UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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: December 31, 2016

 

or

 

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

 

For the transition period from _______________ to _______________

 

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 number)

 

15C, China Merchants Tower

No. 1166 Wanghai Road, Nansha District

Shenzhen, Guangdong, China

(Address of principal executive offices)

 

+(86) 755-86575200

(Registrant’s telephone number, including area code)

 

Not Applicable

(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 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 ☐

 

( Note: The registrant is a voluntary filer of reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has not filed during the preceding 12 months all reports it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant had been subject to one of such Sections. )

 

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.

 

Large accelerated filer     Accelerated filer ☐  
Non-accelerated filer ☐  (Do not check if a smaller reporting company)   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 April 3, 2017, the registrant had 23,082,567 shares of common stock, no par value (“Common Stock”), issued and outstanding.

 

 

 

 

 

 

ENGAGE MOBILITY, INC.

 

QUARTERLY REPORT ON FORM 10-Q

 

December 31, 2016

 

TABLE OF CONTENTS

 

  PAGE
PART 1 - FINANCIAL INFORMATION  
     
Item 1. Financial Statements (Unaudited) 4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
Item 4. Controls and Procedures 22
   
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 23
Item 1A. Risk Factors 23
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Mine Safety Disclosures 23
Item 5. Other Information 23
Item 6. Exhibits 23
   
SIGNATURES 24

 

  2  

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q contains “forward-looking statements”. 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,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof, or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans, will be achieved, and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Quarterly Report on Form 10-Q and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

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 the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q.

 

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.

 

  3  

 

 

PART I FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the SEC on March 13, 2017. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.

 

  4  

 

 

TABLE OF CONTENTS

 

  PAGE
   
Balance Sheets as of December 31, 2016 (unaudited) and June 30, 2016 6
Statements of Operations for the three and six month periods ended December 31, 2016 and 2015 (unaudited) 7
Statements of Cash Flows for the six month periods ended December 31, 2016 and 2015 (unaudited) 8
Notes to the Financial Statements (unaudited) 9

 

  5  

 

 

ENGAGE MOBILITY, INC.

 

BALANCE SHEETS

 

    December 31,
2016
    June 30,
2016
 
    (Unaudited)        
Assets            
Intangible assets, net   $ -     $ -  
Total assets   $ -     $ -  
Liabilities and Stockholders’ Deficiency                
Current Liabilities:                
Accrued expenses   $ 35,709     $ 33,309  
Note payable     5,000       5,000  
Due to related party     658,759       658,759  
Total Liabilities     699,468       697,068  
Stockholders’ Deficiency:                
Common Stock (No par value, 100,000,000 shares authorized, 23,082,567 shares issued and outstanding at December 31, 2016 and June 30, 2016.)     2,891,995       2,891,995  
Paid in capital     3,091,072       3,091,072  
Accumulated deficit     (6,682,535 )     (6,680,135 )
Total Stockholders’ Deficiency     (699,468 )     (697,068 )
Total Liabilities and Stockholders’ Deficiency   $ -     $ -  

 

See accompanying notes to financial statements.

 

  6  

 

 

ENGAGE MOBILITY, INC.

 

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

    For the Three Months Ended  December 31,     For the Six Months Ended  December 31,  
    2016     2015     2016     2015  
                         
Operating expenses:                        
General and administrative expenses   $ 1,200     $ 18,721     $ 2,400     $ 56,051  
                                 
 Operating loss     (1,200 )     (18,721 )     (2,400 )     (56,051 )
                                 
Other expense:                                
Impairment loss from intangible assets     -       18,462       -       18,462  
Interest expense     -       -       -       -  
Total other expenses     -       18,462       -       18,462  
                                 
Loss from operations before income taxes     (1,200 )     (37,183 )     (2,400 )     (74,513 )
                                 
Income taxes     -       -       -       -  
Net loss   $ (1,200 )   $ (37,183 )   $ (2,400 )   $ (74,513 )
                                 
Loss per share - basic and diluted:                                
Weighted-average shares outstanding, basic and diluted     23,082,567       23,082,567       23,082,567       23,082,567  
                                 
Basic and diluted loss per share   $ a     $ a     $ a     $ a  

 

a = Less than ($0.01) per share

 

See accompanying notes to financial statements.

