UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the Quarterly Period Ended September 30, 2014
or
| ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-182856
Engage Mobility, Inc.
(Exact name of registrant as specified in its charter)
| Florida | 45-4632256 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
140 Walnut St.
Kansas City, MO 64106
(Address of principal executive offices)(Zip Code)
(407) 329-7404
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of November 19, 2014, the registrant had 21,772,567 shares of its common stock outstanding.
TABLE OF CONTENTS
| Page | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 14 |
| Item 4. | Controls and Procedures | 14 |
| PART II-- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 14 |
| Item 1A. | Risk Factors | 15 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 15 |
| Item 3. | Defaults Upon Senior Securities | 15 |
| Item 4. | Mine Safety Disclosures | 15 |
| Item 5. | Other Information | 15 |
| Item 6. | Exhibits | 15 |
| SIGNATURES | 16 | |
| 2 |
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
| ENGAGE MOBILITY, INC. | ||||||||
| BALANCE SHEETS | ||||||||
| As of September 30, 2014, and June 30, 2014 | ||||||||
| September 30, | June 30, | |||||||
| 2014 | 2014 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 14,770 | $ | 16,201 | ||||
| Accounts receivable | - | 650 | ||||||
| Prepaid expenses | 32,585 | 32,805 | ||||||
| Total Current Assets | 47,355 | 49,656 | ||||||
| PROPERTY AND EQUIPMENT, net | 8,326 | 9,627 | ||||||
| OTHER ASSETS | ||||||||
| Intangible asset, net | 58,996 | 74,263 | ||||||
| TOTAL ASSETS | $ | 114,676 | $ | 133,546 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 101,226 | $ | 59,025 | ||||
| Other current liabilities | 470,000 | 470,000 | ||||||
| Notes payable - affiliates | 85,000 | - | ||||||
| Deferred revenue | 3,783 | - | ||||||
| Total Current Liabilities | 660,009 | 529,025 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Notes payable | 275,000 | 275,000 | ||||||
| Convertible notes payable | 3,610 | 2,454 | ||||||
| Total Long Term Liabilities | 278,610 | 277,454 | ||||||
| Total liabilities | 938,619 | 806,479 | ||||||
| STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Common Stock - No Par Value; | ||||||||
| Authorized: 100,000,000 | ||||||||
| Issued and Outstanding: 21,772,567 and 20,126,500 as of September 30, 2014 and June 30, 2014, respectively | 1,976,595 | 1,976,595 | ||||||
| Paid in capital | 3,048,728 | 2,885,364 | ||||||
| Accumulated deficit | (5,849,266 | ) | (5,534,892 | ) | ||||
| Total stockholders' equity (deficit) | (823,943 | ) | (672,933 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 114,676 | $ | 133,546 | ||||
The accompanying notes are an integral part of these financial statements.
| 3 |
| ENGAGE MOBILITY, INC. | ||||||||
| STATEMENTS OF OPERATIONS | ||||||||
| Three Months Ended September 30, 2014 and 2013 | ||||||||
| (Unaudited) | ||||||||
| 2014 | 2013 | |||||||
| REVENUE | $ | 21,827 | $ | 40,435 | ||||
| COST OF SALES | - | 9,000 | ||||||
| GROSS PROFIT | 21,827 | 31,435 | ||||||
| OPERATING EXPENSES: | ||||||||
| GENERAL AND ADMINISTRATIVE EXPENSES | 327,921 | 236,083 | ||||||
| TOTAL OPERATING EXPENSES | 327,921 | 236,083 | ||||||
| OPERATING LOSS | (306,094 | ) | (204,648 | ) | ||||
| INTEREST EXPENSE | 8,279 | 28,668 | ||||||
| LOSS BEFORE INCOME TAXES | (314,374 | ) | (233,316 | ) | ||||
| INCOME TAXES | - | - | ||||||
| NET LOSS | $ | (314,374 | ) | $ | (233,316 | ) | ||
| Net Loss Per Common Share, basic & diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted Average Common Shares Outstanding, basic & diluted | 21,772,567 | 20,182,418 | ||||||
The accompanying notes are an integral part of these financial statements.
