10-Q 1 f10q1112_mobileint.htm QUARTERLY REPORT f10q1112_mobileint.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended November 30, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number:   000-53770

Mobile Integrated Systems, Inc.
(Exact Name of Registrant as Specified in its Charter)

Nevada
 
27-0156048
(State or other jurisdiction of
 
(IRS Employer
incorporation or organization)
 
Identification No.)

Suite 502, 25 Adelaide Street
Toronto, Ontario, Canada M5C 3A1
 (Address of principal executive offices)

(416) 479-0880
(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 period 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 ¨

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 (Sec.323.405 of this chapter) during the preceding 12 months (or 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer
¨
Accelerated Filer
¨
Non-Accelerated Filer
¨
Smaller reporting company
x
 
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 November 30, 2012, the Issuer had 163,791,722 shares of its Common Stock outstanding.
 


 
 
 
 
 
TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
 
   
Item 1: Financial Statements
3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operation
11
Item 3: Quantitative and Qualitative Disclosures about Market Risk
15
Item 4: Controls and Procedures
16
   
PART II: OTHER INFORMATION
 
   
Item 1: Legal Proceedings
16
Item 1A: Risk Factors
16
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
17
Item 3: Defaults Upon Senior Securities
17
Item 4: Mine Safety Disclosures
17
Item 5: Other Information
17
Item 6: Exhibits
18
   
SIGNATURES
19
 
 
2

 
 
PART I FINANCIAL INFORMATION
 
MOBILE INTEGRATED SYSTEMS, INC.
(Formerly known as LOTO INC.)
(A Development Stage Company)

CONSOLIDATED BALANCE SHEET
 
   
November 30,
2012
UNAUDITED
   
May 31,
2012
 
 
             
CURRENT ASSETS:
           
             
Cash
  $ 430,765     $ 30,907  
Accounts receivable
    37,560       27,675  
Prepaid expense
    120,606       -  
TOTAL CURRENT ASSETS
    588,931       58,582  
                 
Note Receivable - Related Party (Note 3)
    301,635       -  
Property and equipment, net
    2,603       5,862  
                 
TOTAL ASSETS
    893,169       64,444  
                 
                 
  LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
               
                 
CURRENT LIABILITIES:
               
                 
Accounts payable and accrued expenses
    245,397       199,253  
Accounts payable - related party
    -       10,578  
Notes payable - related party
    -       752,597  
                 
CURRENT LIABILITIES AND TOTAL LIABILITIES
    245,397       962,428  
                 
                 
STOCKHOLDER'S EQUITY (DEFICIENCY):
               
Common stock, par value $0.0001
               
    300,000,000 shares authorized
               
    162,701,722 and 154,133,130 issued and outstanding
               
    as of August 31, 2012 and May 31, 2012
    16,377       15,412  
Additional paid-in capital
    5,431,716       3,185,256  
Other comprehensive loss
    458       1,429  
Accumulated deficit
    (4,800,780 )     (4,100,081 )
                 
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)
    647,772       (897,984 )
                 
  TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
  $ 893,169     $ 64,444  
                 
 
See notes to the consolidated financial statements
 
 
3

 
 
MOBILE INTEGRATED SYSTEMS, INC.
(Formerly known as LOTO INC.)
(A Development Stage Company)

CONSOLIDATED STATEMENT OF OPERATIONS
 
   
Three Months Ended
November 30,
 2012
   
Three Months Ended
November 30,
 2011
   
Six Months Ended
November 30,
2012
   
Six Months Ended
November 30,
2011
   
From Inception 
(September 16, 2008) to
November 30,
2012
 
                               
   
UNAUDITED
         
UNAUDITED
         
UNAUDITED
 
                               
REVENUE
                    $ -     $ 78,479  
                                   
EXPENSES
                                 
General and administrative expenses
    302,252       201,620       710,650       396,970       4,851,645  
OPERATING LOSS
    302,252       201,620       710,650       396,970       4,773,166  
                                         
