UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For
the Quarterly Period Ended September 30, 2014
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
File Number: 333-182856
Engage
Mobility, Inc.
(Exact
name of registrant as specified in its charter)
Florida |
|
45-4632256 |
(State
or other jurisdiction of
incorporation
or organization) |
|
(I.R.S.
Employer
Identification
No.) |
140
Walnut St.
Kansas
City, MO 64106
(Address
of principal executive offices)(Zip Code)
(407)
329-7404
(Registrant’s
telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report)
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 periods 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 files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer |
☐ |
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 Exchange Act).
Yes ☐ No ☒
As
of November 19, 2014, the registrant had 21,772,567 shares of its common stock outstanding.
TABLE
OF CONTENTS
|
|
Page |
Item 1. |
Financial Statements |
3 |
Item 2. |
Management’s
Discussion and Analysis of Financial Condition and Results of Operations |
11 |
Item 3. |
Quantitative and
Qualitative Disclosures About Market Risk |
14 |
Item 4. |
Controls and Procedures |
14 |
|
|
|
PART
II-- OTHER INFORMATION |
|
|
|
|
Item 1. |
Legal Proceedings |
14 |
Item 1A. |
Risk Factors |
15 |
Item 2. |
Unregistered Sales
of Equity Securities and Use of Proceeds |
15 |
Item 3. |
Defaults Upon
Senior Securities |
15 |
Item 4. |
Mine Safety Disclosures |
15 |
Item 5. |
Other Information |
15 |
Item 6. |
Exhibits |
15 |
|
|
|
SIGNATURES |
16 |
PART
I: FINANCIAL INFORMATION
Item
1. Financial Statements
ENGAGE MOBILITY, INC. |
BALANCE SHEETS |
As of September 30, 2014, and June 30, 2014 |
| |
| | |
| |
| |
September 30, | | |
June 30, | |
| |
2014 | | |
2014 | |
| |
(Unaudited) | | |
| |
ASSETS | |
| |
| | | |
| | |
CURRENT ASSETS | |
| | | |
| | |
Cash | |
$ | 14,770 | | |
$ | 16,201 | |
Accounts receivable | |
| - | | |
| 650 | |
Prepaid expenses | |
| 32,585 | | |
| 32,805 | |
Total Current Assets | |
| 47,355 | | |
| 49,656 | |
| |
| | | |
| | |
PROPERTY AND EQUIPMENT, net | |
| 8,326 | | |
| 9,627 | |
| |
| | | |
| | |
OTHER ASSETS | |
| | | |
| | |
Intangible asset, net | |
| 58,996 | | |
| 74,263 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 114,676 | | |
$ | 133,546 | |
| |
| | | |
| | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
| |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 101,226 | | |
$ | 59,025 | |
Other current liabilities | |
| 470,000 | | |
| 470,000 | |
Notes payable
- affiliates | |
| 85,000 | | |
| - | |
Deferred revenue | |
| 3,783 | | |
| - | |
Total Current Liabilities | |
| 660,009 | | |
| 529,025 | |
| |
| | | |
| | |
LONG TERM LIABILITIES | |
| | | |
| | |
Notes payable | |
| 275,000 | | |
| 275,000 | |
Convertible notes payable | |
| 3,610 | | |
| 2,454 | |
Total Long Term Liabilities | |
| 278,610 | | |
| 277,454 | |
| |
| | | |
| | |
Total liabilities | |
| 938,619 | | |
| 806,479 | |
| |
| | | |
| | |
STOCKHOLDERS' EQUITY (DEFICIT) | |
| | | |
| | |
| |
| | | |
| | |
Common Stock - No Par Value; | |
| | | |
| | |
Authorized: 100,000,000 | |
| | | |
| | |
Issued
and Outstanding: 21,772,567 and 20,126,500 as of September 30, 2014 and June 30, 2014, respectively | |
| 1,976,595 | | |
| 1,976,595 | |
Paid in capital | |
| 3,048,728 | | |
| 2,885,364 | |
Accumulated deficit | |
| (5,849,266 | ) | |
| (5,534,892 | ) |
Total stockholders' equity (deficit) | |
| (823,943 | ) | |
| (672,933 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |
$ | 114,676 | | |
$ | 133,546 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBILITY, INC. |
STATEMENTS OF OPERATIONS |
Three Months Ended September 30, 2014 and 2013 |