| 4 |
| ENGAGE MOBILITY, INC. | ||||||||
| STATEMENTS OF CASH FLOWS | ||||||||
| Three Months Ended September 30, 2014 and 2013 | ||||||||
| (Unaudited) | ||||||||
| 2014 | 2013 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net cash (used in) operating activities | (86,431 | ) | (343,216 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Acquisition of intangible | - | (24,000 | ) | |||||
| Purchase of property and equipment | - | (1,179 | ) | |||||
| Net cash (used in) investing activities | - | (25,179 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Due to bank | - | (14,282 | ) | |||||
| Notes payable | 85,000 | 340,000 | ||||||
| Common shares issued for cash, net | - | 80,416 | ||||||
| Net cash provided by financing activities | 85,000 | 406,134 | ||||||
| Net increase (decrease) in cash | (1,431 | ) | 37,739 | |||||
| Cash - beginning balance | 16,201 | - | ||||||
| CASH ENDING BALANCE | $ | 14,770 | $ | 37,739 | ||||
| Cash paid for: | ||||||||
| Interest | $ | 8,279 | $ | 4,668 | ||||
| Income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| 5 |
ENGAGE MOBIITY, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2014
| NOTE 1 | NATURE OF OPERATIONS |
Engage Mobility, Inc. (the “Company”), was incorporated on December 28, 2011 under the laws of the State of Florida as MarketKast Incorporated. On March 22, 2013, the Company changed its name to Engage Mobility, Inc. The Company functions as a provider of online video production, distribution, syndication and marketing services for business owners.
The Company has adopted its fiscal year end to be June 30.
The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and Rule 8.03 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. For further information, refer to the financial statements of the Company as of June 30, 2014, including notes thereto included in our Form 10-K.
| NOTE 2 | SUMMARY OF ACCOUNTING POLICIES |
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents. Bank overdrafts are presented in the financial statements under the caption “Due to Bank”.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Revenue Recognition
In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following reflects specific criteria for the various revenues streams of the Company:
Where the Company has entered into a revenue sharing agreement with a third party, the Company will record its’ proportionate share of the revenue.
Deferred revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the completion of the related services.
| 6 |
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported at their outstanding unpaid principal balances reduced by an allowance for doubtful accounts, if any. The Company estimates doubtful accounts based on historical bad debts, factors related to specific customers' ability to pay and current economic trends. The Company writes off accounts receivable against the allowance when a balance is determined to be uncollectible.
Intangible Assets and Long Lived Assets
The Company reviews its long-lived assets and certain identifiable finite lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.
Property and Equipment
Depreciation of office and production equipment is recognized by the straight-line method over the 5 year estimated useful lives of the related assets.
Fair value of financial instruments
The Company’s short-term financial instruments consist primarily of cash and cash equivalents, accounts receivable, and accounts payable and accrued expenses and other current liabilities. In addition, the Company has two short-term notes from affiliates. The carrying amounts of the financial instruments approximate fair value because of their short-term maturities. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leveraged derivative financial instruments. The carrying value of the Company’s long-term debt approximates fair value based on the terms and conditions at which the Company could obtain similar financing.
Income Taxes
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is recognized to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
All tax periods from inception remain open to examination by taxing authorities.
Stock-Based Compensation
The Company records the cost resulting from all share-based transactions in the financial statements. The Company applies a fair-value-based measurement in accounting for share-based payment transactions with employees and when the company acquires goods or services from non-employees in share-based payment transactions.
Net Income (Loss) Per Common Share
Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses, common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.
Recent Pronouncements
The Company does not believe that any recently issued accounting pronouncements will have a material impact on its financial statements.
| 7 |
| NOTE 3 | GOING CONCERN |
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company had an accumulated deficit of $5,849,266 at September 30, 2014, and has incurred losses for all periods presented. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s cash position and operations may not be sufficient to support the Company’s daily operations without significant financing. The Company believes in the viability of its strategy to produce sales volume and in its ability to raise additional funds; however there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
| NOTE 4 | NOTES PAYABLE |
Affiliates
During the period ended September 30, 2014, the Company borrowed an aggregate of $85,000 from 2 affiliates. The notes bear interest at 8% per annum and are due on demand.