OTHER EXPENSE
                                       
Interest (income) expense, net
    (6,313 )     6,518       1,028       11,283       27,614  
                                         
NET LOSS
  $ (295,939 )   $ (208,138 )   $ (711,678 )   $ (408,253 )   $ (4,800,780 )
                                         
Net loss per common share
  $ (0.00 )   $ (0.01 )   $ (0.00 )   $ (0.01 )        
                                         
Basic and fully diluted weighted average
                                 
common shares outstanding
    163,791,722       31,861,863       163,791,722       34,199,815          
 
See notes to the consolidated financial statements
 
 
4

 
 
MOBILE INTEGRATED SYSTEMS, INC.
(Formerly known as LOTO INC.)
(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS
 
   
For the Six Months Ended
November 30,
2012
   
For the Six Months Ended
November 30,
2011
   
From Inception 
(September 16, 2008) to
 November 30,
2012
 
                   
                   
OPERATING ACTIVITIES:
                 
Net loss for the period
  $ (711,678 )   $ (408,253 )   $ (4,800,780 )
Adjustments to reconcile net loss to net cash
                       
  used in operating activities:
                       
     Depreciation
    3,259       4,018       28,457  
     Stock based compensation
    59,500       -       826,660  
     Common stock issued for services
    9,833       -       159,833  
     Cancellation of Common stock issued for services
    -       -       (150,000 )
     Accrued Interest
            11,283          
Changes in operating assets and liabilities:
                       
     Other current assets
    (130,491 )     99,401       (158,166 )
     Accounts payable and accrued liabilities
    46,144       (24,617 )     322,329  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (760,993 )     (318,168 )     (3,809,227 )
                         
                         
INVESTING ACTIVITIES:
                       
     Acquisition of property & equipment
    -       -       (31,060 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    -       -       (31,060 )
                         
                         
FINANCING ACTIVITIES:
                       
                         
    Cancellation of shares
    -       -       102,312  
    Issuance (net of redemption) of common stock
    1,410,785       203,144       4,032,757  
(Repayment )or Proceeds from related party loans
    (248,963 )     201,880       135,524  
                         
NET CASH PROVIDED FROM INVESTING ACTIVITIES
    1,161,822       405,024       4,270,593  
 
                       
     Effect of exchange rates on cash
    (971 )     4,726       459  
                         
              201,880       -  
                         
INCREASE IN CASH
    399,858       91,582       430,765  
                         
CASH - BEGINNING OF PERIOD
    30,907       153,162       -  
                         
CASH - END OF PERIOD
  $ 430,765     $ 244,744     $ 430,765  
                         
                         
Supplemental disclousure of cash flow Information:
                 
     Conversion of related party debt to equity
  $ 662,423                  
                         
 
See notes to the consolidated financial statements
 
 
5

 
 
MOBILE INTEGRATED SYSTEMS, INC.
(formerly known as Loto Inc. – A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2012

NOTE 1 – BASIS OF PRESENTATION

The attached consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. As a result, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The Company believes that the disclosures made are adequate to make the information presented not misleading. The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on or about October 18, 2012.

NOTE 2 – PREPAID EXPENSE
 
The prepaid expenses relate to (i) Harmonized Sales Taxes paid in Ontario, Canada; and (ii) the payment of shares with an amortized value of  $10,000 to 2238646 Ontario Inc., the Company’s majority shareholder, pursuant to a Corporate Development Agreement dated as of November 1, 2012.
 
NOTE 3 – NOTE RECEIVABLE – RELATED PARTY

Pursuant to an agreement with the Company and Quantitative Alpha Trading, Inc. (“QAT”), a related party, the Company has agreed to provide a bridge loan to QAT for up to $800,000.  The bridge loan carries an annual interest rate of 12% and is secured by first fixed and specific mortgage on the QAT assets. On October 16, 2012, the Company provided an additional $170,000 to QAT under this agreement. As of November 30, 2012, the balance due from QAT was $301,635, made up of $295,000 principal and $6,635acccrued interest.

NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
   
November 30,
2012
   
May 31,
2012
 
Programming and systems testing
  $ 107,303     $ 102,302  
Legal
    116,522       33,000  
Audit
            33,400  
Rent
            5,356  
Consulting
    21,793       22,171  
General and administrative
    2,737       3,024  
Total
  $ 248,355     $ 199,253  

 
6

 
 
NOTE 5 – NOTES PAYABLE - RELATED PARTIES

   
November 30,
2012
   
May 31,
 2012
 
Note payable on demand bearing interest at Prime+2% per annum
  $     $ 382,122  
Note payable due September 19, 2012 bearing interest at 5% per annum collateralized by certain assets of the Company
          220,301  
Note payable due on demand bearing interest at Prime+2%
          90,174  
Note payable due on demand and is non-interest bearing
          60,000  
    $     $ 752,597  
 
NOTE 6 – STOCKHOLDERS’ DEFICIENCY

In July 2010, the Company issued 1,000,000 shares of the Company’s common stock to a consulting company in consideration for assistance in listing on the Frankfurt Stock Exchange.  The shares were valued at $0.75 per share, the effective last sales price of the Company’s common stock. On February 3, 2011, the consulting company agreed to return the 1,000,000 shares to the Company as a result of its inability to perform all of the services contracted.

Between August 2009 and May 2010, the Company sold an aggregate of 2,864,815 shares of our restricted common stock in a private placement with thirteen accredited investors at a purchase price of $0.30 per share for an aggregate purchase price of $859,443. On September 1, 2010, the Board of Directors determined that it was in the Company’s best interests to sell additional shares at a purchase price of $0.15 per share, and to modify the sales price paid by previous investors to reflect a new sales price of $0.15 per share. The aggregate number of shares sold and issued pursuant to this private placement was correspondingly increased by 2,864,815 shares, with no additional proceeds associated with such transaction.

During October and November 2010, the Company sold 7,000,000 shares of common stock at a price of $0.15 per share for a total purchase price of $1,050,000. Such shares were sold in private placements to foreign persons in reliance on the exemption from securities registration under Section 4(2) of the U.S. Securities Act of 1933, as amended (the “Securities Act”), and Regulation S promulgated thereunder.  Such shares are restricted from trading, and may only be sold pursuant to a valid registration statement or pursuant to an exemption from the Securities Act.

On November 30, 2010 pursuant to an agreement to cancel common shares two shareholders cancelled a total of 6,062,960 common shares.  These shares were subsequently reinstated.

On June 16, 2011 the Company entered into a Share Cancellation Agreement with one of the founders and his company, A Few Brilliant Minds Inc. (AFBMI). The founder desired to pursue other business interests and submitted his resignation from the Company's Board together and tendered for cancellation 97,000,000 common shares owned by AFBMI.

In addition, the Company also entered into Share Cancellation Agreements dated June 20, 2011 with two shareholders to cancel 24,000,000 common shares in return for the original purchase price of $48,000.

On November 18, 2011, the Company sold 1,833,500 shares of the Company’s common stock to nine purchasers (the “Purchasers”) for a purchase price of $0.15 per share.  In addition, each of the Purchasers has received Warrants to purchase such number of shares of the Company’s common stock equal to the number of shares purchased by such shareholder, at an exercise price of $0.20 per share.  The Company paid a finder’s fee in connection with these sales of the Company’s securities, consisting of (i) $22,002; and (ii) Warrants to purchase 146,680 shares of the Company’s common stock, at an exercise price of $0.20 per share.
 
 
7

 
 
On March 7, 2012, a shareholder of the Company tendered for cancellation 10,500,000 shares of the Company’s common stock, pursuant to an agreement with the Company.  The Company did not receive any payment for the cancellation of such shares.

On March 27, 2012, the Company affected a 5-for-1 stock split of the stock of the Company.

