Engage Mobility, Inc - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Engage Mobility, Inc	Financial_Report.xls
EX-32.1 - CERTIFICATION - Engage Mobility, Inc	f10q0314ex32i_engage.htm
EX-31.1 - CERTIFICATION - Engage Mobility, Inc	f10q0314ex31i_engage.htm
EX-31.2 - CERTIFICATION - Engage Mobility, Inc	f10q0314ex31ii_engage.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the Quarterly Period Ended March 31, 2014

o 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)

(888) 888-3642

(Registrant’s telephone number, including area code)

2295 S. Hiawassee Rd., Suite 414

Orlando, FL 32835

(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 x No o

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 x No o

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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

(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 o No x

As of May 13, 2014, the registrant had 21,447,247 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	15
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	16
Item 6.	Exhibits	16

SIGNATURES		17

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements

ENGAGE MOBILITY, INC.

BALANCE SHEETS

As of March 31, 2014, and June 30, 2013

	March 31,			June 30,
	2014			2013
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	108,478		$	-
Accounts receivable		9,535			8,500
Prepaid expenses		43,909			-
Total Current Assets		161,922			8,500

PROPERTY AND EQUIPMENT, net		7,459			2,958

OTHER ASSETS
Intangible asset, net		88,531			24,000

TOTAL ASSETS	$	257,912		$	35,458

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
Accounts Payable and accrued expenses	$	67,014		$	21,940
Due to bank		-			14,282
Total Current Liabilities		67,014			36,222

LONG TERM LIABILITIES
Convertible notes payable		1,638			-
Notes payable		320,000			280,000

STOCKHOLDERS' EQUITY (DEFICIT)

Common Stock - No Par Value;
Authorized: 100,000,000
Issued and Outstanding: 21,447,247 and 20,126,500		1,622,125			166,500
Paid in capital		2,826,033			4,000
Deferred Compensation		(41,669	)		-
Accumulated deficit		(4,537,229	)		(451,264	)
Total stockholders' equity (deficit)		(130,740	)		(280,764	)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	257,912		$	35,458

The accompanying notes are an integral part of these financial statements.

ENGAGE MOBILITY, INC.

UNAUDITED STATEMENTS OF OPERATIONS

Three Months and Nine Months Ended March 31, 2014 and 2013

	Three Months			Three Months			Nine Months			Nine Months
	Ended			Ended			Ended			Ended
	March 31,			March 31,			March 31,			March 31,
	2014			2013			2014			2013

REVENUE	$	160,135		$	6,245		$	526,790		$	10,234

OPERATING EXPENSES:
COSTS REALTED TO REVENUE		-			5,000			13,100			9,176
GENERAL AND ADMINISTRATIVE EXPENSES		2,627,071			99,570			3,570,005			216,739

TOTAL OPERATING EXPENSES		2,627,071			104,570			3,583,105			225,915

OPERATING LOSS		(2,466,936	)		(98,325	)		(3,056,315	)		(215,681	)

INTEREST EXPENSE		891,139			3,755			1,029,650			5,249


LOSS BEFORE INCOME TAXES		(3,358,075	)		(102,080	)		(4,085,965	)		(220,930	)

INCOME TAXES		-			-			-			-

NET LOSS	$	(3,358,075	)	$	(102,080	)	$	(4,085,965	)	$	(220,930	)


Net Loss Per Common Share, basic & diluted	$	(0.16	)	$	(0.01	)	$	(0.20	)	$	(0.01	)

Weighted Average Common Shares Outstanding, basic & diluted		21,103,042			20,126,500			20,525,017			20,040,000

The accompanying notes are an integral part of these financial statements.

ENGAGE MOBILITY, INC.

UNAUDITED STATEMENTS OF CASH FLOWS

Nine Months Ended March 31, 2014 and 2013

	Nine Months			Nine Months
	Ended			Ended
	March 31,			March 31,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES

Net cash (used in) operating activities	$	(829,464	)	$	(206,233	)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of intangible		(50,000	)		(24,000	)
Purchase of property and equipment		(9,911	)		-
Net cash (used in) investing activities		(59,911	)		(24,000	)

CASH FLOWS FROM FINANCING ACTIVITIES

Due to bank		(14,282	)		-
Notes payable		375,000			165,000
Repayment of notes payable		(85,000	)		-
Common shares issued for cash, net		722,135			-

Net cash provided by financing activities		997,853			165,000

Net increase (decrease) in cash		108,478			(65,233	)
Cash - beginning balance		-			153,591

CASH ENDING BALANCE	$	108,478		$	88,358

Cash paid for:
Interest	$	-		$	-
Income taxes	$	-		$	-

The accompanying notes are an integral part of these financial statements.