Others
We partnered with certain parties in China to develop and launch a Chinese version of our mobile platform, and we entered into a Joint Venture Agreement in August 2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest in the Chinese Joint Venture. We have a 15% interest in this JV, which consists of an aggregate of $470,000 received for the development of a mobile platform, which is included in other current liabilities on the balance sheet as of September 30, 2014.
As of June 30, 2014 and September 30, 2014, the Company had borrowed funds pursuant to non-convertible promissory notes, bearing interest at 10% per annum. Interest is payable monthly and the principal, together with any unpaid interest, is due 48 months from the dates of the notes.
The notes are due as follows:
| Year ending June 30, 2017 | $ | 205,000 | ||||
| Year Ended June 30, 2018 | 70,000 | |||||
| $ | 275,000 |
| NOTE 5 | CONVERTIBLE NOTES PAYABLE |
The convertible notes mature after three years, at which time all outstanding principal and accrued interest is due. The notes were convertible by the investors into the Company's current registered offering on Form S-1 with $200,000 being convertible into the offering at a 20% discount to the offering price of $1.60 per share, or $1.28 per share, and $50,000 being convertible at a 50% discount to the offering price, or $0.80 per share. In addition to the interest due, the Company issued 125,000 warrants to the lenders at an exercise price of 125% of the share price of the proposed offering or $2.00 per share (see Note 6). These convertible notes are secured by all of the Company’s assets.
In addition, the Company recognized a beneficial conversion feature related to the convertible notes of $90,444, calculated using a binomial model which was credited to additional paid-in capital. Interest on the notes is being recognized using the effective yield method over the three year life of the notes.
During February 2014 the holder of the $200,000 convertible note agreed to convert the note into 200,000 shares of the Company’s common stock (see Note 6). This note holder also purchased an additional 100,000 shares of the Company’s common stock for $100,000 in cash. The Company also granted the note holder an option to purchase 200,000 common shares at $1.50 per share and 200,000 shares at $2.00 per share for a three year period.
| 8 |
Convertible notes payable consist of the following at September 30, 2014:
| Notes payable | $ | 50,000 | ||
| Beneficial conversion feature and unamortized warrants | (46,390 | ) | ||
| $ | 3,610 |
| NOTE 6 | STOCKHOLDERS’ EQUITY (DEFICIT) |
Common stock
The Company is authorized to issue 100,000,000 shares of no par value Common Stock. At September 30, 2014, 21,772,567 shares were issued and outstanding.
On July 31, 2013, the Company’s registration statement on Form S-1 became effective. The Company is offering for sale a maximum of 6,250,000 shares of its no par value common stock at a price of $1.60 per share. As of September 30, 2014, 312,500 shares had been sold pursuant to the offering. These shares were sold during the year ended June 30, 2014.