(Unaudited) |
|
| |
2014 | | |
2013 | |
| |
| | |
| |
REVENUE | |
$ | 21,827 | | |
$ | 40,435 | |
| |
| | | |
| | |
COST OF SALES | |
| - | | |
| 9,000 | |
| |
| | | |
| | |
GROSS PROFIT | |
| 21,827 | | |
| 31,435 | |
| |
| | | |
| | |
OPERATING EXPENSES: | |
| | | |
| | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
| 327,921 | | |
| 236,083 | |
| |
| | | |
| | |
TOTAL OPERATING EXPENSES | |
| 327,921 | | |
| 236,083 | |
| |
| | | |
| | |
OPERATING LOSS | |
| (306,094 | ) | |
| (204,648 | ) |
| |
| | | |
| | |
INTEREST EXPENSE | |
| 8,279 | | |
| 28,668 | |
| |
| | | |
| | |
LOSS BEFORE INCOME TAXES | |
| (314,374 | ) | |
| (233,316 | ) |
| |
| | | |
| | |
INCOME TAXES | |
| - | | |
| - | |
| |
| | | |
| | |
NET LOSS | |
$ | (314,374 | ) | |
$ | (233,316 | ) |
| |
| | | |
| | |
Net Loss Per Common Share, basic & diluted | |
$ | (0.01 | ) | |
$ | (0.01 | ) |
| |
| | | |
| | |
Weighted Average Common Shares Outstanding, basic & diluted | |
| 21,772,567 | | |
| 20,182,418 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBILITY, INC. |
STATEMENTS OF CASH FLOWS |
Three Months Ended September 30, 2014 and 2013 |
(Unaudited) |
|
| |
2014 | | |
2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Net cash (used in) operating activities | |
| (86,431 | ) | |
| (343,216 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Acquisition of intangible | |
| - | | |
| (24,000 | ) |
Purchase of property and equipment | |
| - | | |
| (1,179 | ) |
Net cash (used in) investing activities | |
| - | | |
| (25,179 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
| |
| | | |
| | |
Due to bank | |
| - | | |
| (14,282 | ) |
Notes payable | |
| 85,000 | | |
| 340,000 | |
Common shares issued for cash, net | |
| - | | |
| 80,416 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 85,000 | | |
| 406,134 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| (1,431 | ) | |
| 37,739 | |
Cash - beginning balance | |
| 16,201 | | |
| - | |
| |
| | | |
| | |
CASH ENDING BALANCE | |
$ | 14,770 | | |
$ | 37,739 | |
| |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | 8,279 | | |
$ | 4,668 | |
Income taxes | |
$ | - | | |
$ | - | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBIITY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
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 online video production, distribution,
syndication and marketing services for business owners.
The Company has adopted its fiscal year end to be June 30.
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of
Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation
have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company
as of June 30, 2014, including notes thereto included in our Form 10-K.
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.
Revenue Recognition
In general, the Company records revenue
when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price
to the customer is fixed or determinable, and collectability is reasonably assured. The following reflects specific criteria for
the various revenues streams of the Company:
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, if any. The Company estimates doubtful
accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The
Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.
Intangible Assets and Long Lived Assets
The Company reviews its long-lived assets
and certain identifiable finite lived intangibles for impairment 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 undiscounted future cash
flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Property and Equipment
Depreciation of office and production
equipment is recognized by the straight-line method over the 5 year estimated useful lives of the related assets.