ENGAGE MOBIITY, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 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.

Prior to the quarter ended December 31, 2013, the Company was a development stage company. During the quarter ended December 31, 2013, the Company commenced its principal planned operations and emerged from the development stage. The Company functions as a provider of mobile technology, marketing and data solutions for business.

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, 2013, and for the period from inception through June 30, 2013, 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:

Revenue is recognized at the time the product is delivered or the service is performed. Where the Company has entered into a revenue sharing agreement with a third party, the Company will record its’ proportionate share of the revenue.

Deferred revenue is recorded for amounts received in advance of the time at which services are performed and included in revenue at the completion of the related services.

Accounts Receivable and Allowance for Doubtful Accounts

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

Intangible Assets and Long Lived Assets

The Company reviews its long-lived assets and certain identifiable finite lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

During January 2013, the Company entered into a licensing and development agreement with a third party to develop and integrate a mobile communication platform for a fee aggregating $73,000. The Company terminated its arrangement with this developer for which an aggregate of $48,000 had been paid and instead acquired a basic mobile platform from a third party at a cost of $50,000 which has been paid at March 31, 2014. The Company will use its internal development team to complete its own proprietary mobile platform. The new platform will replace the original platform which will be phased out during 2014. Amortization for the old platform will commence in 2014 for a ten month period at which time it will be fully amortized and amortization of the new platform will begin upon completion of the platform.

Property and Equipment

Depreciation of office and production equipment is recognized by the straight-line method over the 5 year estimated useful lives of the related assets.

Fair value of financial instruments

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

Income Taxes

Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is recognized to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.

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.

NOTE 3 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

As of June 30, 2013, the Company had borrowed an aggregate of $280,000 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. During the nine month period ended March 31, 2014, the Company borrowed an additional $125,000 pursuant to non-convertible promissory notes with similar terms. In addition, the Company repaid $85,000 of the previously issued notes.

The notes are due as follows:

Year ending June 30, 2017

320,000

280,000

NOTE 5 CONVERTIBLE NOTES PAYABLE

During the six month period ended December 31, 2013, the Company issued $250,000 of 10% convertible promissory notes to certain private investors. The convertible notes mature after three years, at which time all outstanding principal and accrued interest is due. The notes are convertible at any time by the investors into the Company's current registered offering (see Note 6) 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 has agreed to issue 125,000 warrants to the lenders at an exercise price of 125% of the share price of the proposed offering or $2.00 per share. These convertible notes are secured by all of the Company’s assets.

The warrants are exercisable at $2.00 per share and expire after three years. The aggregate fair value of the warrants was estimated at $157,584, using a binomial option pricing model and the following assumptions:

Volatility 154% - Dividend rate 0% - Interest rate 0.77% - Term 3 years

In addition, the Company recognized a beneficial conversion feature related to the convertible notes of $90,444, 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 agreed to purchase an additional 100,000 shares of the Company’s common stock for $100,000 in cash. The Company granted the note holder an option to purchase 200,000 common shares at $1.50 per share and 200,000 shares at $2.00 per share for a three year period.

Convertible notes payable consist of the following at March 31, 2014:

Notes payable	$	50,000
Beneficial conversion feature and unamortized warrants		(48,362	)
	$	1,638

Charges to operations related to the warrants and beneficial conversion feature during the period ended March 31, 2014, were $42,082.

NOTE 6 STOCKHOLDERS’ EQUITY (DEFICIT)

Common stock

The Company is authorized to issue 100,000,000 shares of no par value Common Stock. At March 31, 2014, 21,447,247 shares were issued and outstanding.

During the period ended March 31, 2014, the Company issued common shares as follows:

The Company issued 1,030,650 shares of common stock for $775,605 of which $722,135 has been received and $53,470 has been recorded as a receivable for common stock. The $53,470 has been recorded as a reduction in common stock.

The Company issued 35,147 shares of common stock for services. These shares were valued at the trading price of the Company’s common shares on the date it was agreed the shares would be issued of $100,490 which has been charged to operations during the period.

The Company issued 200,000 shares of common stock for the conversion of a $200,000 note. The shares were valued at their trading price on the conversion date of $533,000. The value of the shares in excess of the note of $333,000 has been charged to operations during the period.

