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 March 31, 2015
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.) |
15C,
China Merchants Tower
No.
1166 Wanghai Road, Nansha District
Shenzhen,
Guangdong, China
(Address
of principal executive offices)(Zip Code)
+86-755-86575200
(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 May 20, 2015, the registrant had 23,082,567 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 |
16 |
Item 4. |
Controls and Procedures |
16 |
|
|
|
PART
II-- OTHER INFORMATION |
|
|
|
|
Item 1. |
Legal Proceedings |
17 |
Item 1A. |
Risk Factors |
17 |
Item 2. |
Unregistered Sales
of Equity Securities and Use of Proceeds |
17 |
Item 3. |
Defaults Upon
Senior Securities |
17 |
Item 4. |
Mine Safety Disclosures |
17 |
Item 5. |
Other Information |
17 |
Item 6. |
Exhibits |
17 |
|
|
|
SIGNATURES |
18 |
PART
I: FINANCIAL INFORMATION
Item
1. Financial Statements
ENGAGE
MOBILITY, INC.
BALANCE
SHEETS
As
of March 31, 2015, and June 30, 2014
| |
March 31, | | |
June
30, | |
| |
2015 | | |
2014 | |
| |
(Unaudited) | | |
| |
ASSETS
| |
| | | |
| | |
CURRENT
ASSETS | |
| | | |
| | |
Cash | |
$ | 56,180 | | |
$ | 16,201 | |
Accounts receivable | |
| 475 | | |
| 650 | |
Prepaid expenses | |
| 17,171 | | |
| 32,805 | |
Total Current Assets | |
| 73,826 | | |
| 49,656 | |
PROPERTY AND EQUIPMENT, net | |
| 4,985 | | |
| 9,627 | |
OTHER ASSETS | |
| | | |
| | |
Intangible asset, net | |
| 38,060 | | |
| 74,263 | |
TOTAL
ASSETS | |
$ | 116,871 | | |
$ | 133,546 | |
LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |
| | | |
| | |
CURRENT
LIABILITIES | |
| | | |
| | |
Accounts Payable and accrued expenses | |
$ | 77,826 | | |
$ | 59,025 | |
Notes payable - affiliates | |
| 165,581 | | |
| - | |
Other current liabilities | |
| 470,000 | | |
| 470,000 | |
Total Current Liabilities | |
| 713,407 | | |
| 529,025 | |
LONG TERM LIABILITIES | |
| | | |
| | |
Notes payable | |
| 275,000 | | |
| 275,000 | |
Convertible notes payable | |
| 7,078 | | |
| 2,454 | |
Total Long Term Liabilities | |
| 282,078 | | |
| 277,454 | |
Total liabilities | |
| 995,485 | | |
| 806,479 | |
STOCKHOLDERS' (DEFICIT) | |
| | | |
| | |
Common
Stock - No Par Value; Authorized: 100,000,000 Issued and Outstanding: 21,772,567 | |
| 1,976,595 | | |
| 1,976,595 | |
Paid in capital | |
| 3,224,718 | | |
| 2,885,364 | |
Accumulated deficit | |
| (6,079,927 | ) | |
| (5,534,892 | ) |
Total stockholders' (deficit) | |
| (878,614 | ) | |
| (672,933 | ) |
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) | |
$ | 116,871 | | |
$ | 133,546 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE
MOBILITY, INC.
