations to holders of any preferred stock we may issue; |
|
|
|
|
● |
income
tax consequences; and |
|
|
|
|
● |
the
restrictions Delaware and other applicable laws and our credit arrangements then impose. |
If
we liquidate or dissolve our business, the holders of our common stock will share ratably in all our assets that are available
for distribution to our stockholders after our creditors are paid in full and the holders of all series of our outstanding preferred
stock, if any, receive their liquidation preferences in full.
Our
common stock has no preemptive rights and is not convertible or redeemable or entitled to the benefits of any sinking or repurchase
fund.
Dividends
Since
inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the
foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any,
to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends
in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which
our Board of Directors may deem relevant.
Securities
Authorized for Issuance Under Equity Compensation Plans
We
presently do not have any equity based or other long-term incentive programs. In the future, we may adopt and establish an equity-based
or other long-term incentive plan if it is in the best interest of the Company and our stockholders to do so.
Item
6. Selected Financial Data
We
are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under
this item.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
following is management’s discussion and analysis of the consolidated financial condition and results of operations of Engage
Mobility, Inc. (“Engage Mobility”, the “Company”, “we”, and “our”) for the three
and nine month period ended June 30, 2014 and 2013.
Overview
We
were incorporated, under the name MarketKast, Inc., under the laws of the State of Florida on December 28, 2011. On March 22,
2013, we filed Articles of Amendment to our Articles of Incorporation (the “Amendment”) to change our name from “MarketKast,
Incorporated” to “Engage Mobility, Inc.” The Amendment was effective as of March 22, 2013. In connection with
the name change, our trading symbol was changed from “MRKK” to “ENGA,” effective April 4, 2013.
We
function as a provider of mobile technology, marketing and data solutions for business. Through the sale of our Mobile
Engagement System, we enable business owners to engage with new and existing customers with a turnkey mobile marketing solution.
The Mobile Engagement System integrates an augmented reality browser and content with our proprietary cloud based mobile video
delivery system, a mobile customer relationship manager and our Dynamic Data platform to create a full solution for business to
market their products in the mobile environment. The Mobile Engagement System is sold to businesses under a “user based”
model – so that the business pays us a monthly user fee based on the number of “engaged” users in their database
at any given time.
In
addition to this core product offering, we will offer to our clients additional products and services in order to assist in growing
their business, including mobile optimization of websites, as well as additional mobile marketing, customer acquisition services
and mobile data services.
Recent
Developments
In
September 2013, we completed initial development and launch of version 1.0 of our Mobile Engagement System. In conjunction therewith
we launched our Engage Mobility mobile application as a free download in the Apple iTunes® and Google Play® stores. We
began initial marketing and sales efforts for version 1.0 of the system to clients in September 2013.
We partnered with certain parties in China to develop and
launch a Chinese version of our mobile platform, and we entered into a Joint Venture Agreement with our partners in China in February
2014. The Chinese JV was formed in August 2014 and the initial product launch in China commenced in late August 2014. We have not
yet experienced any revenue from our interest in the Chinese Joint Venture.
In
April, 2014 we completed development of version 2.0 of our Mobile Engagement System, which was developed internally by our own
development team, and which includes our new product immersion , a street view augmented reality platform that allows users
to locate businesses in their geographical area who are on the Engage system. We have filed a provisional patent application seeking
patent protection for version 2.0 of our Mobile Engagement System.
In
May 2014, we commenced our marketing and sales efforts for our new Mobile Engagement System. We have only experienced nominal
initial revenue, and we do not expect to experience consistent revenue until fiscal 2015. Due to our failure to raise substantial
capital to roll out a full sales initiative for the Mobile Engagement System, we have recently scaled back our staff and are focusing
on larger contracts with certain corporate clientele in order to build revenue. If we are able to raise the capital necessary
to launch a full sales and marketing initiative we will hire the sales and marketing staff to do so at that time.
Plan
of Operation
Until
May 2014, our efforts have been primarily limited to business formation, strategic development, marketing, website and product
development, negotiations with third party sales and channel partners, and capital raising activities. We have developed and begun
to launch our newest suite of products including version 2.0 of the Mobile Engagement System as of May 2014. We are,
subject to availability of capital, in the process of developing and implementing sales and marketing initiatives to sell our
products. Although we have experienced some initial revenue, mainly in the form of initial development fees, we do not expect
to begin realizing consistent revenue until fiscal 2015.
As
of October, 2014, we have taken the following steps to implement our business plan:
We partnered with certain parties in China to develop and launch a Chinese version of our mobile platform,
and we entered into a Joint Venture Agreement with our partners in China in February 2014. The Chinese JV was formed in August
2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest
in the Chinese Joint Venture.
In
April, 2014 we completed development of version 2.0 of our Mobile Engagement System, which was developed internally by our own
development team, and which includes our new product immersion , a street view augmented reality platform that allows users
to locate businesses in their geographical area who are on the Engage system. We have filed a provisional patent application seeking
patent protection for version 2.0 of our Mobile Engagement System.
In
May 2014, we commenced our marketing and sales efforts for our new Mobile Engagement System.
During
the next 12 months, subject to availability of capital, we expect to:
Launch
a full roll out in the U.S. of our Mobile Engagement System. We expect to market the Mobile Engagement System through direct marketing
via the internet, through trade shows and seminars, through the hiring of both national and local sales personnel, through channel
partners, independent reps and telesales. Subject to availability of capital, we intend to implement all of these sales initiatives
during the 4th quarter of 2014 or the first quarter of 2015. This will involve hiring a national sales manager, a number of local
sales managers and local sales representatives, five to 15 telesales people, as well as associated staffs. The cost of marketing
our Mobile Engagement System is estimated to be between $30,000 and $250,000 per month, but will be scaled in if and when capital
is available.
We
have a current burn rate, as of October 2014, of approximately $15,000 to $25,000 per month. It includes office rental expenses,
payroll, insurance, marketing, travel, telephone, internet and other office expenses, legal and accounting expenses and other
miscellaneous expenses including filing fees, transfer agent fees and other costs of being public.