Stock options
During the year ended June 30, 2014, two employees were granted an aggregate of 614,000 five year options which vested immediately as to 114,000 options and as to 125,000 options per year over the next 4 years. The options are exercisable at $2.50 per share for 114,000 options, $3.00 per share for 125,000 options, $3.50 per share for 125,000 options, $3.75 for 125,000 options and $4.00 for 125,000 options. The aggregate grant date fair value of the options was approximately $1,416,000, of which $413,398 has been charged to operations during the year ended June 30, 2014. The balance of the fair value of the options will be charged to operations over the vesting period of which $72,468 has been charged to operations during the period ended September 30, 2014. The options were valued using the Black-Scholes option pricing model with the following assumptions:
Volatility 154% - Dividend rate 0% - Interest rate 1.36% - 1.66% - Term 5 years
A summary of the status of the stock options granted to employees and others as of September 30, 2014 is as follows:
| Number of Options | ||||
| Options outstanding at beginning of year | 614,000 | |||
| Changes: | ||||
| Granted | --- | |||
| Cancelled/exercised | --- | |||
| Options outstanding at end of period | 614,000 | |||
| Options exercisable at end of period | 145,520 | |||
| 9 |
Stock Warrants
Stock warrants outstanding at September 30, 2014 are as follows:
| Date Issued | Expiration Date | Exercise Price | Number of Warrants | |||||||
| July 2013 | July 2016 | $ | 2.00 | 125,000 | ||||||
| February 2014 | February 2019 | $ | 1.00 | 1,000,000 | ||||||
| February 2014 | February 2017 | $ | 1.50 | 200,000 | ||||||
| February 2014 | February 2017 | $ | 2.00 | 200,000 | ||||||
NOTE 7 COMMITMENTS AND CONTINGENCIES
We are currently involved in one legal proceeding, a breach of contract lawsuit against IRTH Communications, LLC. On May 24, 2014, we filed a lawsuit in Orange County, FL (case # 2014-CA-00-2626-O), against IRTH for breach of a contract to provide investor relations services to us. In that lawsuit we seek return of $110,000 of monies paid to IRTH, and we seek the cancellation of 54,950 shares of stock issued to IRTH. IRTH has subsequently sued us separately in the California courts for breach of contract, seeking damages and also seeking to have their shares cleared for trading, which they are not currently. However, the California action has been stayed pending the outcome of the Florida lawsuit. We believe the counterclaim is without merit and if needed will defend it vigorously. Because of this, and because the case is in the early stages it is not possible to estimate its possible outcome. As such, no effect has been given to any loss that may result from the resolution of this matter in the accompanying financial statements.
| 10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the consolidated financial condition and results of operations of Engage Mobility, Inc. (“Engage Mobility”, the “Company”, “we”, and “our”) for the quarter ended September 30, 2014 and 2013. The following information should be read in conjunction with the consolidated interim financial statements for the period ended September 30, 2014 and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”).
Overview
We were incorporated, under the name MarketKast, Inc., under the laws of the State of Florida on December 28, 2011. On March 22, 2013, we filed Articles of Amendment to our Articles of Incorporation (the “Amendment”) to change our name from “MarketKast, Incorporated” to “Engage Mobility, Inc.” The Amendment was effective as of March 22, 2013. In connection with the name change, our trading symbol was changed from “MRKK” to “ENGA,” effective April 4, 2013.
We function as a provider of mobile technology, marketing and data solutions for business. Through the sale of our Mobile Engagement System, we enable business owners to engage with new and existing customers with a turnkey mobile marketing solution. The Mobile Engagement System integrates an augmented reality browser and content with our proprietary cloud based mobile video delivery system, a mobile customer relationship manager and our Dynamic Data platform to create a full solution for business to market their products in the mobile environment. The Mobile Engagement System is sold to businesses under a “user based” model – so that the business pays us a monthly user fee based on the number of “engaged” users in their database at any given time.
In addition to this core product offering, we will offer to our clients additional products and services in order to assist in growing their business, including mobile optimization of websites, as well as additional mobile marketing, customer acquisition services and mobile data services.
Recent Developments
In September 2013, we completed initial development and launch of version 1.0 of our Mobile Engagement System. In conjunction therewith we launched our Engage Mobility mobile application as a free download in the Apple iTunes® and Google Play® stores. We began initial marketing and sales efforts for version 1.0 of the system to clients in September 2013.
We partnered with certain parties in China to develop and launch a Chinese version of our mobile platform, and we entered into a Joint Venture Agreement in August 2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest in the Chinese Joint Venture.
In April 2014 we completed development of version 2.0 of our Mobile Engagement System, which was developed internally by our own development team, and which includes our new product immersion, a street view augmented reality platform that allows users to locate businesses in their geographical area who are on the Engage system. We have filed a provisional patent application seeking patent protection for version 2.0 of our Mobile Engagement System.
In May 2014, we commenced our marketing and sales efforts for our new Mobile Engagement System. We have only experienced nominal initial revenue, and we do not expect to experience consistent revenue until fiscal 2015. Due to our failure to raise substantial capital to roll out a full sales initiative for the Mobile Engagement System, we have recently scaled back our staff and are focusing on larger contracts with certain corporate clientele in order to build revenue. If we are able to raise the capital necessary to launch a full sales and marketing initiative we will hire the sales and marketing staff to do so at that time.