The Company issued 54,950 common shares for services to be performed over a one year period, which were valued at their estimated fair value of $100,000 based on the trading price of the Company’s common shares. The value of these shares has been recorded as deferred compensation and is being amortized over the one year period during which the related services will be received. At March 31, 2014 $41,669 of deferred compensation remains to be amortized (see Note 7).

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 March 31, 2014, no shares had been sold pursuant to the offering.

Stock options

Two employees were granted an aggregate of 614,000 five year options (see Note 7) 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 $1,419,000, of which $339,376 has been charged to operations during the period ended March 31, 2014. The balance of the fair value of the options will be charged to operations over the vesting period. 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

In conjunction with the conversion of the $200,000 note described above the Company issued an aggregate of 400,000 three year options exercisable 200,000 options at $1.50 per share and 200,000 options at $2.00 per share.

The aggregate grant date fair value of the options was approximately $580,600 has been charged to operations during the period ended March 31, 2014. The options were valued using the Black-Scholes option pricing model with the following assumptions:

Volatility 108% - Dividend rate 0% - Interest rate 0.86% - 1.66% - Term 3 years

The Company issued 1,000,000 five year options exercisable at $1.00 per share for services.

The aggregate grant date fair value of the options was approximately $1,654,000 has been charged to operations during the period ended March 31, 2014. The options were valued using the Black-Scholes option pricing model with the following assumptions:

Volatility 108% - Dividend rate 0% - Interest rate 0.86% - 1.66% - Term 3 years

NOTE 7 COMMITMENTS AND CONTINGENCIES

During the period ended March 31, 2014, the Company entered into a consulting agreement for a one year period. The Company advanced $103,000 in cash and issued 54,950 shares of common stock for these services, which shares were valued at their estimated fair value of $100,000. The total consideration paid of $203,000 is being amortized over the one year period of the agreement commencing in September 2013. The unamortized balance of $85,577 is included in prepaid expenses for the cash payment ($43,908) and deferred compensation for the share payment ($41,669).

During the period ended March 31, 2014, the Company entered into employment contracts with two employees, with no set duration, for aggregate compensation of $260,000 per year. The 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 (see Note 6).

On March 12, 2014, the Company filed a lawsuit in Florida against IRTH Communications, LLC for breach of contract and fraud, seeking return of $110,500 paid to IRTH and seeking cancellation of 54,950 shares of common stock issued to IRTH for services. The Company has alleged that IRTH defrauded the Company in order to receive the money and shares, and did not perform the agreed services. This case is still pending.

In response, on March 19, 2014, IRTH filed a lawsuit in California against the Company arising out of the same contract and transactions, seeking $73,000 in alleged damages for breach of contract and seeking the lifting of restrictions on said 54,950 shares. The Company has filed a Motion to Dismiss this case based on the prior Florida action. This case is still pending.

NOTE 8 CONCENTRATIONS

During the nine months ended March 31, 2014, the Company made sales of $300,000 and $150,000 to two foreign customers which represented 85% of revenue for the period.

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

The following is management’s discussion and analysis of the consolidated financial condition and results of operations of Engage Mobility, Inc. (“Engage Mobility”, the “Company”, “we”, and “our”) for the three and nine month period ended March 31, 2014 and 2013. The following information should be read in conjunction with the consolidated interim financial statements for the period ended March 31, 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.

In October, 2013 we entered into a Memorandum of Understanding with certain parties to develop and launch a Chinese version of our Mobile Engagement System in China in 2014. In February, 2014 we entered into the final Joint Venture agreement and delivered the initial platform to our partners in China in March 2014.

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.

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 in the process of developing and implementing sales and marketing initiatives to sell our products. Although we have experienced some initial revenue, mainly in the form of initial development fees, we do not expect to begin realizing consistent revenue until fiscal 2015.

As of March 31, 2014, we have taken the following steps to implement our business plan:

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 4th quarter of 2014 or the first quarter of 2015. This will involve hiring a national sales manager, a number of local sales managers and local sales representatives, five 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.

We have a current burn rate, as of March 31, 2014, of approximately $100,000 to $150,000 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 July 2014 and August 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 $100,000 and $150,000 per month, in order to continue our business. In addition, in order to fully implement our business plan, we will need to raise an additional $1,000,000 to $5,000,000 of capital for the purpose of initiating and ramping up marketing and sales efforts, hiring of sales personnel and for general working capital. This additional $1,000,000 to $5,000,000 of financing will need to be raised between May 2014 and August 2014 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 May 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.