STATEMENTS
OF OPERATIONS
Three
Months and Nine months Ended March 31, 2015 and 2014
(Unaudited)
| |
Three
Months | | |
Three
Months | | |
Nine
Months | | |
Nine
Months | |
| |
Ended | | |
Ended | | |
Ended | | |
Ended | |
| |
March 31 | | |
March 31 | | |
March 31 | | |
March 31 | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
REVENUE | |
$ | 36 | | |
$ | 10,135 | | |
$ | 32,068 | | |
$ | 76,790 | |
COST OF SALES | |
| - | | |
| - | | |
| - | | |
| 13,100 | |
| |
| | | |
| | | |
| | | |
| | |
GROSS PROFIT | |
| 36 | | |
| 10,135 | | |
| 32,068 | | |
| 63,690 | |
OPERATING EXPENSES: | |
| | | |
| | | |
| | | |
| | |
GENERAL AND ADMINISTRATIVE EXPENSES | |
| 133,625 | | |
| 2,627,071 | | |
| 548,205 | | |
| 3,570,005 | |
OPERATING LOSS | |
| (133,589 | ) | |
| (2,616,936 | ) | |
| (516,137 | ) | |
| (3,506,315 | ) |
INTEREST EXPENSE | |
| 12,242 | | |
| 891,139 | | |
| 28,898 | | |
| 1,029,650 | |
LOSS BEFORE INCOME TAXES | |
| (145,831 | ) | |
| (3,508,075 | ) | |
| (545,035 | ) | |
| (4,535,965 | ) |
NET LOSS | |
$ | (145,831 | ) | |
$ | (3,508,075 | ) | |
$ | (545,035 | ) | |
$ | (4,535,965 | ) |
Net Loss Per Common Share, basic & diluted | |
$ | (0.01 | ) | |
$ | (0.17 | ) | |
$ | (0.03 | ) | |
$ | (0.22 | ) |
Weighted Average Common Shares Outstanding, basic & diluted | |
| 21,772,567 | | |
| 21,103,042 | | |
| 21,772,567 | | |
| 20,525,017 | |
The accompanying notes are an integral part of these financial statements.
ENGAGE
MOBILITY, INC.
STATEMENTS
OF CASH FLOWS
Nine
months Ended March 31, 2015 and 2014
(Unaudited)
| |
2015 | | |
2014 | |
CASH
FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net cash (used in) operating activities | |
$ | (225,602 | ) | |
$ | (829,464 | ) |
CASH FLOWS FROM INVESTING ACTIVITIES | |
| | | |
| | |
Acquisition of intangible | |
| - | | |
| (50,000 | ) |
Purchase of property and equipment | |
| - | | |
| (9,911 | ) |
Net cash (used in) investing activities | |
| - | | |
| (59,911 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Due to bank | |
| - | | |
| (14,282 | ) |
Proceeds from notes payable | |
| 165,581 | | |
| 375,000 | |
Repayment of notes payable | |
| - | | |
| (85,000 | ) |
Deposit on stock subscription | |
| 100,000 | | |
| - | |
Common shares issued for cash, net | |
| - | | |
| 722,135 | |
Net cash provided by financing activities | |
| 265,581 | | |
| 997,853 | |
Net increase in cash | |
| 39,979 | | |
| 108,478 | |
Cash - beginning balance | |
| 16,201 | | |
| - | |
| |
| | | |
| | |
CASH ENDING BALANCE | |
$ | 56,180 | | |
$ | 108,478 | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | - | |
Income taxes | |
$ | - | | |
$ | - | |
The accompanying notes are an integral part of these financial statements.
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 2015
NOTE 1 |
NATURE OF OPERATIONS |
Engage Mobility, Inc. (the “Company”)
was incorporated on December 28, 2011 under the laws of the State of Florida as MarketKast Incorporated. On March 22, 2013, the
Company changed its name to Engage Mobility, Inc. The Company functions as a provider of mobile technology, marketing and data
products and solutions 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.
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:
Revenue for services are 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.
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. The Company’s
finite lived intangibles are being amortized over a period of 3 years.
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 of cash and cash equivalents, accounts receivable, notes payable and accounts payable and accrued expenses.
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.
The Company does not believe that any
uncertain tax positions exist as of the date of these financial statements.
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 $6,079,927 and working capital deficit of $639,581 at March 31, 2015, and
has no significant revenue generating operations. These conditions raise substantial doubt about the Company’s ability to
continue as a going concern.
The Company’s cash position and
operations are not 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, and to date insufficient capital has been raised for the Company to execute this strategy. The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan, obtain additional debt or equity funding, 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.
