UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the Quarterly Period Ended September 30, 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 November 20, 2015, the registrant had 23,082,567 shares of its common stock outstanding.
TABLE OF CONTENTS
| Page | ||||
| PART I -- FINANCIAL INFORMATION | ||||
| Item 1. | Condensed Financial Statements (Unaudited) | 2 | ||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 | ||
| Item 4. | Controls and Procedures | 18 | ||
| PART II -- OTHER INFORMATION | ||||
| Item 1. | Legal Proceedings | 19 | ||
| Item 1A. | Risk Factors | 19 | ||
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 19 | ||
| Item 3. | Defaults Upon Senior Securities | 19 | ||
| Item 4. | Mine Safety Disclosures | 19 | ||
| Item 5. | Other Information | 19 | ||
| Item 6. | Exhibits | 20 | ||
| SIGNATURES | 21 | |||
| 1 |
PART I: FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (Unaudited)
ENGAGE MOBILITY, INC.
CONDENSED BALANCE SHEETS
(IN U.S. $, Unaudied)
| September 30, | June 30, | |||||||
| 2015 | 2015 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | - | $ | - | ||||
| Accounts receivable, net of allowance for doubtful accounts of $14,660 and $14,185 for September 30, 2015 and June 30, 2015 | - | - | ||||||
| Total Current Assets | - | - | ||||||
| PROPERTY AND EQUIPMENT, net | - | - | ||||||
| OTHER ASSETS | ||||||||
| Intangible asset, net | 18,462 | 26,629 | ||||||
| TOTAL ASSETS | $ | 18,462 | $ | 26,629 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accrued expenses | $ | 52,188 | $ | 79,688 | ||||
| Notes payable | 5,000 | 5,000 | ||||||
| Due to related parties | 618,759 | 562,096 | ||||||
| Total Current Liabilities | 675,947 | 646,784 | ||||||
| TOTAL LIABILITIES | 675,947 | 646,784 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Common Stock - No Par Value; Authorized: 100,000,000 Issued and Outstanding: 23,082,567 shares at September 30 and June 30, 2015. | 2,891,995 | 2,891,995 | ||||||
| Paid in capital | 3,091,072 | 3,091,072 | ||||||
| Accumulated deficit | (6,640,552 | ) | (6,603,222 | ) | ||||
| TOTAL STOCKHOLDERS’ DEFICIT | (657,485 | ) | (620,155 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 18,462 | $ | 26,629 | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 2 |
ENGAGE MOBILITY, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(IN U.S. $, Unaudited)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| REVENUE | $ | - | $ | 21,827 | ||||
| COST OF REVENUE | - | - | ||||||
| GROSS PROFIT | - | 21,827 | ||||||
| OPERATING EXPENSES: | ||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 37,330 | 327,921 | ||||||
| OPERATING LOSS | (37,330 | ) | (306,094 | ) | ||||
| INTEREST EXPENSE | - | 8,279 | ||||||
| LOSS BEFORE INCOME TAXES | (37,330 | ) | (314,373 | ) | ||||
| INCOME TAXES | - | - | ||||||
| NET LOSS | $ | (37,330 | ) | $ | (314,373 | ) | ||
| Net Loss Per Common Share, basic & diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Weighted Average Common Shares Outstanding, basic & diluted | 23,082,567 | 21,772,567 | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 3 |
ENGAGE MOBILITY, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
(IN U.S. $, Unaudited)
| Three Months Ended | ||||||||
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (37,330 | ) | $ | (314,373 | ) | ||
| Adjusting to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 8,167 | 16,569 | ||||||
| Common stock, options and warrants issued for services, interest and inducements | - | 163,364 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts receivable | - | 650 | ||||||
| Decrease in prepaid expenses | - | 220 | ||||||
| Increase in deferred revenue | - | 3,782 | ||||||
| Increase in accrued expenses | 29,163 | 43,357 | ||||||
| Net cash used in operating activities | - | (86,431 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds of notes payable | - | 85,000 | ||||||
| Net cash provided by financing activities | - | 85,000 | ||||||
| Net change in cash | - | (1,431 | ) | |||||
| Cash - beginning balance | - | 16,201 | ||||||
| CASH ENDING BALANCE | $ | - | $ | 14,770 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | - | $ | 8,279 | ||||
| Income taxes | $ | - | $ | - | ||||
| Non-cash financing activities | ||||||||
| Payments of accrued expense and other payable assumed by stockholder | $ | 56,663 | $ | - | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
| 4 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| 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 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 Engage Mobility, Inc., 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 has occurred.
| NOTE 2 | SUMMARY OF ACCOUNTING POLICIES |
Basis of Accounting Presentation
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The unaudited interim financial statements of the Company as of September 30, 2015 and for the three months ended September 30, 2015 and 2014, 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 Form 10-K for the year ended June 30, 2015, previously filed with the SEC. In the opinion of management, the interim information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the periods presented. The results of operations for the three months ended September 30, 2015 are not necessarily indicative of the results to be expected for future quarters or for the year ending June 30, 2016.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Bank overdrafts are presented in the financial statements under the caption “Due to Bank.”
| 5 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| NOTE 2 | SUMMARY OF ACCOUNTING POLICIES (Continued) |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates include the valuation of options and warrants issued for services and compensation and deferred income taxes.