Results of Operations

Comparison of the three and nine months ended March 31, 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 emerged from a development stage company to an operating company during the current fiscal year. During the three months ended March 31, 2014, we generated revenue of $160,135, as compared to $6,245 for the three months ended March 31, 2013. Our revenues for the nine months ended March 31, 2014 were $526,790, compared to $10,234, for the nine months ended March 31, 2013. During the period ended March 31, 2014, the Company made sales to two foreign customers for an aggregate of $450,000. Our revenue was derived primarily from development fees.

Operating Expenses

During the three months ended March 31, 2014, we incurred general and administrative expenses of $2,627,071, and during the three months ended March 31, 2013, we incurred general and administrative expenses of $99,570. Our general and administrative expenses for the nine months ended March 31, 2014 were $3,570,005, compared to $216,739, for the nine months ended March 31, 2013.These operating expenses consist of rent, insurance, professional fees, travel, employee compensation and other miscellaneous items. The increase in the periods resulted principally from stock based compensation and from increased operating expenses associated with ramping up sales and marketing initiatives and hiring of our own internal development teams. During the three and nine months ended March 31, 2014, the Company recorded stock based compensation charges of $1,852,748 and $2,152,201.

Interest expense

Interest expense was $891,139 and $1,029,650for the three and nine months ended March 31, 2014, as compared to $3,755 and $5,249 for the three and nine months ended March 31, 2013. The primary causes of the increase were the amortization of warrants and the beneficial conversion feature related to certain notes payable and an increase in outstanding debt.

Net Income and Loss

We had net loss of $3,358,075 for the three months ended March 31, 2014, compared to $102,080 for the three months ended March 31, 2013. We had net loss of $4,085,965 for the nine months ended March 31, 2014, compared to $220,930 for the nine months ended March 31, 2013.

Liquidity and Capital Resources

As of March 31, 2014, we had $108,478 of cash. Our primary uses of cash were for development and testing of products, marketing. Our primary uses of cash were for development and testing of products, marketing expenses, employee compensation, and general and administrative expenses. We have historically financed our operations through sale of common stock to our founders, private equity offerings, and debt from third party lenders. The following trends are reasonably likely to result in a material decrease in our liquidity in both near and long term:

●

An increase in working capital requirements;

●

Addition of administrative and sales personnel as the business grows;

●

Increases in advertising, public relations and sales promotions as we commence operations;

●

Development of new customers and market initiation, and

●

Increased cost of being a public company due to governmental compliance activities.

The following summarizes the key components of the Company’s cash flows for the nine months ended March 31, 2014:

Cash flows used in operating activities	$	(829,464	)
Cash flows from investing activities	$	(59,911	)
Cash flows from financing activities	$	997,853
Net (increase) in cash and cash equivalents	$	108,478

Cash flows used in investing activities consisted of the acquisition of intangibles of $50,000 and the acquisition of property and equipment of $9,911.

Cash flows provided by financing activities consisted of the proceeds from notes payable of $375,000 the repayment of debt of $85,000 a repayment of a bank overdraft of $14,282 and proceeds from common stock issuances of $722,135.

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

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.

Fair Value of Financial Instruments

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

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 $4,537,229 and as net loss of $4,085,965 during the period ended March 31, 2014. We have a current burn rate, as of March 31, 2014, of approximately $80,000 to $100,000 per month. It includes office rental expenses, payroll, consulting fees, 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 before May 2014. For this reason, if we do not experience any income in the first half of fiscal 2014, we will need to raise additional capital of between $80,000 and $100,000 per month, in order to continue our business. These conditions raise substantial doubt about its ability to continue as a going concern.

The Company’s cash position may not be sufficient to support the Company’s daily operations without significant financing. While the Company believes in the viability of its strategy to produce 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 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 March 31, 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.

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

During the period ended March 31, 2014, the Company issued common shares as follows:

The above issuances of shares are exempt from registration, pursuant to Section 4(2) of the Securities Act. These securities qualified for exemption under Section 4(2) of the Securities Act since the issuance securities by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, these stockholders had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Securities Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

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 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

+ In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

Engage Mobility, Inc.

By:	/s/ James S. Byrd, Jr.
	James S. Byrd, Jr.
	Chief Executive Officer
	(Duly Authorized and Principal Executive Officer)

Dated: May 20, 2014

Engage Mobility, Inc - FORM 10-Q - May 20, 2014

Attached files

Engage Mobility, Inc Reports