Therefore,
if we do not experience any income or obtain additional financing, we could expect to run out of capital sometime between
November 2014 and December 2014. For this reason, if we do not experience any income in the first half of fiscal 2015, we
will need to raise additional capital of between $15,000 and $25,000 per month, in order to continue our
business. In addition, in order to fully implement our business plan, we will need to raise an additional
$1,000,000 to $5,000,000 of capital for the purpose of initiating and ramping up marketing and sales efforts, hiring of sales
personnel and for general working capital. This additional $1,000,000 to $5,000,000 of financing will need to be raised
between October 2014 and March 2015 in order to effectively implement our business plan. It is not necessary that
we receive such a capital infusion at any one time; we could implement our plan through the raising of at least $500,000 per
quarter beginning October 2014. However, there is no assurance that we will be able to raise any capital in the future, or
that capital will be available on terms acceptable to us.
Results
of Operations
Comparison
of the year ended June 30, 2014 and 2013
Revenues
Since inception, our activities have
been primarily limited to business formation, strategic development, marketing, website and product development, negotiations with
third party sales and channel partners, and capital raising activities. During the year ended June 30, 2013, we have
generated $23,234 in revenue as compared to $87,185 for the year ended June 30, 2014.
Operating
Expenses
During
the year ended June 30, 2013, we incurred general and administrative expenses of $417,520, and during the year ended June 30,
2014 we incurred general and administrative expenses of $4,259,153. These general and administrative expenses consist of rent,
insurance, professional fees, travel, employee compensation and other miscellaneous items. In addition, they include $3,125,410
of non-cash stock based costs in 2014.
Net
Income and Loss
We
had net loss of $419,855 for the year ended June 30, 2013, compared to $5,083,628 for the period ended June 30, 2014. Our auditor
has expressed doubt as to whether we will be able to continue to operate as a “going concern” due to the fact that
the Company has had no material revenues since inception and will need to raise capital to further its operations.
Liquidity
and Capital Resources
As
of June 30, 2014, we had minimal cash. Our primary uses of cash were for development and testing of products, marketing
expenses, employee compensation, and general and administrative expenses. We have historically financed our operations through
sale of common stock to our founders, private equity offering, and debt from third party lenders. The following trends
are reasonably likely to result in a material decrease in our liquidity in both near and long term:
|
● |
An
increase in working capital requirements; |
|
|
|
|
● |
Addition
of administrative and sales personnel as the business grows; |
|
|
|
|
● |
Increases
in advertising, public relations and sales promotions as we commence operations; |
|
|
|
|
● |
Development
of new customers and market initiation, and |
|
|
|
|
● |
Increased
cost of being a public company due to governmental compliance activities. |
The following
summarizes the key components of the Company’s cash flows for the year ended June 30, 2014: | |
| |
| |
| |
Cash
used in operating activities | |
$ | (1,400,880 | ) |
Cash
used in investing activities | |
$ | (89,242 | ) |
Cash
flows provided by financing activities | |
| 1,506,323 | |
Net
increase in cash and cash equivalents | |
$ | 16,201 | |
Cash
flows used in investing activities consisted of the acquisition of intangibles of $75,000 and the acquisition of property and
equipment of $14,000.
Cash
flows provided by financing activities consisted of the proceeds from notes and convertible notes payable of $430,000, the sale
of common shares for cash of $1,276,000 and the repayment of notes payable of $185,000.
We have a current burn rate, as of October
2014, of approximately $15,000 to $25,000 per month. It includes office rental expenses, payroll, consulting fees, insurance, marketing,
travel, telephone, internet and other office expenses, legal and accounting expenses and other miscellaneous expenses including
filing fees, transfer agent fees and other costs of being public.
Therefore,
if we do not experience any income or obtain additional financing, we could expect to run out of capital sometime between November
2014 and December 2014. For this reason, if we do not experience any income in the first half of fiscal 2014, we will need to raise
additional capital of between $15,000 and $25,000 per month, in order to continue our business. In addition, in order to fully
implement our business plan, we will need to raise an additional $1,000,000 to $5,000,000 of capital for the purpose of initiating
and ramping up marketing and sales efforts, hiring of sales personnel and for general working capital. This additional $1,000,000
to $5,000,000 of financing will need to be raised in between October 2014 and January 2015 in order to effectively implement our
business plan. However, there is no assurance that we will be able to raise any capital in the future, or that capital will be
available on terms acceptable to us.
Off-Balance
Sheet Arrangements
We
do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures
Critical
Accounting Policies
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 certain reported amounts and disclosures. Actual results could differ
from those estimates.
Loss
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.
Income
Taxes
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.
All
tax periods from inception remain open to examination by taxing authorities.
Fair
Value of Financial Instruments
The Company’s short-term financial
instruments consist of cash, ,receivables, 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.
Going
Concern
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplate 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 had an accumulated deficit of $5,534,892 and a working capital deficit of $479,369. We have a current burn
rate, as of October 2015, of approximately $15,000 to $25,000 per month. It includes office rental expenses, payroll, consulting
fees, insurance, marketing, travel, telephone, internet and other office expenses, legal and accounting expenses and other miscellaneous
expenses including filing fees, transfer agent fees and other costs of being public. Therefore, if we do not experience any income
or obtain additional financing, we could expect to run out of capital sometime between October 2014 and December 2014. For this
reason, if we do not experience any income in the first half of fiscal 2015, we will need to raise additional capital of between
$15,000 and $25,000 per month, in order to continue our business. These conditions raise substantial doubt about its ability to
continue as a going concern.
While the Company is attempting to execute
its business strategy, the Company’s cash position may not be sufficient to support the Company’s daily operations
without significant financing. While the Company believes in the viability of its strategy to produce sales volume and
in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue
as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient
revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk |
We
are not required to provide the information required by this Item because we are a smaller reporting company.
Item
8. Financial Statements and Supplementary Data |
ENGAGE MOBILITY, INC.
FINANCIAL STATEMENTS
AS OF JUNE 30, 2014 and 2013
Financial Statements Table of Contents
FINANCIAL STATEMENTS
Balance Sheets |
F-2 |
|
|
Statements of Operations |
F-3 |
|
|
Statement of Stockholders’
Equity (Deficit) |
F-4 |
|
|
Statements of Cash Flows |
F-5 |
|
|
Notes to the Financial
Statements |
F-6 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Engage Mobility, Inc.