On April 9, 2012, the Company sold 670,000 shares of the Company’s common stock to three purchasers (the “Purchasers”) for a purchase price of $0.15 per share.  In addition, each of the Purchasers has received Warrants to purchase such number of shares of the Company’s common stock equal to the number of shares purchased by such shareholder, at an exercise price of $0.20 per share.  The Company paid a finder’s fee in connection with these sales of the Company’s securities, consisting of (i) $8,040; and (ii) Warrants to purchase 53,600 shares of the Company’s common stock, at an exercise price of $0.20 per share.

On May 10, 2012, the Company issued 100,000 shares of the Company’s common stock to a director of the company as part of an exercise of options for a strike price of $0.15 per share.

On May 22, 2012, the Company sold 300,000 shares of the Company’s common stock to two purchasers (the “Purchasers”) for a purchase price of $0.15 per share.  In addition, each of the Purchasers has received Warrants to purchase such number of shares of the Company’s common stock equal to the number of shares purchased by such shareholder, at an exercise price of $0.20 per share.  The Company paid a finder’s fee in connection with these sales of the Company’s securities, consisting of (i) $3,600; and (ii) Warrants to purchase 24,000 shares of the Company’s common stock, at an exercise price of $0.20 per share.

On June 27, 2012, pursuant to an agreement with a shareholder, 1,753,500 shares of the Company’s common stock were cancelled.

On August 31, 2012, the Company issued 6,350,000 shares of the Company’s common stock as part of a private placement and related to warrant exercises. All of the shares were issued at a price of $0.20 per share.

On August 31, 2012, the Company eliminated all of its outstanding long-term liabilities with the issuance of 3,972,092 shares of common stock of the Company at a price of $0.15 per share to convert $662,423 in outstanding debt.

During the period ended November 30, 2012, the Company issued 550,000 shares of common stock sold in a private placement for $.20 per share.

In addition, during the period ended November 30, 2012, the Company issued 540,000 shares of common stock to 2238646 Ontario Inc., the Company’s majority shareholder, pursuant to a Corporate Development Agreement dated as of November 1, 2012 (the “Corporate Development Agreement”).  2238646 Ontario Inc. will provide the Company with consulting and other advisory services for a term of three years, with additional one year renewals if neither party gives notice of termination.  Pursuant to the Corporate Development Agreement, the Company has agreed to issue an additional 540,000 shares on each of November 1, 2013 and November 13, 2014.

NOTE 7 – COMMITMENTS

The Company is obligated under a lease agreement to lease the premises at 25 Adelaide Street in Toronto, Ontario, Canada until November 29, 2013. The minimum payments due are as follows:

2012 – $ 30,260
2013 – $ 66,572
 
 
8

 
 
NOTE 8 – SUBSEQUENT EVENTS

Management has evaluated events occurring after the date of these financial statements through the date these financial statements were issued.  There were no material subsequent events as of that date other than disclosed below.

On December 13, 2012, the Company entered into a marketing services agreement (the “Marketing Services Agreement”) with Capital C Partners LP (“Capital C”) to provide web development, web based marketing, press management, marketing materials development and other related services to the Company.

The Marketing Services Agreement may be terminated by either the Company or Capital C on sixty (60) days notice. The Company has agreed to pay Capital C fees on a project by project basis at an hourly rate, pursuant to an agreed schedule, plus a monthly retainer of $20,000 CND.  The Company anticipates that the total amount due pursuant to the Marketing Services Agreement shall be approximately $500,000- $550,000 CND.  Fifty Percent (50%) of all fees under the Marketing Services Agreement will be invoiced on commencement of a project, with the remainder of the fees due upon completion of the project.
 
 
9

 
 
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OFOPERATIONS

Forward Looking Statements

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Report.  Some of the statements contained in this Report that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. However, as the Company intends to issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, the Company is ineligible to rely on these safe harbor provisions. We urge you to be cautious of the forward-looking statements.  All such forward-looking statements, which are contained in this Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 
Our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
 
Our ability to raise capital when needed and on acceptable terms and conditions;
 
The intensity of competition;
 
General economic conditions; and
 
Changes in government regulations.