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 are principally from video distribution and advertising fees via the platform.
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.
| 6 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| NOTE 2 | SUMMARY OF ACCOUNTING POLICIES (Continued) |
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.
Fair value of financial instruments
The Company’s short-term financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and other current liabilities. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments. The carrying value of the Company’s long-term debt approximates fair value based on the terms and conditions at which the Company could obtain similar financing.
Income Taxes
In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), “Income Taxes” (“ASC 740”), deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. The Company has recorded a valuation allowance against its deferred tax assets based on the history of losses incurred.
ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position would be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions. As of September 30, 2015 and June 30, 2015, the Company does not have a liability for any unrecognized tax benefits.
All tax periods from inception remain open to examination by taxing authorities.
| 7 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| NOTE 2 | SUMMARY OF ACCOUNTING POLICIES (Continued) |
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.
Basic and Diluted Earnings Per 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 per share is calculated by dividing net income 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.
| 8 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| 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 $6,641,000 and a working capital deficit of approximately $676,000 at September 30, 2015. In addition, the Company continues to generate operating losses and negative cash flows from operations. Management believes these factors raise substantial doubt about the Company’s ability to continue as a going concern.
During the next 12 months, the Company:
| - | Plans to raise significant additional funds through debt or equity financing. |
| - | Intends to work together with its China affiliate, under common control, to further develop the Company’s platform and introduce it to the Chinese market. As the platform matures, the Company plans to reintroduce it into the U.S. and other markets. |
While management is attempting to execute its strategy, the Company does not have the cash to support the Company’s daily operations and requires significant additional debt or equity financing. While the Company believes in the viability of its strategy to create sales volume and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon its ability to obtain additional debt/equity financing from third-party and /or related parties, further implement its business plan and generate sufficient revenues to meet its obligations. The condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| 9 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(IN U.S. $)
| 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 the three months ended September 30, 2015 and 2014 was $0 and $1,302, respectively.
| NOTE 5 | INTANGIBLE ASSETS |
Intangible assets consisted of the following:
| September 30, 2015 | June 30, 2015 | |||||||
| Mobile platform | $ | 98,000 | $ | 98,000 | ||||
| Patents | 1,000 | 1,000 | ||||||
| Total intangible assets | 99,000 | 99,000 | ||||||
| Less: accumulated amortization | (80,538 | ) | (72,371 | ) | ||||
| $ | 18,462 | $ | 26,629 | |||||
Amortization expense charged to operations for the three months ended September 30, 2015 and 2014 was $8,167 and $15,268, respectively. Future estimated amortization expense is $18,462 for the year ended June 30, 2016.
| NOTE 6 | RELATED PARTY TRANSACTIONS |
The Company received advances from the following related parties, under common control, to supplement the Company’s working capital.
September 30, | June 30, | |||||||
| Shenzhen Engage Mobile Technology Co., Limited | $ | 470,000 | $ | 470,000 | ||||
| Shenzhen Datang Engage Telecom Co., Limited | 148,759 | 92,096 | ||||||
| $ | 618,759 | $ | 562,096 | |||||
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 payable on demand and non-interest bearing.
| 10 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONSENSED FINANCIAL STATEMENTS
(IN U.S. $)
| NOTE 7 | LEASE |
Lease
On June 1, 2014, the Company entered into a three-year lease agreement with an unrelated third party.
Pursuant to a termination agreement dated May 6, 2015 between the Company and the landlord, the lease has been terminated. Rent expense for the three months ended September 30, 2015 and 2014 was $0 and $9,128, respectively.
| NOTE 8 | STOCKHOLDERS’ DEFICIT |
Equity
During the three months ended September 30, 2015, the Company had not issued 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 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. The aggregate grant date fair value of the options was approximately $1,415,710, and $163,364 had been charged to operations during the three months ended September 30, 2014. No stock based compensation was recorded during the three months ended September 30, 2015 due to the cancellation of options in April 2015.