 

  7  

 

 

ENGAGE MOBILITY, INC.

 

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

    For the Six Months Ended
December 31,
 
    2016     2015  
CASH FLOWS FROM OPERATING ACTIVITIES            
Net loss   $ (2,400 )   $ (74,513 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization expense     -       8,167  
1impairment loss from intangible assets     -       18,462  
Changes in operating assets and liabilities:                
Increase in accrued expenses     2,400       47,884  
Net cash used in operating activities     -       -  
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Net cash used in investing activities     -       -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Net cash provided by financing activities     -       -  
                 
Net increase (decrease) in cash     -       -  
Cash, beginning of period     -       -  
Cash, end of period   $ -     $ -  
                 
SUPPLMENTAL DISCLOSURE:                
Cash paid during the period for:                
Interest expense paid   $ -     $ -  
Income tax paid   $ -     $ -  
                 
Non-cash financing activities                
Payments of accrued expenses assumed by stockholder   $ -     $ 96,663  

 

See accompanying notes financial statements.

 

  8  

 

 

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 1—ORGANIZATION, BUSINESS AND OPERATIONS

 

Engage Mobility, Inc. (the “Company”) was incorporated on December 28, 2011 under the laws of the State of Florida as MarketKast Incorporated. On March 22, 2013, the Company changed its name to Engage Mobility, Inc. Since formation, the Company functioned as a provider of mobile marketing services, online and mobile video production, distribution, syndication and marketing services for business owners.

 

On April 9, 2015, a Stock Purchase Agreement (“Stock Purchase Agreement”) was entered into by and among Engage International Technology Co. Ltd. (“Engage International”), James S. Byrd, Jr. (“Byrd”) and Douglas S. Hackett (“Hackett”) (Byrd and Hackett, collectively, the “Sellers”), who were the principal stockholders of the Company, pursuant to which Engage International acquired from the Sellers a total of 16,462,505 shares of the Company’s Common Stock, representing 75.61% of the Company’s issued and outstanding shares on that date. Pursuant to the Stock Purchase Agreement, a change in control of the Company occurred.

 

The Company was not able to raise sufficient capital to execute its original business plan and has decided to cease its plan of operation as a mobile technology provider. As a result, the Company is now a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Going forward, the Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for the Company’s stockholders.

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The unaudited interim financial statements of the Company as of December 31, 2016 and for the six months ended December 31, 2016 and 2015, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the SEC which apply to interim financial statements.

 

Accordingly, they do not include all of the information and footnotes normally required by accounting principles generally accepted in the United States of America for annual financial statements. The interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the six months ended December 31, 2016 are not necessarily indicative of the results to be expected for future quarters or for the year ending June 30, 2017.

 

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

 

  9  

 

 

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2016 and June 30, 2016, the Company had no cash and cash equivalents.

 

Revenue Recognition

 

In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following reflects specific criteria for the various revenues streams of the Company:

 

Revenue for services is recognized at the time the services are rendered.

 

Where the Company has entered into a revenue sharing agreement with a third party, the Company records their proportionate share of the revenue.

 

The Company’s revenues have principally been from video distribution and advertising fees via the platform. However, since July 1, 2015 until the date of this report, the Company did not report any revenues.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

 

Intangible Assets and Long-lived Assets

 

The Company reviews for impairment its long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, are being amortized over a period of three years. During the six months ended December 31, 2016 and 2015, the Company reported an impairment loss of $0 and $18,462, respectively. The impairment loss during the six months ended December 31, 2015 was due to the cessation of the Company’s plan of operation as a mobile technology provider .