We have audited the accompanying balance
sheets of Engage Mobility, Inc. (the "Company") as of June 30, 2014 and 2013, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the years ended June 30, 2014 and 2013. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of Engage Mobility, Inc. as of June 30, 2014
and 2013, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years ended June 30,
2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements
have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial
statements, the Company has incurred significant losses from operations and a working capital deficit. These factors raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also
discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Kingery & Crouse PA
Certified Public Accountants
Tampa, Florida
October 14, 2014
ENGAGE MOBILITY, INC.
BALANCE SHEETS
As of June 30, 2014 and 2013
| |
2014 | | |
2013 | |
ASSETS |
| |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 16,201 | | |
$ | - | |
Accounts receivable | |
| 650 | | |
| 8,500 | |
Prepaid expenses | |
| 32,805 | | |
| - | |
Total Current Assets | |
| 49,656 | | |
| 8,500 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, net | |
| 9,627 | | |
| 2,958 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Intangible asset, net | |
| 74,263 | | |
| 24,000 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 133,546 | | |
$ | 35,458 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts Payable and accrued expenses | |
$ | 59,025 | | |
$ | 21,940 | |
Other current liabilities | |
| 470,000 | | |
| - | |
Due to bank | |
| - | | |
| 14,282 | |
Total Current Liabilities | |
| 529,025 | | |
| 36,222 | |
| |
| | | |
| | |
LONG TERM LIABILITIES | |
| | | |
| | |
Notes payable | |
| 275,000 | | |
| 280,000 | |
Convertible notes payable | |
| 2,454 | | |
| - | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
| |
| | | |
| | |
Common Stock - No Par Value; | |
| | | |
| | |
Authorized: 100,000,000 | |
| | | |
| | |
Issued and Outstanding: 21,772,567 and 20,126,500 shares | |
| 1,976,595 | | |
| 166,500 | |
Paid in capital | |
| 2,885,364 | | |
| 4,000 | |
Accumulated Deficit | |
| (5,534,892 | ) | |
| (451,264 | ) |
Total stockholders' equity (deficit) | |
| (672,933 | ) | |
| (280,764 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | |
$ | 133,546 | | |
$ | 35,458 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBILITY, INC. |
STATEMENTS OF OPERATIONS |
Years ended June 30, 2014 and 2013 |
| |
2014 | | |
2013 | |
| |
| | |
| |
REVENUE | |
$ | 87,185 | | |
$ | 23,234 | |
| |
| | | |
| | |
COST OF SALES | |
| 6,500 | | |
| 15,626 | |
| |
| | | |
| | |
GROSS PROFIT | |
| 80,685 | | |
| 7,608 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
| 4,259,153 | | |
| 417,520 | |
| |
| | | |
| | |
TOTAL OPERATING EXPENSES | |
| 4,259,153 | | |
| 417,520 | |
| |
| | | |
| | |
OPERATING LOSS | |
| (4,178,468 | ) | |
| (409,912 | ) |
| |
| | | |
| | |
INTEREST EXPENSE | |
| 905,160 | | |
| 9,943 | |
| |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (5,083,628 | ) | |
| (419,855 | ) |
| |
| | | |
| | |
INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET LOSS | |
$ | (5,083,628 | ) | |
$ | (419,855 | ) |
| |
| | | |
| | |
Net Loss Per Common Share, basic & diluted | |
$ | (0.24 | ) | |
$ | (0.02 | ) |
| |
| | | |
| | |
Weighted Average Common Shares Outstanding, basic & diluted | |
| 20,836,050 | | |
| 20,126,500 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBILITY, INC. |
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) |
Years ended June 30, 2014 and 2013 |
| |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| |
| |
COMMON STOCK | | |
PAID-IN | | |
ACCUMULATED | | |
| |
| |
SHARES | | |
AMOUNT | | |
CAPITAL | | |
DEFICIT | | |
TOTAL | |
| |
| | |
| | |
| | |
| | |
| |
Balance, June 30, 2012 | |
| 20,126,500 | | |
$ | 166,500 | | |
$ | 4,000 | | |
$ | (31,409 | ) | |
$ | 139,091 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (419,855 | ) | |
| (419,855 | ) |
Balance, June 30, 2013 | |
| 20,126,500 | | |
| 166,500 | | |
| 4,000 | | |
| (451,264 | ) | |
| (280,764 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for cash | |
| 1,343,150 | | |
| 1,275,605 | | |
| - | | |
| - | | |
| 1,275,605 | |
Stock issued for services, inducements and interest | |
| 47,967 | | |
| 234,490 | | |
| - | | |
| - | | |
| 234,490 | |
Stock issued for debt conversion | |
| 200,000 | | |
| 200,000 | | |
| | | |
| - | | |
| 200,000 | |
Stock issued for deferred compensation | |
| 54,950 | | |
| 100,000 | | |
| (100,000 | ) | |
| | | |
| | |
Options and warrants issued for services and interest | |
| - | | |
| - | | |
| 2,807,587 | | |
| - | | |
| 2,807,587 | |
Beneficial conversion feature | |
| - | | |
| - | | |
| 90,444 | | |
| - | | |
| 90,444 | |
Deferred compensation expense recognized | |
| - | | |
| - | | |
| 83,333 | | |
| - | | |
| 83,333 | |
Net Loss | |
| - | | |
| - | | |
| - | | |
| (5,083,628 | ) | |
| (5,083,628 | ) |
Balance, June 30, 2014 | |
| 21,772,567 | | |
$ | 1,976,595 | | |
$ | 2,885,364 | | |
$ | (5,534,892 | ) | |
$ | (672,933 | ) |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBILITY, INC.