The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.

Unless otherwise provided in this Report, references to the "Company," the "Registrant," the "Issuer," "we," "us," and "our" refer to Mobile Integrated Systems, Inc.

Critical Accounting Policies and Estimates

The Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different conditions.
 
 
10

 

Plan of Operation

The Company is a development stage software company that operates horizontally across a variety of industry sectors.  The Company’s initial business model was to develop software for use in lotteries; in August of 2012, the Company commenced plans to enter into new businesses.  The Company develops and operates proprietary mobile software platforms in the areas of lottery, financial services and parking, and intends to expand into other verticals.  Mobile phones offer advanced capabilities, often with personal computer-like functionality, such as e-mail, Internet access and other applications that can be used as infrastructure by many industries.

The Company’s different forms of software are at different levels of development.  To date, the Company has had insignificant revenues, all of which were in the lottery field. The Company's proprietary technology for facilitating the purchase of lottery tickets addresses all elements of lottery play, including secure player registration and authorization, number selection, settlement, winning number notification and other direct-to-customer marketing opportunities.   It is the Company’s intention to license and operate our lottery software to governments and other lottery operators as a primary source of revenue. The Company has no intention to become a lottery operator nor does it intend to enter the gaming space. The Company’s lottery software application has not yet been utilized by any lottery operator.

The Company's parking software will be sold to parking site operators to offer mobile payment systems to their users.  This line of business is in the prototype phase.

On August 21, 2012, the Company and Quantitative Alpha Trading, Inc. announced the execution of a definitive agreement dated August 20, 2012, providing that the Company will acquire all of the outstanding common shares of Quantitative Alpha Trading, Inc. on the basis of 0.2222 of a share of Mobile Integrated Systems’ common stock in exchange for each outstanding share of Quantitative Alpha Trading.  The parties also announced the execution of a perpetual worldwide licensing and commercialization agreement to develop and market all of QAT’s products.  The software to be acquired through such acquisition will be sold to securities traders.  The parties have agreed to extend the outside closing date of MIBI's acquisition of QAT to June 30, 2013.  This extended period allows the companies time to focus their combined resources on the continued integration of the businesses and the further development and commercialization of QAT's software.

During the period covered by this Report, the Company also entered into a corporate development agreement with 2238646 Ontario Inc. to assist the Company in developing its international business and to consult the Company on financing, marketing, sales, and strategic business planning.

The Company now owns and operates several development stage properties under the brand “MOBI”.  All products we develop and sell now benefit from the brand “MOBI” appended to the name of the underlying business.  For instance our Lottery product is called MobiLotto.  Our mobile parking solution is called MobiPark.  Our financial software, acquired recently, will be branded MobiInvest.  Mobile Integrated Systems, Inc. will continue to develop or acquire new families of products to ensure that we have a diversified portfolio of software families.  We will also ensure that the products that we build or acquire have common underlying requirements so as to benefit from economies of scale which will ultimately increase our profit margins.

It is anticipated that each of the business owned by the Company will generate revenue through software licensing.  The Company intends to offer two forms of licensing.  One is transaction based and the other is based on the number of users.

Results of Operations

The Company was incorporated in the state of Nevada on April 22, 2009, and our wholly-owned subsidiary Mobilotto was incorporated in the province of Ontario in September 2008.  On May 13, 2009, the Company acquired all of the issued and outstanding shares of Mobilotto (which included all intellectual property of the mobile lottery purchase system).  We have concentrated our efforts on developing our business strategy and obtaining private financing.  We have working models ready for demonstration and we have commenced our initial sales and marketing program.  We have had early stage meetings with some lottery operators in Canada and we are actively pursuing other opportunities in Canada and elsewhere.  Our mobile lottery software application has now been developed and tested, but has not yet been utilized by any lottery operators and we have not yet derived any revenues from our technology.  In addition, we are now expanding into additional fields.  These new areas will require additional financial and management resources in order to develop.  There is no guarantee that we will be able to successfully launch our technology or that it will generate sufficient revenue to sustain our operations.