 

  10  

 

 

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value of Financial Instruments

 

The Company’s short-term financial instruments consist of cash, accounts receivable, and accrued expenses, and other current liabilities. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments. The carrying value of the Company’s long-term debt approximates fair value based on the terms and conditions at which the Company could obtain similar financing.

 

Income Taxes

 

In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. The Company has recorded a valuation allowance against its deferred tax assets based on the history of losses incurred.

 

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of December 31, 2016 and June 30, 2016, the Company does not have a liability for any unrecognized tax benefits.

 

All tax periods from inception remain open to examination by taxing authorities.

 

Stock-based Compensation

 

The Company records the cost resulting from all share-based transactions in the financial statements. The Company applies a fair-value-based measurement in accounting for share-based payment transactions with employees and when the Company acquires goods or services from non-employees in share-based payment transactions.

 

  11  

 

 

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Basic and Diluted Loss per Share

 

The Company reports loss per share in accordance with FASB ASC 260 “Earnings per share”. The Company’s basic earnings per share are computed using the weighted average number of shares outstanding for the periods presented. Diluted earnings per share are computed based on the assumption that any dilutive options or warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, the Company’s outstanding stock warrants are assumed to be exercised, and funds thus obtained were assumed to be used to purchase Common Stock at the average market price during the period. There were no dilutive instruments outstanding during the six months ended December 31, 2016 and the year ended June 30, 2016. However, if present, a separate computation of diluted loss per share would not have been presented, as these common stock equivalents would have been anti-dilutive due to the Company’s net loss.

 

Recently Issued Accounting Pronouncements

 

Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

 

NOTE 3—GOING CONCERN

 

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying unaudited condensed financial statements, the Company has an accumulated deficit of approximately $6,683,000 and a working capital deficit of approximately $699,000 at December 31, 2016. In addition, the Company continues to generate operating losses and negative cash flows from operations. This raises substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan, which is now to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to provide the Company with additional loans as needed and is seeking a merger target to implement its strategic plans. Management feels these actions provide the opportunity for the Company to continue as a going concern.

 

NOTE 4—PROPERTY, PLANT AND EQUIPMENT

 

The Company currently does not have any property, plant or equipment. During the year ended June 30, 2015, the Company disposed of all its property and equipment and recognized a loss on disposal of $3,909. Depreciation expense charged to operations for both the six months ended December 31, 2016 and 2015 was $0.

 

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ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 5—INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

    December 31,     June 30,  
    2016     2016  
Mobile platform   $ 98,000     $ 98,000  
Patents     1,000       1,000  
      99,000       99,000  
Less:                
Accumulated amortization     (80,538 )     (80,538 )
Impairment reserve     (18,462 )     (18,462 )
Intangible assets, net   $ -     $ -  

 

Amortization expense charged to operations for the six months ended December 31, 2016 and 2015 was $0 and $8,167, respectively. During the year ended June 30, 2016, the Company reported an impairment loss of $18,462 over its intangible assets. The impairment loss was due to the cessation of the Company’s plan of operation as a mobile technology provider, and corresponding write down of the Company’s intangible assets.

 

NOTE 6—DUE TO RELATED PARTY

 

Parties, which can be a corporation or individual, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

The Company received advances from the following related parties, under common control, to supplement the Company’s working capital.

 

    December 31,     June 30,  
    2016     2016  
Shenzhen Engage Mobile Technology Co., Ltd.  (“Engage Technology”)   $ 470,000     $ 470,000  
Shenzhen Datang Engage Telecom Co., Ltd. (“Engage Telecom”)     188,759       188,759  
    $ 658,759     $ 658,759  

 

Shenzhen Engage Mobile Technology Co., Limited became a related party after Engage International Technology Co., Ltd. purchased 75.61% of the Company’s Common Stock from two stockholders of the Company on April 9, 2015. The advance is unsecured, payable on demand and non-interest bearing. During the year ended June 30, 2016, the Company received $96,663, respectively, in advances from Engage Telecom. As of June 30, 2016, the balance of the advances from related parties was $658,759. On February 23, 2017, the payable balances to Engage Technology and Engage Telecom had been fully assumed by our sole officer and director, Mr. Hua Zhang.