STATEMENTS OF CASH FLOWS
Years ended June 30, 2014 and 2013
| |
2014 | |
2013 |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Net loss | |
$ | (5,083,628 | ) | |
$ | (419,855 | ) |
| |
| | | |
| | |
Depreciation and amortization of property and equipment and intangibles | |
| 31,828 | | |
| 1,443 | |
Non-cash interest expense resulting from beneficial conversion feature | |
| 42,898 | | |
| — | |
Common stock, options and warrants issued for services, interest and inducements | |
| 3,125,410 | | |
| — | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| 7,850 | | |
| (8,500 | ) |
Prepaid expenses | |
| (32,805 | ) | |
| 2,500 | |
Accounts payable and accrued expenses | |
| 37,085 | | |
| 19,940 | |
Other current liabilities | |
| 470,000 | | |
| — | |
| |
| | | |
| | |
Total adjustments to net income | |
| 3,682,266 | | |
| 15,383 | |
| |
| | | |
| | |
Net cash (used in) operating activities | |
| (1,401,362 | )) | |
| (404,472 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Acquisition of intangibles | |
| (74,963 | ) | |
| (24,000 | ) |
Purchase of property and equipment | |
| (13,797 | ) | |
| (4,401 | ) |
Net cash (used in) investing activities | |
| (88,760 | ) | |
| (28,401 | ) |
| |
| | | |
| | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Due to bank | |
| (14,282 | ) | |
| 14,282 | |
Notes payable | |
| 180,000 | | |
| 265,000 | |
Convertible notes payable | |
| 250,000 | | |
| — | |
Notes payable – repayment | |
| (185,000 | ) | |
| — | |
Common shares issued for cash, net | |
| 1,275,605 | | |
| — | |
Net cash provided by financing activities | |
| 1,506,323 | | |
| 279,282 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 16,201 | | |
| (153,591 | ) |
Cash - beginning balance | |
| — | | |
| 153,591 | |
| |
| | | |
| | |
CASH ENDING BALANCE | |
$ | 16,201 | | |
$ | — | |
| |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | — | | |
$ | 9,943 | |
Income taxes | |
$ | — | | |
$ | — | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
Conversion of note payable to common stock | |
$ | 200,000 | | |
$ | — | |
Beneficial conversion feature on note payable | |
$ | 90,444 | | |
$ | — | |
The accompanying notes are an integral part of these financial statements.
ENGAGE
MOBILITY, INC.
NOTES
TO FINANCIAL STATEMENTS
June
30, 2014 and 2013
NOTE
1 |
NATURE
OF 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. The Company functions as a provider of mobile marketing services, online and
mobile video production, distribution, syndication and marketing services for business owners.
The
Company has adopted its fiscal year end to be June 30.
NOTE
2 |
SUMMARY
OF ACCOUNTING POLICIES |
Basis
of Presentation
The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Cash
Equivalents
The
Company considers all highly liquid investments with 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 stock based compensation.
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. Revenue is recognized at the time the product
is delivered or the service is performed. Where the Company has entered into a revenue sharing agreement with a third party, the
Company will record its’ proportionate share of the revenue.
Deferred
revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the
completion of the related services.
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 makes reviews for the impairment of long-lived assets and certain identifiable intangibles 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.
During
January 2013 the Company entered into a licensing and development agreement with a third party to develop and integrate a mobile
communication platform for a fee aggregating $48,000 In addition to the development fee the Company will pay a monthly license
fee based on the number of users. Amortization for the intangible asset began in February 2014.
In November 2013 the Company entered
into an agreement to build a mobile platform for a fee of $50,000. The platform was completed during the year and the Company began
amortizing the platform in January 2014.
In addition, the Company developed a
website at a cost of $963.
Intangible assets consisted of the following:
| |
| 2014 | | |
| 2013 | |
Cost basis | |
$ | 98,963 | | |
$ | 24,000 | |
Accumulated amortization | |
| (24,700 | ) | |
| - | |
| |
$ | 74,263 | | |
$ | 24,000 | |
Property
and Equipment
Depreciation
of office and production equipment is provided for by the straight-line method over the estimated useful lives of the related
assets. Equipment is currently being depreciated over a period of 5 years.
Property and Equipment consist of the
following:
Equipment and furniture | |
$ | 16,755 | | |
$ | 2,958 | |
Accumulated depreciation | |
| (7,128 | ) | |
| - | |
| |
$ | 9,627 | | |
$ | 2,958 | |
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
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.
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.
Net Income (Loss) Per Common 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.
Recent
Pronouncements
The
Company has elected to early adopt the FASB Codification topic 915 Development Stage Entities.
The
Company does not believe that other recently issued accounting pronouncements will have a material impact on its financial statements.
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 $5,534,892 and a working capital deficit of $479,369 at June 30, 2014. These
conditions raise substantial doubt about its ability to continue as a going concern.
While the Company is attempting to execute
its strategy, the Company’s cash position may not be sufficient to support the Company’s daily operations without significant
financing. While the Company believes in the viability of its strategy to produce sales volume and in its ability to
raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues 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.
NOTE
4 |
ACCOUNTS
PAYABLE AND OTHER LIABILITIES |
Accounts
payable and accrued expenses consist of accruals from normal operations of the business. As of June 30, 2014 and 2013
the balances are $59,025 and $21,940.
Other
current liabilities consist of an aggregate of $470,000 received for the development of a mobile platform from the Joint Venture
described in Note 12.
Through
June 30, 2013, the Company borrowed an aggregate of $280,000 pursuant to non-convertible promissory notes, bearing interest at
10% per annum. During the year ended June 30, 2014, the Company borrowed an additional $180,000 pursuant to non-convertible promissory
notes with similar terms. In addition, the Company repaid $185,000 of the previously issued notes. Interest is payable monthly
and the principal, together with any unpaid interest, is due 48 months from the dates of the notes.
The
notes are due as follows:
Year
Ended June 30, 2017 | |
$ | 205,000 | |
Year
Ended June 30, 2018 | |
| 70,000 | |
| |
$ | 275,000 | |
NOTE
6 |
CONVERTIBLE
NOTES PAYABLE |
During
July 2013, the Company issued $250,000 of 10% convertible promissory notes to certain private investors. The convertible notes
mature after three years, at which time all outstanding principal and accrued interest is due. The notes were convertible by the
investors into the Company's current registered offering on Form S-1 with $200,000 being convertible into the offering at a 20%
discount to the offering price of $1.60 per share, or $1.28 per share, and $50,000 being convertible at a 50% discount to the
offering price, or $0.80 per share. In addition to the interest due, the Company issued 125,000 warrants to the lenders at an
exercise price of 125% of the share price of the proposed offering or $2.00 per share (see Note 8). These convertible notes are
secured by all of the Company’s assets.
In
addition, the Company recognized a beneficial conversion feature related to the convertible notes of $90,444, calculated using
a binomial model which was credited to additional paid-in capital. Interest on the notes is being recognized using the effective
yield method over the three year life of the notes.
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 (see Note 7). 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 an option 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 (see Note 8).
Convertible
notes payable consist of the following at June 30, 2014:
Notes
payable | |
$ | 50,000 | |
Beneficial
conversion feature and unamortized warrants | |
| (47,546 | ) |
| |
$ | 2,454 | |
Charges
to interest expense related to amortization of the cost of the warrants and beneficial conversion feature during the year ended
June 30, 2014, were $202,454.