 
11

 
 
Assets and Liabilities

As of November 30, 2012, the Company had total assets of $893,169, including total current assets of $588,931.  The Company’s total current assets consisted of cash in the amount of $430,765, prepaid expenses in the amount of $120,606.  The Company’s total assets as of November 30, 2012 included a related party loan receivable in the amount of $301,635.  In addition, as of November 30, 2012, the Company owned net property and equipment in the amount of $2,603.  The Company’s total assets and total current assets have increased since November 30, 2011, at which time the Company’s total assets were $64,444, including total current assets of $58,582.  The Company’s total current assets as of November 30, 2011 consisted of cash in the amount of $30,907 and accounts receivable in the amount of $27,675.  In addition, as of May 31, 2012, the Company owned net property and equipment in the amount of $5,862.

On July 30, 2012, one of the Company’s note holders cancelled its note to the Company for $90,714, including both principal and interest.

In addition, during the period ended November 30, 2012, the Company eliminated all of its outstanding long-term liabilities in the amount of $760,323, including accrued interest of $7,726, through a combination of debt conversion and debt cancellation, with the issuance of 3,972,092 shares of common stock of the Company.

The Company’s current liabilities and total liabilities decreased to $245,397 at November 30, 2012 from $962,428 at May 31, 2012.  The Company’s current liabilities and total liabilities at November 30, 2012 included accounts payable and accrued liabilities of $245,397.  At November 30, 2011, the Company’s current liabilities and total liabilities included accounts payable and accrued liabilities of $199,253, accounts payable to a related party of $10,578 and notes payable to a related party of $752,597.

Liquidity and Capital Resources

As of November 30, 2012, the Company had $430,765 in cash, which was a decrease from $813,883 at August 31, 2012. As a development stage company, we have limited capital and limited operating resources.

During the period ended November 30, 2012, the Company raised $977,208 pursuant to the closing of a private placement of 6,900,000 shares of Company common stock at a purchase price of $0.20 per share. The proceeds of the private placement will be used for general corporate purposes.  From inception through November 30, 2012, the Company raised $5,040,811 in initial funding and private placements of restricted common stock. The funds raised in the prior private placements will not be sufficient to meet our projected cash flow deficits from operations or to fund the development of our technology and products.

The cash on hand in our bank accounts is not sufficient to maintain our operations. We estimate our total overhead, costs and expenses related to completion of a commercially deployable version of our mobile lottery application, obtaining certification of our system by the Gaming Standards Association (GSA), and initiating full rollout of our products to our target markets over the next twelve months will be approximately $1,000,000.  We need additional amounts of funding in order to expand our operations.

Management believes that without obtaining additional financing or developing an ongoing source of revenue, we will not launch successfully. Although we have actively been pursuing new business opportunities, we cannot give assurance that we will succeed in this endeavor, or be able to enter into necessary agreements to pursue our business on terms favorable to us. Should we be unable to generate additional revenues or raise additional capital, we could eventually be forced to cease business activities altogether.
 
 
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Three Months and Six Months Ended November 30, 2012 and November 30, 2011

Income

We are a development stage company and now also a deployment stage company. For the three and six months ending November 30, 2012 the Company had revenue of $0. To date, the Company has received $78,479 in revenue, all of which was received in the fiscal year ended May 31, 2012.  We have concentrated our efforts on developing our business strategy and obtaining financing.  We have working models ready for demonstration and we have commenced our initial sales and marketing program.  We have had early stage meetings with some lottery operators in Canada and we are actively pursuing other opportunities in Canada and elsewhere. Our mobile lottery software application has not yet been utilized by any lottery operators and we have not yet derived any revenues from our technology.  There is no guarantee that we will be able to successfully develop and launch our technology or that it will generate sufficient revenue to sustain our operations.
  