 

  13  

 

   

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 7—COMMITMENTS AND CONTINGENCY

 

From time to time, the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

 

NOTE 8—STOCKHOLDERS’ DEFICIT

 

Equity

 

During the six months ended December 31, 2016, the Company did not issue any new shares of Common Stock to the stockholders.

 

Stock Options

 

During the year ended June 30, 2014, two employees were granted an aggregate of 614,000 five-year options which vested immediately as to 114,000 options and 125,000 options were scheduled to vest each year over the next 4 years. The options were exercisable at $2.50 per share for 114,000 options, $3.00 per share for 125,000 options, $3.50 per share for 125,000 options, $3.75 for 125,000 options and $4.00 for 125,000 options. These two employees left the Company in April 2015 and the remaining unvested options were cancelled. No stock based compensation was recorded during the six months ended December 31, 2016 and 2015 due to the cancellation of options in April 2015.

 

A summary of the status of the stock options granted to employees and others as of December 31, 2016 is as follows:

 

    Number of Shares  
Options outstanding at June 30, 2016     207,750  
Changes:        
Granted     -  
Exercised     -  
Forfeited     -  
Cancelled     -  
Options outstanding at December 31, 2016     207,750  
         
Options exercisable at December 31, 2016     207,750  

 

  14  

 

 

ENGAGE MOBILITY, INC.

 

NOTES TO FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED DECEMBER 31, 2016 AND 2015

(UNAUDITED)

 

NOTE 8—STOCKHOLDERS’ DEFICIT (CONTINUED)

 

Stock Warrants

 

Stock warrants outstanding at December 31, 2016 were as follows:

 

    Number of Shares     Weighted Average Remaining Contractual Life (Years)  
Warrants outstanding at June 30, 2016     525,000       0.53  
Changes:                
Granted     -       -  
Exercised     -       -  
Forfeited     -       -  
Cancelled     -       -  
Warrants outstanding at December 31, 2016     525,000       0.28  
                 
Warrants exercisable at December 31, 2016     525,000       0.28  

 

Date Issued   Expiration Date   Exercise Price     Number of Warrants  
July 2013   July 2016   $ 2.00       125,000  
February 2014   February 2017   $ 1.50       200,000  
February 2014   February 2017   $ 2.00       200,000  

 

On April 9, 2015, in anticipation of and in connection with the share purchase by Engage International, the holder of a warrant to purchase 1,000,000 shares of Common Stock at an exercise price of $1.00, agreed to its cancellation for no consideration. As of the date of this report, the 525,000 shares of warrants were forfeited.

 

NOTE 9—SUBSEQUENT EVENTS

 

Through June 2015, the Company’s efforts were primarily limited to business formation, strategic development, marketing, website and product development, negotiations with third party sales and channel partners, and capital raising activities. However, the Company was not able to raise sufficient capital to execute its original business plan and, on February 15, 2017, management decided to cease the Company’s plan of operation as a mobile technology provider. In connection with this determination, the Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, have been impaired, and the Company reported an impairment loss of $18,462 during the fiscal year ended June 30, 2016. As a result of the foregoing, the Company is a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act). Going forward, the Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for the Company’s stockholders.

 

Management has evaluated all activity and concluded that no other subsequent events occurred as of April 3, 2017 that would require recognition in the financial statements or disclosure in the notes to the financial statements.

 

  15  

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with: (i) the accompanying unaudited condensed financial statements and notes thereto for the six months ended December 31, 2016, (ii) the financial statements and notes thereto for the year ended June 30, 2016 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2017 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K. Aside from certain information as of June 30, 2016 all amounts herein are unaudited. Unless the context otherwise indicates, references to “Engage Mobility,” “we,” “our,” “us” and the “Company” refer to Engage Mobility, Inc.