NOTE
7 |
STOCKHOLDERS’
EQUITY |
Common
Stock includes 100,000,000 shares authorized at no par value.
During
the year ended June 30, 2014, the Company issued common shares as follows:
The
Company issued 1,343,150 shares of common stock for cash of $1,275,605.
On
July 31, 2013, the Company’s registration statement on Form S-1 became effective. The Company is offering for sale a maximum
of 6,250,000 shares of its no par value common stock at a price of $1.60 per share. As of June 30, 2014, 312,500 shares had been
sold pursuant to the offering for cash of $500,000. These shares are included in the shares issued for cash described above.
The
Company issued 47,967 shares of common stock for services, inducements and interest. These shares were valued at the trading price
of the Company’s common shares on the date it was agreed the shares would be issued of $234,490 which has been charged to
operations during the period.
The
Company issued 200,000 shares of common stock for the conversion of a $200,000 note (see Note 6). The fair value of the shares
in excess of the note of $84,000 has been charged to operations during the period.
The
Company issued 54,950 common shares for services to be performed over a one year period, which were valued at their estimated
fair value of $100,000 based on the trading price of the Company’s common shares. The value of these shares has been recorded
as deferred compensation as a reduction of paid in capital and is being amortized over the one year period during which the related
services will be received. At June 30, 2014 $83,333 of deferred compensation has been charged to operations.
NOTE
8 |
STOCK
OPTIONS AND WARRANTS |
Two
employees were granted an aggregate of 614,000 five year options (see Note 10) 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 $1,415,710 of which $413,398 has been charged to operations during the
year ended June 30, 2014. The balance of the fair value of the options will be charged to operations over the vesting period.
The options were valued using the Binomial option pricing model with the following assumptions:
Volatility
154% - Dividend rate 0% - Interest rate 1.36% - 1.66% - Term 5 years
A
summary of the status of the stock options granted to employees and others as of June 30, 2014 is as follows:
| |
| |
Weighted |
| |
Number | |
Average |
| |
of | |
Exercise |
| |
Options | |
Price |
| |
| | | |
| | |
Options outstanding at beginning of year | |
| — | | |
$ | — | |
Changes during the year: | |
| | | |
| | |
Granted | |
| 614,000 | | |
$ | 3.37 | |
Cancelled/exercised | |
| — | | |
| | |
| |
| | | |
| | |
Options outstanding at end of year | |
| 614,000 | | |
$ | 3.37 | |
| |
| | | |
| | |
Options exercisable at end of year | |
| 114,000 | | |
$ | 2.50 | |
| |
| | | |
| | |
Weighted average fair value of options granted during the year | |
| | | |
$ | 3.37 | |
Costs incurred with respect
to stock based compensation related to options for the years ended June 30, 2014 was $413,398. Unrecognized cost as of June 30,
2014 was $1,002,312 which amount is expected to be recognized over approximately 54 months. As of June 30, 2014, 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, 2014, at $2.01 per share. The total number
of in-the-money options outstanding and exercisable as of June 30, 2014, was 0.
The
following table presents summary information concerning the options outstanding as of June 30, 2014:
Exercise prices | | |
Number Outstanding | | |
Number Exercisable | | |
Weighted Average Remaining Contractual Life (Years) | |
| $
2.50 – 4.00 | | |
| 614,000 | | |
| 114,000 | | |
| 4.50 | |
Stock
Warrants
In conjunction with the issuance of
the convertible notes described in Note 6, the Company issued 125,000 warrants exercisable at $2.00 per share that expire after
three years. The aggregate fair value of the warrants was $157,584, using a binomial option pricing model and the following assumptions:
Volatility
154% - Dividend rate 0% - Interest rate 0.77% - Term 3 years
In
conjunction with the conversion of the $200,000 note described in note 6 the Company issued an aggregate of 400,000 three year
warrants exercisable 200,000 warrants at $1.50 per share and 200,000 warrants at $2.00 per share. The aggregate grant date fair
value of the warrants was $580,600 and has been charged to operations during the year ended June 30, 2014. The warrants were valued
using the Binomial option pricing model with the following assumptions:
Volatility
108% - Dividend rate 0% - Interest rate 0.86% - 1.66% - Term 3 years
The
Company issued a 1,000,000 five year warrant exercisable at $1.00 per share for services. The aggregate grant date fair value
of the warrant was $1,572,005 and has been charged to operations during the year ended June 30, 2014. The warrant was valued using
the Binomial option pricing model with the following assumptions:
Volatility
108% - Dividend rate 0% - Interest rate 0.86% - 1.66% - Term 3 years
The
total fair value of all warrants issued was $2,310,189
Stock
warrants outstanding at June 30, 2014 are as follows:
Date
Issued | |
Expiration
Date | |
Exercise
Price | | |
Number
of Warrants | |
July
2013 | |
July
2016 | |
$ | 2.00 | | |
| 125,000 | |
February 2014 | |
February 2019 | |
$ | 1.00 | | |
| 1,000,000 | |
February 2014 | |
February 2017 | |
$ | 1.50 | | |
| 200,000 | |
February 2014 | |
February 2017 | |
$ | 2.00 | | |
| 200,000 | |
No provision was made for federal income
tax since the Company has significant net operating losses. At June 30, 2014 , the Company had operating loss carryforwards of
approximately $1,400,000 . The net operating loss carry-forwards may be used to reduce taxable income through the year 2034. 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 limitation if there is a
50% or more 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, 2013 and 2014, are as follows:
2013: Deferred tax assets: | |
| |
Federal net operating loss | |
$ | 142,000 | |
State net operating loss | |
| 21,000 | |
Total deferred tax assets | |
| 163,000 | |
Less valuation allowance | |
| (163,000 | ) |
| |
$ | -- | |
2014: Deferred tax assets: | |
| |
Federal net operating loss | |
$ | 457,000 | |
State net operating loss | |
| 67,000 | |
Total deferred tax assets | |
| 524,000 | |
Less valuation allowance | |
| (524,000 | ) |
| |
$ | -- | |
The Company has provided a 100% valuation
allowance on the deferred tax assets at June 30, 2014 and 2013, to reduce such asset to zero, since 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
reconciliation of the effective income tax rate to the federal statutory rate for the periods ended June 30, 2014 and 2013 is
as follows:
Federal income tax rate | |
| (34.0 | )% |
State tax, net of federal benefit | |
| (5.0 | ) |
Increase in valuation allowance | |
| 39.0 | |
Effective income tax rate | |
| - | % |
NOTE 10 |
COMMITMENTS AND
CONTINGENCIES |
During the period ended March 31, 2014,
the Company entered into a consulting agreement for a one year period. The Company advanced $103,000 in cash and issued 54,950
shares of common stock for these services, which shares were valued at their estimated fair value of $100,000. The total consideration
paid of $203,000 is being amortized over the one year period of the agreement commencing in September 2013. The unamortized balance
is included in prepaid expenses for the cash payment ($14,128) and deferred compensation for the share payment ($16,667).