Stock warrants
Stock warrants outstanding at September 30, 2015 were as follows:
| Number of Shares | Weighted Average Remaining Contractual Life (Years) | |||||||
| Warrants outstanding at June 30, 2015 | 525,000 | 1.48 | ||||||
| Changes: | ||||||||
| Granted | - | - | ||||||
| Exercised | - | - | ||||||
| Forfeited | - | - | ||||||
| Cancelled | - | - | ||||||
| Warrants outstanding at September 30, 2015 | 525,000 | 1.22 | ||||||
| Warrants exercisable at September 30, 2015 | 525,000 | 1.22 | ||||||
| 11 |
ENGAGE MOBIITY, INC.
NOTES TO UNAUDITED CONSENSED FINANCIAL STATEMENTS
(IN U.S. $)
| NOTE 8 | STOCKHOLDERS’ DEFICIT (Continued) |
Stock warrants (Continued)
| 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 | ||||||
| NOTE 9 | INCOME TAXES |
No provision was made for federal income taxes since the Company has significant net operating losses. At September 30, 2015, the Company had operating loss carryforwards of approximately $3,037,000. The net operating loss carry-forwards may be used to reduce taxable income through the year 2035. The principal difference between the net operating loss for book purposes and income tax purposes results from non-cash charges to operations related to stock options and warrants and common shares issued for services that are not currently deductible for income tax purposes. The availability of the Company’s net operating loss carry-forwards are subject to significant limitation since there was more than 50% change in the ownership of the Company’s stock.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of September 30, 2015 and June 30, 2015, were as follows:
| September 30, 2015 | June 30, 2015 | |||||||
| Deferred tax assets: | ||||||||
| Federal net operating loss | $ | 983,000 | $ | 979,000 | ||||
| State net operating loss | 146,000 | 145,000 | ||||||
| Total deferred tax assets | 1,129,000 | 1,124,000 | ||||||
| Less: valuation allowance | (1,129,000 | ) | (1,124,000 | ) | ||||
| $ | - | $ | - | |||||
The Company has provided a 100% valuation allowance against the deferred tax assets at September 30 and June 30, 2015, to reduce such assets to zero, since there are significant limitations on the utilization of the Company’s net operating loss carry-forwards and there is no assurance that the Company will generate future taxable income to utilize such assets. Management reviews this valuation allowance requirement periodically and makes adjustments as warranted. The valuation allowance increased $5,000 for three months ended September 30, 2015 and $600,000 for the year ended June 30, 2015.
| 12 |
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 financial condition and results of operations of Engage Mobility, Inc. (“Engage Mobility”, the “Company”, “we”, and “our”) for the three months ended September 30, 2015 as compared to the same period of 2014. The following information should be read in conjunction with the interim financial statements as of September 30, 2015, the three months periods ended September 30, 2015 and 2014 and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”).
Overview
We were incorporated, under the name MarketKast, Inc., under the laws of the State of Florida on December 28, 2011. On March 22, 2013, we filed Articles of Amendment to our Articles of Incorporation (the “Amendment”) to change our name from “MarketKast, Incorporated” to “Engage Mobility, Inc.” The Amendment was effective as of March 22, 2013. In connection with the name change, our trading symbol was changed from “MRKK” to “ENGA,” effective April 4, 2013.
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 of the joint venture. The Chairman of the joint venture is Mr. Hua Zhang.
| 13 |
Although the joint venture was established in 2014, it has not commenced operations and our partners in China had confidence in our business and technology and hoped to continue the alliance through acquisition of the control of our Company. 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. 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 as 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.
We plan to function as a provider of mobile technology, marketing and data solutions for business. Through the sale of our Mobile Engagement System, we hope to 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 will be sold to businesses under a “user based” model - so that the business would pay 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 the 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.
Currently we do not have operations of our mobile technology business. We intend to work together with our China affiliate, under common control, to further develop the Company’s platform and introduce it to the Chinese market. As the platform matures, the Company plans to reintroduce it into the U.S. and other markets.
Change of Control
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.
On April 9, 2015, two principal stockholders of the Company entered into a Stock Purchase Agreement (“Stock Purchase Agreement”) with Engage International, pursuant to which Engage International acquired a total of 16,462,505 shares of the Company’s common stock from the principal stockholders of the Company, 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 has occurred.
Since the change in control of the Company, the Company intends to raise capital and seek future mergers and acquisitions. The Company intends to work together with one of its China affiliates, under common control, to develop a data platform for investment, corporation internal management, financial management, marketing and wealth management for small and mid-size corporations.
| 14 |
Plan of Operation
Until May 2014, 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.
In April 2014, we completed development of version 2.0 of our Mobile Engagement System, 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, but we had only experienced nominal initial revenue.