 

Overview

 

We were incorporated, under the name MarketKast, Inc., under the laws of the State of Florida on December 28, 2011, to serve as a provider of mobile marketing services, online and mobile video production, distribution, syndication and marketing services for business owners. 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.

 

On February 18, 2014, we entered into a joint venture agreement (“Joint Venture Agreement”) with Xinhua Ruide (Beijing) Network Technology Co., Ltd. (“Xinhua Ruide”) and Shenzhen Yingjia Mobile Technology Co., Ltd. (“Shenzhen Yingjia”) to establish a joint venture, Datang Engage (China) Mobile Technology Co., Ltd. (“Datang Engage”) to develop and launch a Chinese version of our mobile platform. We own 30% interest in the joint venture. The Chairman of the joint venture is Mr. Hua Zhang.

 

In April 2014, we completed development of version 2.0 of our Mobile Engagement System, which included our new product immersion, a street view augmented reality platform that allowed users to locate businesses in their geographical area who are on the Engage system. We 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, but only experienced nominal initial revenue.

 

On April 9, 2015, pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”), Engage International Technology Co. Ltd. (“Engage International”) acquired from James S. Byrd, Jr. (“Byrd”) and Douglas S. Hackett (“Hackett”), who were the principal stockholders of the Company, a total of 16,462,505 shares of the Company’s Common Stock, representing 75.61% of the Company’s then issued and outstanding shares. As a result of the transaction, a change in control of the Company occurred. Pursuant to the terms of the Stock Purchase Agreement, as a condition to the sale and transfer of the controlling stake of the Company, the then directors and officers of the Company resigned simultaneously at the closing of the transaction. Accordingly, Mr. Byrd ceased to be Chairman of the Board of Directors of the Company; and Mr. Hackett ceased to be President, Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer and Director of the Company; and Eric Fellows ceased to be the Chief Operating Officer of the Company. At the same time, Mr. Hua Zhang was appointed as the sole director and Chairman of the Board of Directors, as well as the Chief Executive Officer of the Company.  

 

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Through June 2015, our efforts were primarily limited to business formation, strategic development, marketing, website and product development, negotiations with third party sales and channel partners, and capital raising activities. However, the Company was not able to raise sufficient capital to execute its original business plan and, on February 15, 2017, management decided to cease our plan of operation as a mobile technology provider. In connection with this determination, the Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, have been impaired, and the Company has reported an impairment loss of $18,462 during the fiscal year ended June 30, 2016. As a result of the foregoing, the Company is a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act).

 

Going forward, the Company intends to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders.

 

Our principal business objective for the next twelve (12) months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. We will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business. We believe the costs of investigating and analyzing business combinations for the next twelve (12) months and beyond such time will be paid with money to be loaned to or invested in us by related parties. During the next twelve (12) months we also anticipate incurring costs related to filing of the reports required under the Securities Exchange Act of 1934, as amended, and consummating an acquisition. We believe we will be able to meet these costs through funds to be loaned by or invested in us by related parties. However, our related parties have made no commitments written or oral, with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees. During the year ended June 30, 2016, the Company received $96,663 in advances from Engage Telecom, a related party. As of December 31, 2016, the balance of the advances was $658,759.

 

We have negative working capital, negative stockholders’ equity and have not earned any revenues from operations to date. These conditions raise substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to develop additional sources of capital, locate and complete a merger with another company, and ultimately, achieve profitable operations.

 

Results of Operations

 

Comparison of the three months ended December 31, 2016 and 2015

 

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 December 31, 2016 and 2015, and have not generated any revenues for the three months ended December 31, 2016 and 2015.

 

Operating Expenses

 

During the three months ended December 31, 2016, we incurred general and administrative expenses of $1,200 and during the same period of 2015, we incurred general and administrative expenses of $18,721. These general and administrative expenses consist of professional fees and other miscellaneous items. The decrease in expenses in the 2016 period resulted primarily from our limited operating activities and reduction of our SEC filing expenditures.