Fair value of financial instruments
The Company’s short-term financial
instruments consist primarily of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses and
other current liabilities. In addition, the Company has two short-term notes from affiliates. The carrying amounts of the 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 recognized
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 is 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 does not believe that any
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 had an accumulated deficit of $5,849,266 at September 30, 2014, and has incurred losses for all periods
presented. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s cash position and
operations may not be sufficient to support the Company’s daily operations without significant financing. The
Company believes in the viability of its strategy to produce sales volume and in its ability to raise additional funds; however
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. Management
believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity
for the Company to continue as a going concern.
Affiliates
During the period ended September 30,
2014, the Company borrowed an aggregate of $85,000 from 2 affiliates. The notes bear interest at 8% per annum and are due on demand.
Others
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 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, which consists of an aggregate of $470,000 received for the development
of a mobile platform, which is included in other current liabilities on the balance sheet as of September 30, 2014.
As of June 30, 2014 and September
30, 2014, the Company had borrowed funds pursuant to non-convertible promissory notes, bearing interest at 10% per annum. 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 ending June 30, 2017 | | |
$ | 205,000 | |
| Year Ended June 30, 2018 | | |
| 70,000 | |
| | | |
$ | 275,000 | |
NOTE 5 |
CONVERTIBLE NOTES PAYABLE |
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 6). 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 6). 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.
Convertible notes payable consist of the following at September
30, 2014:
Notes payable | |
$ | 50,000 | |
Beneficial conversion feature and unamortized warrants | |
| (46,390 | ) |
| |
$ | 3,610 | |
NOTE 6 |
STOCKHOLDERS’ EQUITY (DEFICIT) |
Common stock
The Company is authorized to issue 100,000,000
shares of no par value Common Stock. At September 30, 2014, 21,772,567 shares were issued and outstanding.
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 September 30, 2014, 312,500 shares had been sold pursuant to the offering. These shares were
sold during the year ended June 30, 2014.
Stock options
During the year ended June 30, 2014, two employees were granted
an aggregate of 614,000 five year options which vested immediately as to 114,000 options and as to 125,000 options per year over
the next 4 years. The options are exercisable at $2.50 per share for 114,000 options, $3.00 per share for 125,000 options, $3.50
per share for 125,000 options, $3.75 for 125,000 options and $4.00 for 125,000 options. The aggregate grant date fair value of
the options was approximately $1,416,000, of which $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 of which $72,468 has been charged
to operations during the period ended September 30, 2014. The options were valued using the Black-Scholes 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 September 30, 2014 is as follows:
| |
Number of Options | |
Options outstanding at beginning of year | |
| 614,000 | |
Changes: | |
| | |
Granted | |
| --- | |
Cancelled/exercised | |
| --- | |
| |
| | |
Options outstanding at end of period | |
| 614,000 | |
| |
| | |
Options exercisable at end of period | |
| 145,520 | |
Stock Warrants
Stock warrants outstanding at September 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 | |
NOTE 7 COMMITMENTS AND CONTINGENCIES
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.
Item
2. 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 quarter
ended September 30, 2014 and 2013. The following information should be read in conjunction with the consolidated interim
financial statements for the period ended September 30, 2014 and notes thereto appearing elsewhere in this Quarterly Report on
Form 10-Q (this “Report”).
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 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 November
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 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 last three months of 2014 or the first three months of 2015. This will involve hiring a
national sales manager, a number of local sales managers and local sales representatives, 5 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.
Results
of Operations
Comparison
of the three months ended September 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. We have conducted minimal operations during the three months
ended September 30, 2014, and we have generated $21,827 of revenues, as compared to $40,435 for the three months ended September
30, 2013.
Operating
Expenses
During
the three months ended September 30, 2014, we incurred general and administrative expenses of $327,921, and during the three months
ended September 30, 2013 we incurred general and administrative expenses of $236,083. These general and administrative expenses
consist of rent, insurance, professional fees, travel, employee compensation and other miscellaneous items.