Expenses
 
During the three months ended November 30, 2012, we incurred $302,252 in general and administrative expenses.  This was an increase from the three month period ended November 30, 2011 during which we incurred general and administrative expenses of $201,620.  During the six months ended November 30, 2012, we incurred $710,650 in general and administrative expenses.  This was an increase from the six month period ended November 30, 2011 during which we incurred general and administrative expenses of $396,970.  Since the Company’s inception on September 16, 2008, the Company has incurred general and administrative expenses of $4,851,645.

Net Loss

During the three months ended November 30, 2012, we incurred $295,939 in net losses, consisting of $302,252 in operating loss and interest income of $6,313.  This net loss was an increase from the three month period ended November 30, 2011 during which we incurred net losses of $208,138, consisting of $201,620 and interest expenses of $6,518.  During the six months ended November 30, 2012, we incurred $711,678 in net losses, consisting of $710,650 in operating losses and $1,028 in interest expenses.  This net loss was an increase from the six month period ended November 30, 2011 during which we incurred net losses of $408,253, consisting of $396,970 in operating losses and $11,283 in interest expenses. Since the Company’s inception on September 16, 2008, the Company has incurred net losses of $4,800,780, consisting of operating losses of $4,773,166 and $27,614 in interest expenses.

Our Plan of Operation for the Next Twelve Months

Our path to revenue is based upon completing the following work plan over the next twelve months:

1.        Completion of the patent and trademark registrations.

2.        Adherence to our Marketing Plan (see section below).

3.        Completion of the systems development to ensure we have a robust product and all the required modules for end-to-end lottery play (including player registration, numbers selection, authorization, settlement, and player communication / marketing).  
 
4.        As opportunities arise, partner with existing suppliers of games to lottery operators in order to mobilize existing lottery games.

5.        Remain flexible in our business model to operate as a lottery retailer/distributor, license the technology for use, or sell the technology for use in a pre-defined jurisdiction, preferably in that order, as conditions deem appropriate.

 
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6.        Complete appropriate certifications in promising jurisdictions to become a lottery retailer/distributor and/or supplier to specific lottery operators.

7.        Partner with the emerging internet gaming suppliers and new lottery licensees to mobilize their offerings.

8.        Proactively communicate and present our product and brand to prospective lottery operators, and understand their needs for new sources of revenue.

Marketing Plan

Our marketing plan is a combination of branding, communication, presentations, and meetings with potential customers, public messaging, and partnership initiatives with other corporate entities. Specifically, our plan calls for:

1.
Commercialization of the exclusive licence agreement signed with Quantitative Alpha Trading Inc.
2.
Face to face sales to potential corporate customers.
3.
Internet sales through search engine optimization (SEO), banner ads and press work.
4.
Implement a demand generation engine that will provide the technical infrastructure to sell our software direct to users on the www.mobileintegratedsystems.com website.

Working Capital
 
While we do not have in-place working capital to fund normal business activities, we are actively seeking private financing in the amount of $1,000,000.
 
Contractual Obligations and Other Commercial Commitments
 
The sole on-going commitment we have is for the rental of our head office, which runs to the end of November 2013 at a rate that approximates $6,100 per month.

Employees

We currently have three full-time employees, one full-time contractor and one part-time contractor.  We expect to hire additional full time employees in the coming year as necessities dictate.  We have engaged additional consultants for accounting, legal, and other part-time and occasional services.

Officers and Directors

Donald Ziraldo, a member of the Company’s Board of Directors, has resigned from the Company’s audit committee, but shall continue to serve as a director of the Company.

Off-Balance Sheet Arrangements

There are no off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Subsequent Events

On December 13, 2012, the Company entered into a marketing services agreement (the “Marketing Services Agreement”) with Capital C Partners LP (“Capital C”) to provide web development, web based marketing, press management, marketing materials development and other related services to the Company.