Plan of Operation
Until May 2014, our efforts have been primarily limited to business formation, strategic development, marketing, website and product development, negotiations with third party sales and channel partners, and capital raising activities. We have developed and begun to launch our newest suite of products including version 2.0 of the Mobile Engagement System as of May 2014. We are, subject to availability of capital, in the process of developing and implementing sales and marketing initiatives to sell our products. Although we have experienced some initial revenue, mainly in the form of initial development fees, we do not expect to begin realizing consistent revenue until fiscal 2015.
| 11 |
As of November 2014, we have taken the following steps to implement our business plan:
We partnered with certain parties in China to develop and launch a Chinese version of our mobile platform, and we entered into a Joint Venture Agreement in August 2014 and the initial product launch in China commenced in late August 2014. We have not yet experienced any revenue from our interest in the Chinese Joint Venture.
In April, 2014 we completed development of version 2.0 of our Mobile Engagement System, which was developed internally by our own development team, and which includes our new product immersion, a street view augmented reality platform that allows users to locate businesses in their geographical area who are on the Engage system. We have filed a provisional patent application seeking patent protection for version 2.0 of our Mobile Engagement System.
In May 2014, we commenced our marketing and sales efforts for our new Mobile Engagement System.
During the next 12 months, subject to availability of capital, we expect to:
Launch a full roll out in the U.S. of our Mobile Engagement System. We expect to market the Mobile Engagement System through direct marketing via the internet, through trade shows and seminars, through the hiring of both national and local sales personnel, through channel partners, independent reps and telesales. Subject to availability of capital, we intend to implement all of these sales initiatives during the last three months of 2014 or the first three months of 2015. This will involve hiring a national sales manager, a number of local sales managers and local sales representatives, 5 to 15 telesales people, as well as associated staffs. The cost of marketing our Mobile Engagement System is estimated to be between $30,000 and $250,000 per month, but will be scaled in if and when capital is available.
Results of Operations
Comparison of the three months ended September 30, 2014 and 2013
Revenues
Since inception, our activities have been primarily limited to business formation, strategic development, marketing, website and product development, negotiations with third party sales and channel partners, and capital raising activities. We have conducted minimal operations during the three months ended September 30, 2014, and we have generated $21,827 of revenues, as compared to $40,435 for the three months ended September 30, 2013.
Operating Expenses
During the three months ended September 30, 2014, we incurred general and administrative expenses of $327,921, and during the three months ended September 30, 2013 we incurred general and administrative expenses of $236,083. These general and administrative expenses consist of rent, insurance, professional fees, travel, employee compensation and other miscellaneous items.
Interest expense
Interest expense was $8,279 for the three ended September 30, 2014, as compared to $28,668 for the three months ended September 30, 2013.
Net Income and Loss
We had net loss of $314,374 for the three months ended September 30, 2014, compared to $233,316 for the period ended September 30, 2013. Our auditor has expressed doubt as to whether we will be able to continue to operate as a “going concern” due to the fact that the Company has incurred significant losses since inception and will need to raise capital to further its operations.
Liquidity and Capital Resources
As of September 30, 2014, we had $14,770 of cash. Our primary uses of cash were for development and testing of products, marketing expenses, employee compensation, and general and administrative expenses. We have historically financed our operations through sale of common stock to our founders, private equity offerings, and debt from third party lenders. The following trends are reasonably likely to result in a material decrease in our liquidity in both near and long term:
| ● | An increase in working capital requirements; | |
| ● | Addition of administrative and sales personnel as the business grows; | |
| ● | Increases in advertising, public relations and sales promotions as we commence operations; |
| 12 |
| ● | Development of new customers and market initiation, and | |
| ● | Increased cost of being a public company due to governmental compliance activities. |
The following summarizes the key components of the Company’s cash flows for the three months ended September 30, 2014:
| Cash flows used in operating activities | $ | 86,431 | ||
| Cash flows from investing activities | $ | - | ||
| Cash flows from financing activities | $ | 85,000 | ||
| Net (decrease) in cash and cash equivalents | $ | (1,431) |
We did not have cash flows from investing activities.