During
the period ended March 31, 2014, the Company entered into employment contracts with two employees, with no set duration, for aggregate
compensation of $260,000 per year. The 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 (see Note 8).
We are currently involved in one legal
proceeding, a breach of contract lawsuit against IRTH Communications, LLC. On May 24, 2014, we 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 us. In that lawsuit
we seek return of $110,000 of monies paid to IRTH, and we seek the cancellation of 54,950 shares of stock issued to IRTH. IRTH
has subsequently sued us separately in the California courts for breach of contract, seeking damages and also seeking to have their
shares cleared for trading, which they are not currently. However, the California action has been stayed pending the outcome of
the Florida lawsuit. We believe the counterclaim is without merit and if needed will defend it vigorously. Because of this, and
because the case is in the early stages it is not possible to estimate its possible outcome. As such, no effect has been given
to any loss that may result from the resolution of this matter in the accompanying financial statements.
NOTE 11 |
STOCK BASED EXPENSES |
During
the year ended June 30, 2014, the Company charged stock based compensation to operations as follows:
General
and administrative expense | |
$ | 2,348,329 | |
Interest
expense | |
$ | 867,081 | |
NOTE
12 |
SUBSEQUENT
EVENTS |
We partnered with certain parties in China to develop and
launch a Chinese version of our mobile platform, and we entered into a Joint Venture Agreement with our partners in China in February
2014. The Chinese JV was formed in August 2014 and the initial product launch in China commenced in late August 2014. We have not
yet experienced any revenue from our interest in the Chinese Joint Venture. We have a 15% interest in this JV.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There
have been no disagreements with our auditor regarding accounting and financial disclosure.
Our
financial statements as of and for the year ended June 30, 2014 and 2013 included in this report have been audited by Kingery
& Crouse PA as set forth in this Report.
Item
9A. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation,
with the participation of the Company’s management, including the Company’s President, Chief Financial Officer, Secretary,
Treasurer and Director, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule
13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s
CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information
required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded,
processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information
is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate,
to allow timely decisions regarding required disclosure for the reasons discussed below.
Management's
Annual Report on Internal Control Over Financial Reporting.
The
management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for
the Company. Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management
and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our
management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014. The
framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control
– Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that
assessment, our President and Chief Financial Officer have determined and concluded that, as of June 30, 2014, the Company’s
internal control over financial reporting were not effective.
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented
or detected on a timely basis. In its assessment of the effectiveness of internal control our financial reporting as of June 30,
2014, the Company determined that the following items constituted a material weakness:
|
● |
The
Company does not have an independent audit committee in place, which would provide oversight of the Company’s officers,
operations and financial reporting function; |
|
|
|
|
● |
The
Company’s accounting department, which consists of a limited number of personnel, does not provide adequate segregation
of duties and timely information; and |
|
|
|
|
● |
The
Company does not have effective controls over period end financial disclosure and reporting processes. |
Management
believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee,
will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board. Management plans
to take action and implementing improvements to our controls and procedures when our financial position permits.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting
firm pursuant to the permanent exemption of the Securities and Exchange Commission that permit the Company to provide only
management's report in this annual report.
Changes
in Internal Control over Financial Reporting
No change in our system of internal
control over financial reporting occurred during the period covered by this report (i.e. the fourth quarter of the fiscal year
ended June 30, 2014) that has materially affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance
On October 13, 2014, Ms. Byrd resigned
as our chief executive officer and secretary. Mr. Byrd’s resignation is not a result of any disagreement with the Company
or its executive officers, or any matter relating to the Company’s operations, policies or practices. Mr. Byrd will continue
to serve as the Company’s chairman of the board of directors. On the same date, the Board appointed Mr. Hackett, the Company’s
president, chief financial officer, treasurer and director to serve as chief executive officer of the Company.
The
following table sets forth the name, age, and position of our executive officers and directors. Executive officers are elected
annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board, or his
successor is elected and qualified. Directors are elected annually by our shareholders at the annual meeting. Each director holds
his office until his successor is elected and qualified or his earlier resignation or removal.
Name |
|
Age |
|
Position |
James S. Byrd,
Jr. |
|
55 |
|
Chairman of the
Board of Directors |
Douglas S. Hackett |
|
50 |
|
President,
Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director |
Eric Fellows |
|
43 |
|
Chief Operating Officer |
James
Byrd Jr. has served as our chairman of the board of directors since inception. Mr. Byrd has spent his career focused on building
businesses in a wide range of industries, from start-ups to mature companies, both publicly traded and privately held. In addition
to being CEO of our Company, Mr. Byrd is also a practicing attorney and partner in Byrd & Byrd, PL, a small commercial law
firm that he owns with his wife. Prior to that, Mr. Byrd was a Managing Director and Attorney for the Morgan & Morgan Business
Trial Group (2010 – 2012). From 2008 to 2009 Mr. Byrd was the Chairman and CEO of Gen2Media Corp. (now Vidaroo Corp), and
was a Director at Best Energy Services, Inc. Mr. Byrd was also a Principal owner and Managing Member of Vanguard Capital, LLC,
a privately owned venture capital firm, from 2005 to 2010. We believe that Mr. Byrd’s experience as a business attorney,
public company officer and director qualify him to serve on our board of directors.
Douglas S. Hackett has served
as our president, treasurer and director since inception and was appointed as our acting chief financial officer in July 2012.