Affiliates
During the period ended March 31, 2015,
the Company borrowed an aggregate of $165,581 from 2 affiliates. The notes bear interest at 8% per annum and are due in March 2016.
Others
As of June 30, 2014 and March 31, 2015,
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 Ended 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 then 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. 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.
Convertible notes payable consist of
the following at March 31, 2015:
Notes payable | |
$ | 50,000 | |
Beneficial conversion feature and unamortized warrants | |
| (42,922 | ) |
| |
$ | 7,078 | |
NOTE 6 |
OTHER CURRENT LIABILITIES |
We have 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 February 2014. We have a 30% interest in the JV which has not yet commenced operations. We received an aggregate
of $470,000 for the development of a mobile platform for the JV, which is included in other current liabilities on the
balance sheet as March 31, 2015.
NOTE 7 |
STOCKHOLDERS’ EQUITY (DEFICIT) |
Common stock
The Company is authorized to issue 100,000,000
shares of no par value Common Stock. At March 31, 2015 and the date of this filing, 21,772,567 shares and 23,082,567 shares were
issued and outstanding, respectively.
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 $222,687
has been charged to operations during the period ended March 31, 2015. The options were valued using a binomial option pricing
model with the following assumptions:
Volatility 154% - Dividend rate 0% -
Interest rate 1.36% - 1.66% - Term 5 years
A summary of the status of the stock
options granted to employees and others as of March 31, 2015 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 | |
| 207,750 | |
Stock Warrants
Stock warrants outstanding at March 31, 2015 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 8 |
COMMITMENTS AND CONTINGENCIES |
We are not currently involved in any
litigation, and there is not any threatened or pending litigation to the knowledge of Management.
On April 9, 2015, pursuant to a Stock
Purchase Agreement, Engage International Technology Co. Ltd. (“Engage International”) acquired from James S. Byrd,
Jr. (“Byrd”) and Douglas S. Hackett (“Hackett”), who are shareholders of the Company, a total of 16,462,505
shares of the Company’s common stock, representing 75.61% of the Company’s issued and outstanding shares. Following
the transaction, a change in control of the Company has occurred. The newly appointed Chairman and CEO of the Company after the
change of control is also the Chairman of the Chinese joint venture of which the Company owns 30% of interest.
On April 9, 2015,
the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Engage International pursuant
to which Engage International purchased 1,100,000 shares of the Company’s restricted common stock, at the price of $0.50
per share for a total purchase price of $550,000 of which $100,000 was received during March 2015 (the “Offering”).
The issuance of the shares under the Offering was in reliance upon the exemptions from securities registration afforded by Regulation
S promulgated under Regulations of the Securities Act of 1933, as amended. The sole purpose and objective of the Offering is to
use the proceeds received from the Offering to pay off certain outstanding debts, loans, obligations and liabilities of the Company
in the total amount of approximately $550,000, within three (3) business days of the closing of the Offering.
On April 6, 2015, the Company issued
110,000 shares of common stock to Michael Jerkins pursuant to the conversion of his $50,000 note with the Company, and 100,000
shares of common stock to Eric A. Fellows in exchange for the options issued to him by the Company.
From April 1, 2015 to April 9, 2015, in anticipation of and in connection with the share purchase by Engage
International and subsequent change of control of the Company, the Company has cancelled all options and warrants then outstanding
with the consent of the holders. As of April 9, 2015, the Company had no outstanding or authorized options and warrants.
CAUTIONARY NOTE FORWARD-LOOKING
STATEMENTS
This Quarterly Report on Form 10-Q (this
“Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,”
“estimate,” “intend,” “could,” “should,” “would,” “may,”
“seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,”
“forecast,” “potential,” “continue” negatives thereof or similar expressions. These forward-looking
statements are found at various places throughout this Report and include information concerning possible or assumed future results
of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements
regarding future operations, future cash needs, business plans and future financial results, and any other statements that are
not historical facts.