On April 9, 2015, Engage International purchased 75.61% of the Company’s then issued and outstanding shares from two major stockholders of the Company. Following the transaction, a change in control of the Company 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 of which we own 30%.
We have not experienced significant 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, the Company:
| - | Plans to raise additional funds through debt or equity financing either from third-party or related parities. |
| - | Intends to work together with its China affiliate, under common control, to further develop the Company’s platform and introduce it to the Chinese market. As the platform matures, the Company plans to reintroduce it into the U.S. and other markets. |
| - | Seeks a suitable third-party to form a joint-venture company to expand our Mobile Engagement business. |
Results of Operations
Comparison of the three months ended September 30, 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 September 30, 2015, and have not generated any revenues, as compared to $21,827 for the three months ended September 30, 2014.
Operating Expenses
During the three months ended September 30, 2015 and 2014, we incurred general and administrative expenses of $37,330, and $327,921, respectively, which consist of rent, insurance, professional fees, travel, employee compensation and other miscellaneous items. The decrease in expenses during the first quarter in 2015 resulted primarily from decrease in stock compensation of $163,364, investor relations of $16,764, salaries and wages of $48,353, office rent of $9,128, employee health insurance of $13,537, and administrative services of $10,650 for the three months ended September 30, 2015.
Interest expense
There was no interest expense occurred for the three months ended September 30, 2015, while the interest for the three months ended September 30, 2014 was $8,279. The decrease in interest expense resulted from a decrease in outstanding loans.
| 15 |
Net Income and Loss
We had a net loss of $37,330 for the three months ended September 30, 2015, compared to $314,373 for the three months ended September 30, 2014.
Liquidity and Capital Resources
As of September 30, 2015, we had no cash. Our general and administrative expenses, were all paid by a related party on behalf of our Company. We have historically financed our operations through sale of common stock to our founders, private equity offerings, and debt from third party lenders. We are attempting to obtain funds from additional debt or equity financing to support our daily business. Therefore, as noted in the Going Concern section below, this raises substantial doubt about our ability to continue as a going concern.
The following summarizes the key components of the Company’s cash flows for the three months ended September 30, 2015 and 2014:
Three Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cash flows used in operating activities | $ | - | $ | (86,431 | ) | |||
| Cash flows from financing activities | $ | - | $ | 85,000 | ||||
| Net increase decrease in cash and cash equivalents | $ | - | $ | (1,431 | ) | |||
During the three months ended September 30, 2015, the Company had a net loss of $37,330, and net cash used in its operating activities was $0. Comparatively, during the three months ended September 30, 2014, the Company had a net loss of $314,373, and net cash used in its operating activities was $86,431. General and administrative expenses includes professional fees, legal/Accounting expenses, shipping fees and other office expenses. These expenses were paid by a related party of our company.
We did not have cash flows from investing activities for the three months ended September 30, 2015 and 2014.
For the three months ended September 30, 2015, we did not have cash flows from financing activities. For the three months ended September 30, 2014, cash flows provided by financing activity was proceeds from notes payable of $85,000.
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.
| 16 |
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.
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 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 $6,640,552 and a working capital deficit of $676,000 at September 30, 2015, and had no revenue generating from operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company has no cash and its 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 its strategy. The ability of the Company to continue as a going concern is dependent upon its 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.
During the next 12 months, we hope to raise additional funds through debt or equity financing. We intend to work together with our China affiliate, under common control, to further develop the Company’s platform and introduce it to the Chinese market. As the platform matures, the Company plans to reintroduce it into the U.S. and other markets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
| 17 |
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 Executive Officer, Secretary and Treasurer, 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.
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 ended September 30, 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.
| 18 |
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. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not involved in any legal proceedings.
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.
| 19 |
Item 6. Exhibits
| Exhibit No. | Description | |
| 31.1* | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of Sarbanes Oxley Act of 2002 | |
| 31.2* | Certification of 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.
| 20 |
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: November 20, 2015 | |
| Engage Mobility, Inc. | |
| /s/ Hua Zhang | |
| Name: Hua Zhang | |
| Position: Chairman of the Board,
President, Chief Executive Officer, Secretary and Treasurer | |
| (Duly Authorized, Principal Executive Officer and Principal Financial Officer) |
21
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. I am 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 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. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 20, 2015 | By: | /s/ Hua Zhang |
Hua Zhang President, Chief Executive Officer, |
Exhibit 31.2
CERTIFICATION OF 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. I am 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 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. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 20, 2015 | By: | /s/ Hua Zhang |
|
Hua Zhang President, Chief Executive Officer, |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Engage Mobility, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 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: November 20, 2015 | By: | /s/ Hua Zhang |
Hua Zhang President, Chief Executive 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.