On October 13, 2014, Mr. Hackett was appointed to serve as our chief executive officer. He is a media and marketing veteran with
special interest in humanitarian projects around the world. Mr. Hackett has experience in public company and privately held business
leadership positions. From 2011 until the present, he has served as Partner and Chairman of Market Leverage, LLC, a digital advertising
network. From 2009 until 2011 he served on the Board of Directors of C3 Investment Fund, a fund related to the Global Orphan Project
concentrated on sustainable business projects in third world countries to support the care of children. From 2011 to 2012, he was
a Member of Life Giving Fuels, LLC and LSK Farms, entities that concentrate on sustainable bio fuel and farming projects. In 2012,
he served as a Board Member of a mobile marketing company called Total Communicator Solutions, Inc. In addition, he is a Co-Founder
(2009) and currently serving as Chairman of the Board of Directors for Life Giving Force Foundation, a not for profit company focused
on delivering clean water solutions to third world countries and specializes in disaster relief assistance. Mr. Hackett also served
on the Board of Directors of the World Rainforest Foundation (2009-2010), a non-profit organization focused on preserving the unique
and precious resources that abound in undisturbed natural rainforest land for future generations of the world. Mr. Hackett presently
serves as a Director for Looking Glass Funds, a venture fund that targets emerging companies with strong growth potential for early
stage financing. Mr. Hackett is currently a Board Member and President for Hub Data, Inc, a technology firm that specializes in
website hosting, web-based marketing services and database management. We believe that Mr. Hackett’s experience as an entrepreneur
and officer and director of public company qualify him to serve on our board of directors.
Eric Fellows, Mr. Fellows serves
as the Chief Operating Officer for Engage Mobility. He has an MBA and experienced financial and business analyst, customer acquisition
expert, and multi-channel marketing and advertising executive. As the Network Director and partner at Market Leverage, he has managed
online, email and website marketing, and has vast experience in affiliate marketing; media planning; financial analysis; business
planning; website “sales funnel” optimization for online lead and customer acquisition; lead generation; ecommerce;
website search engine optimization and online product launch management.
Term
of Office
Our
directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until
removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until
removed by the board.
Employment
Agreements
With the exception of the employment
agreements discussed in Note 10 of the accompanying financial statements, we have not entered into employment agreements with any
of our employees, officers and directors.
Certain
Legal Proceedings
Our
directors and officers have not been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors,
nor have been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree
or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities
laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction
or settlement. Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” our
directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required
to be disclosed pursuant to the rules and regulations of the SEC.
Except as
set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive
officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which
are required to be disclosed pursuant to the rules and regulations of the SEC.
Code
of Ethics
To
date, we have not adopted a code of business conduct and ethics for our management and employees. We intend to adopt one in the
near future.
Board
Committees
Our Board
of Directors has no separate committees and our Board of Directors acts as the audit committee and the compensation committee.
We do not have an audit committee financial expert serving on our Board of Directors
Item
11. Executive Compensation
The following table sets forth the compensation
paid by us for the last two fiscal years ending June 30, 2014 and 2013 for our executive officers. This information includes the
dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation
discussed addresses all compensation awarded to, earned by, or paid or named executive officers. On October 13, 2014, Mr. Byrd
resigned as our chief executive officer. Mr. Byrd’s resignation is not a result of any disagreement with the Company or its
executive officers, or any matter relating to the Company’s operations, policies or practices. Mr. Byrd will continue to
serve as the Company’s secretary and chairman of the board of directors. On the same date, the Board appointed Mr. Hackett,
the Company’s president,, acting chief financial officer, treasurer and director to serve as chief executive officer of the
Company.
Summary
Compensation Table
The following
table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons
for services rendered in all capacities during the noted periods.
Name and Principal Position | |
Year Ended June 30 | | |
Salary ($) | | |
Bonus ($) | | |
Stock Awards ($) | | |
Option Awards ($) | | |
Non-Equity Incentive Plan Compensation Earnings ($) | | |
Non- Qualified Deferred Compensation Earnings ($) | | |
All Other Compensation ($) | | |
Total ($) | |
James S. Byrd, Jr. | |
| 2014 | | |
$ | 67,754.46 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 67,754.46 | |
Chairman (1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
James S. Byrd, Jr. | |
| 2013 | | |
$ | 0 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 0 | |
Chairman (1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Douglas S. Hackett | |
| 2014 | | |
$ | 54,807.69 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 54,807.69 | |
President, CEO, CFO, Secretary, Treasurer, and Director | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Douglas S. Hackett | |
| 2013 | | |
$ | 0 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 0 | |
President, CEO, CFO, Secretary, Treasurer, and Director | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Eric Fellows | |
| 2014 | | |
$ | 35,966.73 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | 35,966.73 | |
COO | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Eric Fellows | |
| 2013 | (2) | |
$ | — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
$ | — | |
COO | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| (1) | On October 13, 2014, Ms. Byrd resigned as our chief executive officer and secretary. |
| | |
| (2) | Mr. Fellows was appointed as COO in October 2013. |
Outstanding
Equity Awards at Fiscal Year-End Table
During our 2014 fiscal year, two employees
were granted an aggregate of 614,000 five year options (see Note 8 of our Financial Statements) 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 $1,415,710 of which $413,398 has been charged to operations during
the year ended June 30, 2014.
A
summary of the status of the stock options granted to employees and others as of June 30, 2014 is provided in Note 8 of our Financial
Statements.
Other
than discussed above, we do not have any equity compensation plans and therefore no equity awards are outstanding as of June 30,
2014.
Compensation
of Directors
Our
directors are reimbursed for expenses incurred by them in connection with attending board of directors’ meetings. They do
not receive any other compensation for serving on the board of directors, but may participate in our incentive compensation program,
once such a program is established
Compensation
Committee Interlocks and Insider Participation
Our
Board of Directors does not have a compensation committee and the entire Board of Directors performs the functions of a compensation
committee.
No
member of our Board of Directors has a relationship that would constitute an interlocking relationship with our executive officers
or directors or another entity.
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
following table sets forth certain information regarding our shares of common stock beneficially owned as of October 14, 2014,
for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named
executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially
own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii)
of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options
or warrants or otherwise. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for
our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s
spouse or children.
For
purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common
stock that such person has the right to acquire within 60 days of the date of this prospectus. For purposes of computing the percentage
of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or
persons has the right to acquire within 60 days of the Closing Date is deemed to be outstanding, but is not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially
owned does not constitute an admission of beneficial ownership.