From time to time, forward-looking statements
also are included in our other periodic reports on Form 10-K, Forms 10-Q and 8-K, in our press releases, in our presentations,
on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report
and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and
are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual
results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks,
uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different
extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters
addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this Report.
Except to the extent required by law,
we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events,
a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
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 three and nine months ended March
31, 2015 as compared to 2014. The following information should be read in conjunction with the consolidated interim
financial statements for the period ended March 31, 2015 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.
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 are shareholders of the
Company, a total of 16,462,505 shares of the Company’s common stock, representing 75.61% of the Company’s issued and
outstanding shares. Following the transaction, a change in control of the Company has 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 to be the sole director and Chairman of the Board
of Directors, as well as the Chief Executive Officer of the Company. Mr. Zhang is also the Chairman of the Chinese joint venture, Datang Engage, of which we own 30% interest
(see below).
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 have partnered with certain parties in China to develop
and launch a Chinese version of our mobile platform, and we entered into an Investment Agreement with our partners in China in
February 2014 to form a joint venture, Datang Engage (China) Mobile Technology Co., Ltd (“Datang Engage”), of which
we own 30% interest. The Chairman of Datang Engage is Mr. Hua Zhang, our current CEO and Chairman. Datang Engage was formed in
August 2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from
our interest in the 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 2016. 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 subject to successful funding, which cannot be assured.
As of December 2014, we were unable
to raise the necessary capital to continue to fund marketing and sales efforts for our products, and therefore we greatly reduced
our efforts in that regard. We are presently unable to undertake any significant marketing and sales efforts, and our business
is now limited to ownership of our Chinese partnership interest and nominal marketing and sales efforts in the United States, resulting
in only nominal revenue.
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 2016.
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 an Investment Agreement in February 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.
As of May 2015, we have taken the following
steps to become an operating company:
|
1. |
We have experienced some revenue and have signed up a number of customers for the system, however we have not begun to experience substantial revenue from the offering of the system as of May 2015. |
|
2. |
We partnered with certain parties in China to develop and launch a Chinese version of our mobile platform, and we entered into an Investment Agreement with our partners in China in February 2014 to form a joint venture, Datang Engage, of we own 30% of interest. Datang Engage was formed in August 2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest in the joint venture. |
|
3. |
We have continued to offer our full suite of mobile marketing products to business and during the past 12 months we have begun offering mobile responsive website design and hosting services, mobile marketing services and other related services to our clients. We have begun to experience some recurring monthly revenues from these offerings, however as of December 2014 we have greatly reduced our marketing efforts as a result of a lack of capital, and our revenues have therefore become nominal. |
|
|
|
|
4. |
On April 9, 2015, Engage International purchased 75.61% of the Company’s issued and outstanding shares from two shareholders. Following the transaction, a change in control of the Company has occurred and all of the then directors and officers of the Company resigned simultaneously at the closing of the transaction. At the same time, Mr. Hua Zhang was appointed to be the sole director and Chairman of the Board of Directors, as well as the Chief Executive Officer. Mr. Zhang is also the Chairman of the Chinese joint venture. |
As of December 2014, we have experienced
only nominal revenue from our business operations, and we have been unable to raise the capital necessary to fund our marketing
and sales plan. Therefore, during the next 12 months, subject to availability of capital, we plan to:
|
- |
Acquire an operating business that would be able to take advantage of, and complement our mobile technology platform. We have not identified any particular acquisition target at this time, and there is no assurance that any such acquisition will occur, or that capital will be available to allow us to consummate same. |
|
- |
Continue to attempt to sell our Mobile Engagement System through our existing efforts or through additional efforts or through additional efforts is capital becomes available. 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. At present there is no capital available to us to engage in anything other than nominal marketing efforts. |
Results of Operations
Comparison of the three and nine
months ended March 31, 2015 and 2014
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 March 31, 2015, and we have generated $36 of revenues, as compared to $10,135 for the three months ended March 31, 2014.
