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ENGA > SEC Filings for ENGA > Form 10-Q on 20-May-2014All Recent SEC Filings

Show all filings for ENGAGE MOBILITY, INC

Form 10-Q for ENGAGE MOBILITY, INC


20-May-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 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:

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.

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:

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