Unless otherwise specified, the address
of each of the persons set forth below is in care of the Company, 140 Walnut St. Kansas City, MO 64106.
Name and Address of Beneficial Owner | |
Amount and Nature of Beneficial Ownership | |
Percentage of Class (1) |
Executive Officers and Directors | |
| | | |
| | |
James S. Byrd, Jr. (3) | |
| 1,694,500 | | |
| 7.78 | % |
Douglas S. Hackett (2) | |
| 15,235,005 | | |
| 69.97 | % |
Eric Fellows
| |
| 0 | | |
| 0 | % |
Directors and executive officers as a group (3 persons) | |
| 16,929,505 | | |
| 77.91 | % |
Other 5% Holders: | |
| | | |
| | |
None. | |
| | | |
| | |
(1) |
Based
on 21,772,567 shares of common stock issued and outstanding as of October 14, 2014. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power with respect to securities. Except as otherwise indicated,
we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole
investment and voting power with respect to such shares, subject to community property laws where applicable. |
|
|
(2) |
Including 8,581,218 shares of common stock held by Douglas
S. Hackett and Neala S. Hackett, TBE, and 62,500 beneficially owned in HK Holdings, LLC.
|
|
|
(3) |
Includes 62,500 beneficially owned through HK Holdings, LLC
|
Item
13. Certain Relationships and Related Transactions, and Director Independence |
|
Director
Independence
We
do not have any independent directors. Because our common stock is not currently listed on a national securities exchange, we
have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule
5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or
any other individual having a relationship which, in the opinion of the Company’s Board of Directors, would interfere with
the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that
a director cannot be considered independent if:
|
● |
the
director is, or at any time during the past three years was, an employee of the company; |
|
|
|
|
● |
the
director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period
of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including,
among other things, compensation for board or board committee service); |
|
|
|
|
● |
a
family member of the director is, or at any time during the past three years was, an executive officer of the company; |
|
|
|
|
● |
the
director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity
to which the company made, or from which the company received, payments in the current or any of the past three fiscal years
that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject
to certain exclusions); |
|
● |
the
director or a family member of the director is employed as an executive officer of an entity where, at any time during the
past three years, any of the executive officers of the company served on the compensation committee of such other entity;
or |
|
|
|
|
● |
the
director or a family member of the director is a current partner of the company’s outside auditor, or at any time during
the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s
audit. |
We
do not currently have a separately designated audit, nominating or compensation committee.
Item
14. Principal Accounting Fees and Services
Audit
Fees
For
the Company’s fiscal years ended June 30, 2014 and June 30, 2013, we were billed approximately $18,750 and $9,750, respectively,
for professional services rendered for the audit and reviews of our financial statements.
Audit
Related Fees
The
Company did not incur any audit related fees, other than the fees discussed in Audit Fees, above, for services related to our
audit for the fiscal years ended June 30, 2014 and June 30, 2013.
Tax
Fees
For
the Company’s fiscal years ended June 30, 2014 and June 30, 2013, we were not billed for professional services rendered
for tax compliance, tax advice, and tax planning.
All
Other Fees
The
Company incurred $3,475 and $1,300, respectively, in audit related fees pertaining to the filing of a registration statement during
the fiscal years ended June 30, 2012 and 2013.
Pre-Approval
of Services
We
do not have an audit committee. As a result, our Board of Directors performs the duties of an audit committee. Our Board of Directors
evaluates and approves in advance the scope and cost of the engagement of an auditor before the auditor renders the audit and
non-audit services. We do not rely on pre-approval policies and procedures.
PART
IV
Item
15. Exhibits, Financial Statement Schedules
Exhibit
No. |
|
Description |
3.1 |
|
Articles of Incorporation. (1) |
3.2 |
|
By-Laws. (1) |
4.1 |
|
Form of Subscription Agreement. (4) |
10.1 |
|
Promissory Note, dated March 9, 2012. (2) |
10.2 |
|
Sales Agreement between MarketKast, Inc. and Veritas Consulting Group, Inc., dated May 29, 2012. (3) |
10.3 |
|
Technology License and Services Agreement, by and among Total Communicator Solutions and Engage Mobility, Inc. (f/k/a MarketKast), dated January 24, 2013. (4) |
31.1 |
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
|
XBRL Instance Document |
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
(1) | | Incorporated by reference
to the Company’s registration statement on Form S-1 filed with the SEC on July 26, 2012. |
(2) | | Incorporated by reference
to the Company’s registration statement on Form S-1/A filed with the SEC on September 7, 2012. |
(3) | | Incorporated by reference
to the Company’s registration statement on Form S-1/A filed with the SEC on September 28, 2012. |
(4) | | Incorporated by reference
to the Company’s registration statement on Form S-1/A filed with the SEC on July 9, 2013. |
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.
Date: October
15, 2014
|
Engage
Mobility |
|
|
|
/s/
Douglas S. Hackett |
|
Name:
Douglas S. Hackett
Position: President, Chief Executive Officer, Chief Financial
Officer, Secretary and Treasurer
Duly Authorized and Principal Financial Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
/s/
James S. Byrd, Jr. |
|
Chairman of the Board |
|
October
15, 2014 |
|
|
|
|
|
/s/
Douglas S. Hackett |
|
President, Chief Executive Officer, Chief Financial Officer Secretary, Treasurer, Director
|
|
October
15, 2014 |
|
|
|
|
|
/s/ Eric Fellows
|
|
Chief Operating Officer
|
|
October 15, 2014
|
20
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Douglas S. Hackett, certify that:
1. I
have reviewed this annual report on Form 10-K of Engage Mobility, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The
registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent function):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: October 15, 2014 |
By: |
/s/ Douglas S. Hackett |
|
|
Douglas S. Hackett
President, Chief Executive Officer and Chief Financial Officer,
(Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND
PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Engage
Mobility, Inc., (the “Company”) on Form 10-K for the year ended June 30, 2014 as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), Douglas S. Hackett, President, Chief Executive Officer, and Chief Financial
Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: October 15, 2014 |
By: |
/s/ Douglas S. Hackett |
|
|
Douglas S. Hackett
President, Chief Executive Officer and Chief Financial Officer,
(Principal Executive Officer and Principal Financial Officer) |
A signed original of this written statement
required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed
form within the electronic version of this written statement has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
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