The Marketing Services Agreement may be terminated by either the Company or Capital C on sixty (60) days notice. The Company has agreed to pay Capital C fees on a project by project basis at an hourly rate, pursuant to an agreed schedule, plus a monthly retainer of $20,000 CND.  The Company anticipates that the total amount due pursuant to the Marketing Services Agreement shall be approximately $500,000- $550,000 CND.  Fifty Percent (50%) of all fees under the Marketing Services Agreement will be invoiced on commencement of a project, with the remainder of the fees due upon completion of the project.
 
During the month of December, 2012, the Company loaned QAT an additional $50,000.

Item 3.   Qualitative and Quantitative Disclosure About Market Risk

Not applicable
 
 
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Item 4.    Controls and Procedures

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with United States generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Our management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). That evaluation disclosed that the Company has material defects in its internal control over financial reporting. Specifically they determined that there is a lack of expertise in U.S. GAAP among the Company’s management personnel. They also determined that the size of the Company’s accounting staff and low number of supervisory personnel prevented an appropriate segregation of accounting functions. Accordingly, based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of November 30, 2012.

Subsequent to the period covered by this Report, the Company initiated new procedures regarding internal controls over financial reporting and disclosure controls and procedures.  The Company anticipates that such controls and procedures will be effective in the future for purposes of recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC's rules and forms.  We intend to further upgrade the amount of financial and personnel resources we spend on our accounting function as our operations develop and expand. 

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended November 30, 2012 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. 
OTHER INFORMATION

ITEM 1. 
LEGAL PROCEEDINGS
 
The Company is not, and has not been during the period covered by this Quarterly Report, a party to any legal proceedings.
 
ITEM 1A. 
RISK FACTORS
 
Not Applicable.
 
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ITEM 2: 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
During the period ended November 30, 2012, the Company issued 550,000 shares of common stock sold in a private placement for $.20 per share.  Such shares were sold to foreign persons in reliance on the exemption from securities registration under Section 4(2) of the U.S. Securities Act of 1933, as amended and Regulation S promulgated thereunder.

In addition, during the period ended November 30, 2012, the Company issued 540,000 shares of common stock to 2238646 Ontario Inc., the Company’s majority shareholder, pursuant to a Corporate Development Agreement dated as of November 1, 2012 (the “Corporate Development Agreement”).  2238646 Ontario Inc. will provide the Company with consulting and other advisory services for a term of three years, with additional one year renewals if neither party gives notice of termination.  Pursuant to the Corporate Development Agreement, the Company has agreed to issue an additional 540,000 shares on each of November 1, 2013 and November 13, 2014. The shares issued pursuant to the Corporate Development Agreement were issued to a foreign person in reliance on the exemption from securities registration under Section 4(2) of the U.S. Securities Act of 1933, as amended and Regulation S promulgated thereunder.

ITEM 3: 
DEFAULTS UPON SENIOR SECURITIES

Not Applicable.
 
ITEM 4: 
MINE SAFETY DISCLOSURES
 
Not Applicable.
 
ITEM 5: 
OTHER INFORMATION

Not Applicable.
 
 
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ITEM 6.  
 
EXHIBITS
     
Exhibit
 
Description
     
Exhibit 10.28
 
Corporate Development Agreement, by and between the Company and 2238646 Ontario Inc., dated as of November 1, 2012.
     
Exhibit 31.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
Exhibit 31.2
 
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
Exhibit 32.1
 
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
Exhibit 32.2
 
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS
 
XBRL Instance Document
     
101.SCH
 
XBRL Taxonomy Extension Schema
     
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
     
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
     
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
     
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
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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 thereunto duly authorized.

 
MOBILE INTEGRATED SYSTEMS, INC.
     
 
By:
/s/ Murray Simser
 
   
Murray Simser
 
   
Chief Executive Officer (Principal Executive Officer)
 
       
 
By:
/s/ Emlyn David  
 
Name: 
Emlyn David
 
 
Title:
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
 
 
Dated:      January 22, 2013
 
 
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