During the nine months ended March 31, 2015, we generated $32,068 of revenues, as compared to $76,790 for the nine months ended
March 31, 2014.
Operating Expenses
During the three months ended March
31, 2015, we incurred general and administrative expenses of $133,625, and during the three months ended March 31, 2014 we incurred
general and administrative expenses of $2,627,071. For the nine months ended March 31, 2015 we incurred operating expenses of $548,205
compared to $3,570,005 for the nine months ended March 31, 2014. These general and administrative expenses consist of rent, insurance,
professional fees, travel, employee compensation and other miscellaneous items. The decrease in expenses in the 2015 periods resulted
primarily from decrease in stock compensation of $2,608,000, investor relations of $119,000, professional fees of $145,000 and
travel of $141,000 for the nine months ended March 31, 2015.
Interest expense
Interest expense was $12,242 for the
three ended March 31, 2015, as compared to $891,139 for the three months ended March 31, 2014. Our interest expense was $28,898
and $1,029,650 for the nine months ended March 31, 2015 and 2014, respectively. The decrease in interest expense resulted from
a decrease in the amortization of the beneficial conversion features and warrants issued in conjunction with debt.
Net Income and Loss
We had net loss of $145,831 for the three
months ended March 31, 2015, compared to $3,508,075 for the three months ended March 31, 2014. Our net loss was $548,205 and $4,535,965
for the nine months ended March 31, 2015 and 2014, respectively. 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 March 31, 2015, we had $56,180
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 March 31, 2015:
Cash flows (used in) operating activities | |
$ | (225,602 | ) |
Cash flows from financing activities | |
$ | 265,581 | |
Net increase in cash and cash equivalents | |
$ | 39,979 | |
We did not have cash flows from investing
activities.
Cash flows provided by financing activities
consisted of the proceeds from notes payable of $165,581 and a deposit on a common stock purchase of $100,000.
We have a current monthly
cash expenditure rate, as of May 2015, of approximately $7,000 to $10,000 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
generate sufficient income or obtain additional financing, we could expect to run out of capital sometime between May 2015
and June 2015. For this reason, if we do not generate sufficient income in the first half of our 2016 fiscal year, we will need to
raise additional capital of between $7,000 and $10,000 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 May 2015 and August 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 June 2015. 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, and our business will likely fail if we do not raise any additional capital.
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.
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 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.
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.
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. The Company’s
finite lived intangibles are being amortized over a period of 3 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 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 $6,079,927 and working capital deficit of $639,581 at March 31, 2015, and
has no significant revenue generating operations. These conditions raise substantial doubt about the Company’s ability to
continue as a going concern.
The Company’s cash position and
operations are not 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, and to date insufficient capital has been raised for the Company to execute this strategy. The
ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business
plan, obtain additional debt or equity funding, and generate sufficient revenues. The financial statements do not include
any adjustments that might be necessary if the Company is unable to continue as a going concern.
Item 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 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, 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 does
not have a Chief Financial Officer, and 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 March 31, 2015, 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.
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.
|
Dated: May 20, 2015 |
|
|
|
Engage Mobility, Inc. |
|
|
|
/s/ Hua Zhang |
|
Name: Hua Zhang |
|
Position: President, Chief Executive Officer,
Secretary and Treasurer |
|
(Duly Authorized, Principal Executive Officer and
Principal Financial Officer) |
18
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, Hua Zhang, 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: May 20, 2015 |
By: |
/s/ Hua Zhang |
|
|
Hua Zhang
President, Chief Executive 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 March 31, 2015 as filed with the Securities
and Exchange Commission on the date hereof (the “Report”), Hua Zhang, President, Chief Executive 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: May 20, 2015 |
By: |
/s/ Hua Zhang |
|
|
Hua Zhang
President, Chief Executive 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.
Engage Mobility (PK) (USOTC:ENGA)
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Engage Mobility (PK) (USOTC:ENGA)
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