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ENGA > SEC Filings for ENGA > Form 10-Q on 14-Feb-2014All Recent SEC Filings

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Form 10-Q for ENGAGE MOBILITY, INC


14-Feb-2014

Quarterly Report


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 six month period ended December 31, 2013. The following information should be read in conjunction with the consolidated interim financial statements for the period ended December 31, 2013 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 assisting in growing their business, including our TargetKast and NewsKast products. Our TargetKast product is a proprietary product that offers our clients the opportunity to "push" video content to a targeted group of potential viewers based on certain selection criteria established by the client. Once the criteria is established by the client, their content will be delivered to a group of targeted viewers derived from our database of over 40,000,000 potential viewers. We also offer our video press release service, NewsKast, to companies who desire to couple video content within their news and information releases. NewsKast is a video news release service, which includes both conventional wire news release as well as additional distribution of news in video form through the various video sharing sites, or through our own NewsKast Video channel.

Recent Developments

In January 2013, we entered into a Technology License Agreement with Total Communicator Solutions, Inc. pursuant to which we are licensed, on a perpetual term, to use certain mobile augmented reality technology. We intend to integrate that technology into a mobile marketing system and launch that system during the first fiscal quarter of 2014.

In September 2013, we completed initial development and launch 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 have begun marketing and selling the system to clients as of 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. We completed initial development of that system in January 2014, and are in the process of completing final development of the Chinese system in anticipation of a roll out of that system in China in February 2014.

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Plan of Operation

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 developed and begun to launch our initial suite of products including the Mobile Engagement System, as well as our Pay Per View, Pay Per Call, TargetKast and NewsKast digital video marketing products. However, we have only made nominal sales of these products to date. We are in the process of developing marketing initiatives to sell our products. We do not expect to begin realizing consistent revenue until 2014. As of December 31, 2013, we have taken the following steps to implement our business plan:

1. We entered into a Technology License Agreement for with Total Communicator Solutions, Inc. pursuant to which we licensed, on a perpetual term, certain mobile augmented reality technology. We have begun the development of Engage Mobile Augmented Reality (AR) browser, mobile application and back end Mobile Customer Relationship Manager (MCRM), with the goal of launching our Mobile AR Marketing system in 2014.

2. We finished and launched our websites www.engagemobility.com and www.engagenow.com, and created our e-commerce platform to facilitate online sales of our products and services. We also created and published a number of marketing and informational videos regarding our products and services.

3. We created our branded YouTube channels www.youtube.com/marketkast and www.youtube.com/newskast and published our own marketing and informational videos on those channels in September 2012. We began to use our Video Search Engine Optimization (VSEO) process to drive traffic and viewership to our branded channels, resulting in over 80,000 view on our YouTube/MarketKast channel in the first ten days following its launch, and over 90,000 views on our YouTube/NewsKast channel in the first three days following launch, which we consider a successful market test of our VSEO process.

4. We launched our NewsKast video press release product in 2012. NewsKast is a video news release service, which includes both conventional wire news release as well as additional distribution of news in video form through the various video sharing sites, or through our own NewsKast Video channel. We can either use the client's video content or assist the client in creating a video content about the news. As of December 31, 2013, we have only made nominal sales of our NewsKast product.

5. We developed and began the launch of our Performance Based Marketing System during the fourth quarter of 2012. Performance Based Marketing System allows our clients to utilize our services on a performance only basis. Within this system we have begun to launch three primary products, Pay Per Call, Pay Per View and TargetKast. Through Pay Per Call we assist our clients in setting up a branded video channel on either YouTube or Vimeo, and we use our marketing efforts and methodology to drive inbound telephone calls from potential customers for our client. We are then paid a fee based on the number, length and type of inbound calls that we generate. Our Pay Per View product is similar to our Pay Per Call product with the exception that we are paid a fee by our client each time their video content is viewed. Our TargetKast product involves us "pushing" video content on behalf of our clients to a targeted audience that is selected from our database of over 40 million potential viewers based on selection criteria determined by our clients, such as geographic, demographic or lifestyle traits. We have only achieved nominal sales of these products as of December 31, 2013.

6. In September 2013, we completed initial development and launch 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 have begun marketing and selling the system to clients as of December 2013.

7. 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. We completed initial development of that system in January 2014, and are in the process of completing final development of the Chinese system in anticipation of a roll out of that system in China in February 2014.

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During the next 12 months, subject to availability of capital, we plan to implement the following steps:

1. 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 first half of 2014. This will involve hiring a national sales manager, a number of local sales managers and local sales representatives in up to 50 local markets, five to 15 telesales people, as well as associated staffs. The cost of marketing our Mobile Engagement System is estimated to be between $50,000 and $250,000 per month, but will be scaled in if and when capital is available.

2. We expect to, through our partners in China, launch and roll out a Chinese version of our Mobile Engagement System. As the costs of the Chinese partnership and roll out are paid by third parties in China we do not expect to incur any additional expenses associated with the Chinese roll out, other than marginal internal technical and support expenses.

We have a current burn rate, as of December 31, 2013, of approximately $80,000 to $100,000 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 March 2014 and 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. 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 March 2014 and May 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 during calendar 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 months and six months ended December 31, 2013 and 2012

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 moved from a development stage company to an operating company during the three months ended December 31, 2013, and we generated $326,220, as compared to $1,050 for the three months ended December 31, 2012. Our revenues for the six months ended December 31, 2013 were $366,655, compared to $3,989, for the six months ended December 31, 2012. During the period ended December 31, 2013, the Company made a sale to a single foreign customer for an aggregate of $300,000. Our revenue was derived primarily from development fees from our Chinese partnership ($300,000) and development fees from a U.S. customer.

Operating Expenses

During the three months ended December 31, 2013, we incurred general and administrative expenses of $706,851, and during the three months ended December 31, 2012, we incurred general and administrative expenses of $70,142. Our operating expenses for the six months ended December 31, 2013 were $956,034, compared to $121,345, for the six months ended December 31, 2012.These operating expenses consist of rent, insurance, professional fees, travel, employee compensation and other miscellaneous items. The increase in the 2013 periods resulted principally from stock compensation and from increased operating expenses associated with ramping up sales and marketing initiatives and hiring of our own internal development teams.

Interest expense

Interest expense was $109,843 and $746 for the three and six months ended December 31, 2013, as compared to $138,511 and $1,494 for the six months ended December 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 $494,574 for the three months ended December 31, 2013, compared to $71,338 for the three months ended December, 2012. We had net loss of $727,890 for the six months ended December 31, 2013, compared to $118,850 for the six months ended December, 2012.

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Liquidity and Capital Resources

As of December 31, 2013, we had $409,326 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 offering, 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 six months ended December 31, 2013:

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