Cash flows provided by financing activities consisted of the proceeds from notes payable of $85,000.
We have a current burn rate, as of November 2014, of approximately $15,000 to $25,000 per month. It includes office rental expenses, payroll, insurance, marketing, travel, telephone, internet and other office expenses, legal and accounting expenses and other miscellaneous expenses including filing fees, transfer agent fees and other costs of being public.
Therefore, if we do not experience any income or obtain additional financing, we could expect to run out of capital sometime between November 2014 and December 2014. For this reason, if we do not experience any income in the first half of fiscal 2015, we will need to raise additional capital of between $15,000 and $25,000 per month, in order to continue our business. In addition, in order to fully implement our business plan, we will need to raise an additional $1,000,000 to $5,000,000 of capital for the purpose of initiating and ramping up marketing and sales efforts, hiring of sales personnel and for general working capital. This additional $1,000,000 to $5,000,000 of financing will need to be raised between November 2014 and March 2015 in order to effectively implement our business plan. It is not necessary that we receive such a capital infusion at any one time; we could implement our plan through the raising of at least $500,000 per quarter beginning December 2014. However, there is no assurance that we will be able to raise any capital in the future, or that capital will be available on terms acceptable to us.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, sales or expenses, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates.
Loss Per Share
Basic earnings (loss) per share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares and dilutive common stock equivalents outstanding. During periods in which the Company incurs losses common stock equivalents, if any, are not considered, as their effect would be anti-dilutive.
Income Taxes
Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
All tax periods from inception remain open to examination by taxing authorities.
| 13 |
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the accompanying financial statements, the Company had an accumulated deficit of $5,849,266 at September 30, 2014, and has incurred losses for all periods presented. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The Company’s cash position and operations may not be sufficient to support the Company’s daily operations without significant financing. The Company believes in the viability of its strategy to produce sales volume and in its ability to raise additional funds; however there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Management believes that the actions presently being taken to further implement its business plan and generate revenues provide the opportunity for the Company to continue as a going concern.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s President, Chief Financial Officer, Secretary, Treasurer and Director, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure for the reasons discussed below.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our board of directors. In addition, the Company currently has limited accounting personnel. Management plans to take action and implementing improvements to our controls and procedures when our financial position permits.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the three month period ending September 30, 2014, or in other factors that could significantly affect these controls, that materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.
We are currently involved in one legal proceeding, a breach of contract lawsuit against IRTH Communications, LLC. On May 24, 2014, we filed a lawsuit in Orange County, FL (case # 2014-CA-00-2626-O), against IRTH for breach of a contract to provide investor relations services to us. In that lawsuit we seek return of $110,000 of monies paid to IRTH, and we seek the cancellation of 54,950 shares of stock issued to IRTH. IRTH has subsequently sued us separately in the California courts for breach of contract, seeking damages and also seeking to have their shares cleared for trading, which they are not currently. However, the California action has been stayed pending the outcome of the Florida lawsuit. We believe the counterclaim is without merit and if needed will defend it vigorously. Because of this, and because the case is in the early stages it is not possible to estimate its possible outcome. As such, no effect has been given to any loss that may result from the resolution of this matter in the accompanying financial statements.
| 14 |
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.
| 15 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| Engage Mobility, Inc. | |
| /s/ Douglas S. Hackett | |
| Name: Douglas S. Hackett | |
| Position: President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer | |
| (Duly Authorized, Principal Executive Officer and Principal Financial Officer) | |
| Dated: November 20, 2014 |
16
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Douglas S. Hackett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Engage Mobility, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; | |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Date: November 20, 2014 | By: | /s/ Douglas S. Hackett |
|
Douglas S. Hackett President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Engage Mobility, Inc., (the “Company”) on Form 10-Q for the period ended September 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Douglas S. Hackett, President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 20, 2014 | By: | /s/ Douglas S. Hackett |
|
Douglas S. Hackett President, Chief Executive Officer, Chief Financial Officer, Secretary and Treasurer (Principal Executive Officer and Principal Financial Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.