Interest
expense
Interest
expense was $8,279 for the three ended September 30, 2014, as compared to $28,668 for the three months ended September 30, 2013.
Net
Income and Loss
We had net loss of $314,374 for the
three months ended September 30, 2014, compared to $233,316 for the period ended September 30, 2013. 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
incurred significant losses since inception and will need to raise capital to further its operations.
Liquidity
and Capital Resources
As
of September 30, 2014, we had $14,770 of 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 offerings, 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 three months ended September 30, 2014:
Cash flows used in operating activities | |
$ | 86,431 | |
Cash flows from investing activities | |
$ | - | |
Cash flows from financing activities | |
$ | 85,000 | |
Net (decrease) in cash and cash equivalents | |
$ | (1,431) | |
We
did not have cash flows from investing activities.
Cash
flows provided by financing activities consisted of the proceeds from notes payable of $85,000.
We
have a current burn rate, as of November 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 November 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 December 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.
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.
Going
Concern
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected
in the accompanying financial statements, the Company had an accumulated deficit of $5,849,266 at September 30, 2014, and has
incurred losses for all periods presented. These conditions raise substantial doubt about the Company’s ability to continue
as a going concern.
The
Company’s cash position and operations may not be sufficient to support the Company’s daily operations without significant
financing. The Company believes in the viability of its strategy to produce sales volume and in its ability to raise additional
funds; however 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. Management believes
that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for
the Company to continue as a going concern.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
Smaller
reporting companies are not required to provide the information required by this item.
Item
4. 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
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 of directors.
In addition, the Company currently has limited accounting personnel. Management plans to take action and implementing improvements
to our controls and procedures when our financial position permits.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting during the three month period ending
September 30, 2014, or in other factors that could significantly affect these controls, that materially affected, or are reasonably
likely to materially affect, the Company’s internal controls over financial reporting.
PART
II: OTHER INFORMATION
Item
1. Legal Proceedings
From
time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course
of business. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are
a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the
Company.
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.
Item
1A. Risk Factors
Smaller
reporting companies are not required to provide the information required by this item.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information
None.
Item
6. Exhibits
Exhibit No. |
|
Description |
|
|
|
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 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 Sarbanes Oxley Act of 2002 |
101.INS* |
|
XBRL Instance
Document |
101.SCH* |
|
XBRL Taxonomy
Schema |
101.CAL* |
|
XBRL Taxonomy
Calculation Linkbase |
101.DEF* |
|
XBRL Taxonomy
Definition Linkbase |
101.LAB* |
|
XBRL Taxonomy
Label Linkbase |
101.PRE* |
|
XBRL Taxonomy
Presentation Linkbase |
* Filed
herewith.
+ In accordance
with SEC Release 33-8238, Exhibit 32.1 is furnished and not filed.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, there unto duly authorized.
|
Engage Mobility,
Inc. |
|
|
|
/s/
Douglas S. Hackett |
|
Name: Douglas S. Hackett |
|
Position: President, Chief Executive
Officer, Chief Financial Officer, Secretary and Treasurer |
|
(Duly Authorized, Principal
Executive Officer and Principal Financial Officer) |
|
|
|
Dated: November 20, 2014 |
16
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 quarterly report on Form 10-Q 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: November 20, 2014 |
By: |
/s/ Douglas S. Hackett |
|
|
Douglas S. Hackett
President, Chief Executive Officer, Chief Financial Officer,
Secretary and Treasurer (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 Quarterly Report
of Engage Mobility, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), Douglas S. Hackett, President, Chief Executive Officer,
Chief Financial Officer, Secretary and Treasurer of the Company, certify, 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: November 20, 2014 |
By: |
/s/ Douglas S. Hackett |
|
|
Douglas S. Hackett
President, Chief Executive Officer, Chief Financial Officer,
Secretary and Treasurer (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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