  

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Impairment loss from intangible assets

 

Impairment loss from intangible assets was $0 for the three months ended December 31, 2016, as compared to $18,462 for the three months ended December 31, 2015. The 2015 impairment loss from intangible assets resulted from the impairment of our finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets in connection with the cessation of our plan of operation as a mobile technology provider.

 

Net Loss

 

We had no operations and reported net loss of $1,200 for the three months ended December 31, 2016, compared to $37,183 for the three months ended December 31, 2015. The decrease in our net loss in the 2016 period resulted primarily from our limited operating activities and reduction of our SEC filing expenditures. 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.

 

Comparison of the six months ended December 31, 2016 and 2015

 

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 six months ended December 31, 2016 and 2015, and have not generated any revenues for the six months ended December 31, 2016 and 2015.

 

Operating Expenses

 

During the six months ended December 31, 2016, we incurred general and administrative expenses of $2,400 and during the same period of 2015, we incurred general and administrative expenses of $56,051. These general and administrative expenses consist of professional fees and other miscellaneous items. The decrease in expenses in the 2016 period resulted primarily from our limited operating activities and reduction of our SEC filing expenditures.

 

Impairment loss from intangible assets

 

Impairment loss from intangible assets was $0 for the six months ended December 31, 2016, as compared to $18,462 for the six months ended December 31, 2015. The 2015 impairment loss from intangible assets resulted from the impairment of our finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets in connection with the cessation of our plan of operation as a mobile technology provider.

 

Net Loss

 

We had no operations and reported net loss of $2,400 for the six months ended December 31, 2016, compared to $74,513 for the six months ended December 31, 2015. The decrease in our net loss in the 2016 period resulted primarily from our limited operating activities and reduction of our SEC filing expenditures. 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

 

At December 31, 2016 and June 30, 2016, we had cash and cash equivalents of $0. We intend to rely upon loans from our related parties. During the year ended June 30, 2016, we received advances from Engage Telecom, one of our related parties, to fund our administrative expenses. However, our related parties are under no obligation to provide such funding. During the six month periods ended December 31, 2016 and 2015, the Company received $0, respectively, in advances from related parties. As of December 31, 2016, the balance of the advances was $658,759.

 

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We expect that we will need to raise funds in order to effectuate our business plan. We anticipate that we will need to seek financing through means such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise such funds. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to seek a buyer for our business or another entity with which we could create a joint venture.  If all of these alternatives fail, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.

 

Management anticipates seeking out a target company through solicitation. Such solicitation may include newspaper or magazine advertisements, mailings and other distributions to law firms, accounting firms, investment bankers, financial advisors and similar persons, the use of one or more websites and similar methods. No estimate can be made as to the number of persons who will be contacted or solicited. Management may engage in such solicitation directly or may employ one or more other entities to conduct or assist in such solicitation. Management and its affiliates may pay referral fees to consultants and others who refer target businesses for mergers into public companies in which management and its affiliates have an interest. Payments are made if a business combination occurs, and may consist of cash or a portion of the stock in the Company retained by management and its affiliates, or both.

 

As discussed above, we incurred a net loss of $2,400 and $74,513, respectively, for the six months ended December 31, 2016 and 2015. Cash used in operating activities for both the six months ended December 31, 2016 and 2015 were $0. Cash used in investing activities for both the six months ended December 31, 2016 and 2015 were $0. Cash provided by financing activities for both the six months ended December 31, 2016 and 2015 were $0. As of December 31, 2016 and June 30, 2016, we had a stockholders’ deficiency of $699,468 and $697,068, respectively. Accordingly, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital and implement our business plan. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

 

Mr. Hua Zhang, the sole director and officer of the Company, supervises the search for target companies as potential candidates for a business combination. We believe Mr. Hua Zhang will pay, at his own expense, any costs he incurs in supervising the search for a target company, although he is under no obligation to do so. Mr. Hua Zhang may enter into agreements with other consultants to assist in locating a target company and may share stock received by it or cash resulting from the sale of its securities with such other consultants.

 

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Recently Issued Accounting Pronouncements

 

A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, we have not determined whether implementation of such proposed standards would be material to our financial statements.

 

Off Balance Sheet Items

 

Under SEC regulations, we are required to disclose off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, such as changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. An off-balance sheet arrangement means a transaction, agreement or contractual arrangement to which any entity that is not consolidated with us is a party, under which we have:

 

  any obligation under certain guarantee contracts,
     
  any retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for such assets,
     
  any obligation under a contract that would be accounted for as a derivative instrument, except that it is both indexed to our stock and classified in stockholders’ deficiency in our statement of financial position, and
     
  any obligation arising out of a material variable interest held by us in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or engages in leasing, hedging or research and development services with us.

  

We do not have any off-balance sheet arrangements that we are required to disclose pursuant to these regulations. In the ordinary course of business, we enter into operating lease commitments, purchase commitments and other contractual obligations. These transactions are recognized in our financial statements in accordance with generally accepted accounting principles in the United States.

 

Contractual Obligations

 

None.

 

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. 

 

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:

 

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Revenue for services is recorded at the time the services are complete.

 

Where the Company has entered into a revenue sharing agreement with a third party, the Company will record its’ proportionate share of the revenue.

 

The Company’s revenues have principally been from video distribution and advertising fees via the platform. However, since July 1, 2015 until the date of this report, the Company did not report any revenues.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.

 

Property, Plant and Equipment

 

Property, plant and equipment are recorded at cost, less accumulated depreciation. Cost includes the price paid to acquire or construct the asset, including capitalized interest during the construction period, and any expenditures that substantially increase the assets value or extends the useful life of an existing asset. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Major repairs and betterments that significantly extend original useful lives or improve productivity are capitalized and depreciated over the periods benefited. Maintenance and repairs are generally expensed as incurred.

 

Intangible Assets and Long Lived Assets

 

The Company reviews for impairment its long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. The Company’s finite lived intangibles, comprised of patents, a mobile platform, and web and domain assets, are being amortized over a period of three years. 

 

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.

 

Going Concern

 

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying unaudited condensed financial statements, the Company had an accumulated deficit of $6,682,535 and a working capital deficit of approximately $699,000 at December 31, 2016, 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 ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan, which is now to seek, investigate and, if such investigation warrants, engage in a business combination with a private entity whose business presents an opportunity for our stockholders. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management intends to provide the Company with additional loans as needed and is seeking a merger target to implement its strategic plans. Management feels these actions provide the opportunity for the Company to continue as a going concern.

 

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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 our Disclosure Controls

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer has evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

Based upon his controls evaluation, our management, including the Chief Executive Officer and Chief Financial Officer has concluded that our Disclosure Controls are not effective as of the end of the period covered by this report, due to a material weakness identified below.

 

During this evaluation, the Company identified a material weakness in its internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The identified material weakness consists of, as of the end of the period covered by this report, limited resources and limited number of employees, namely the lack of an audit committee, an understaffed financial and accounting function, and the need for additional personnel to prepare and analyze financial information in a timely manner and to allow review and on-going monitoring and enhancement of our controls.

  

Based on our assessment and the criteria discussed above, our management, including the Chief Executive Officer and Chief Financial Officer has concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was not effective as a result of the aforementioned material weakness.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the past fiscal quarter that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

   

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PART II   OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our Common Stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

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

Number

  Document
31.1/31.2   Certification of the 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.
32.1/32.2+   Certification of the 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

 

+ In accordance with SEC Release 33-8238, Exhibit 32.1/32.2 is being furnished with this report.

 

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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 thereunto duly authorized.

  

  ENGAGE MOBILITY, INC.    
     
April 3, 2017 By :  /s/ Hua Zhang  
    Hua Zhang  
    Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director (Duly Authorized Officer, 
Principal Executive Officer, and 
Principal Financial Officer)  

  

 

 

24

 

 

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