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MIBI > SEC Filings for MIBI > Form 10-K on 19-Oct-2012All Recent SEC Filings

Show all filings for MOBILE INTEGRATED SYSTEMS, INC.

Form 10-K for MOBILE INTEGRATED SYSTEMS, INC.


19-Oct-2012

Annual Report


ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Selected Financial Data

Pursuant to permissive authority under Regulation S-K, Rule 301, we have omitted selected financial data.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

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.

Plan of Operation

The Company is a development stage software company that operate horizontally across a variety of industry sectors. During the period covered by this Report, the Company developed software for use in lotteries; subsequent to the period covered by this Report, the Company has 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. For the twelve months ended May 31, 2012 the Company 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.

Subsequent to the period covered by this Report, Mobile Integrated Systems, Inc. and Quantitative Alpha Trading, Inc. announced the execution of a definitive agreement dated August 20, 2012, providing that Mobile Integrated Systems, Inc. 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. This software provides an algorithmic stock signals intelligence system that predicts future stock behavior. It is the Company's intention to license our financial software to financial organizations and individuals as a primary source of revenue. The Company has no intention of becoming a broker-dealer or any other type of finance company or engage in any type of regulated activity.
The Company's financial software is expected to be distributed through software app stores and distribution agreements. The Company has not received any payment for the use of its financial software as of the date of this Report.

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. The Company anticipates that revenue models will be as follows:

MobiLotto: This family of cloud-based software products will be sold to lottery operators through a license that entitles MobiLotto to a percentage of total lottery sales.

MobiPark: This family of cloud-based software products will be sold via license to parking operators that wish to replace last generation parking infrastructure with our mobile offering. Revenue will be transaction based. The more people park, the more revenue the license will generate.

MobiInvest: This family of products was just recently acquired and we are in the process of defining the revenue model. Initial estimates indicate that we will utilize a per seat/user model.

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.


Liquidity and Capital Resources

As of May 31, 2012, the Company had cash of $30,907. This represented a decrease from May 31, 2011, at which time we had cash in the amount of $153,162. We also own property and equipment with a cost of $31,060 which consists of computer equipment, office furniture and equipment and leasehold improvements. The Company's total assets as of May 31, 2012 were $64,444, which was a decrease from $288,746 as of May 31, 2011. The Company's current cash on hand will only be sufficient to maintain our operations until December 31, 2012. In order to maintain our operations for the next twelve months, we will need to raise an additional $1,000,000.

Current liabilities and total liabilities as of May 31, 2012 were $962,428. This was an increase from May 31, 2011, at which time the Company's current liabilities and total liabilities were $675,885. During the fiscal year ended May 31, 2012, the Company received related party loans in the amount of $260,000. Since the Company's inception, such loans total $686,122.

As a development stage company, we have limited capital and limited operating resources. During the fiscal year ended May 31, 2012, the Company raised $401,883 in funding from private placements of restricted common stock. During the fiscal year ended May 31, 2011, the Company raised $1,050,000 from such sources. From inception through May 31, 2012, the Company raised $2,331,317 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.

Subsequent to the period covered by this Report, 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.

On July 20, 2012, the Company raised $983,860 pursuant to the closing of a private placement of 4,753,600 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. In addition, 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 pending issuance of 3,372,685 shares of common stock. In each case, such shares are expected to be issued in the near future.

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.

Results of Operations for the Twelve Months Ended May 31, 2012 and May 31, 2011

Income

We are a development stage company. To date, the Company has received $71,782 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

For the twelve months ended May 31, 2012, the Company incurred $1,671,597 in general and administrative expenses and $43,860 in interest expense. The Company's net loss for the fiscal year ended May 31, 2012 was $1,643,675. This was an increase from the twelve months ended May 31, 2011, when the Company incurred $1,299,829 in general and administrative expenses and $22,806 in interest expense. The Company's net loss for the fiscal year ended May 31, 2011 was $1,322,635. From the Company's inception through May 31, 2012, the Company has experienced $4,092,496 in general and administrative expenses, $79,367 in interest expenses and net losses of $4,100,081.

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.

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, lottery association participation, communication, presentations, and meetings with lottery operators, public messaging, and partnership initiatives with other corporate entities. Specifically, our plan calls for:

1. Attending and participating in lottery association events / tradeshows in order to meet prospective clients, speak about mobile lottery opportunities, and present the Mobi and Mobilotto brands. These would include the World Lottery Association as well as the North American Association of State & Provincial Lotteries, among others.

2. Review each geographical region to justify the development of a mobile gaming environment. Prioritization would be given to those countries with a combination of material lottery revenues, a high penetration of smart phone devices, favorable internet gaming regulations, and operators who express an interest in our product and service.

3. On a prioritized country basis, study the local lottery regulations, understand global and specific country lottery issues, and contact the lottery operators for visitation and demonstration of Mobi products. Currently, opportunities appear to be strong in Canada, Africa, Mexico, Asia, and Europe. Also, the U.S. may become a market for Mobi should existing restrictions on internet lottery be changed, or Mobi's geo-locational restrictions be confirmed.


4. While brand and product marketing will be supported by the lottery operators and by the mobile network operators, we intend on pursuing additional local marketing efforts including mass awareness campaigns, cause support, and seeking specific customer input.

5. Develop relationships with existing internet gaming companies to "mobilize" their product offerings.

6. Once Mobi's product is developed and contracts in place, generate incremental sales through direct to customer marketing through their mobile devices.

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.

Warrants

As of May 31, 2012, the Company had warrants outstanding to purchase 3,027,780 shares of the Company's common stock.

On November 18, 2011, the Company sold 1,833,500 shares (all numbers in this section are as adjusted pursuant to the Company's five for one stock split) of the Company's common stock to nine purchasers for a purchase price of $.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 $.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 $.20 per share.

On April 9, 2012, the Company sold 670,000 shares of the Company's common stock to three purchasers for a purchase price of $.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 $.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 $.20 per share.

On May 22, 2012, the Company sold 300,000 shares of the Company's common stock to two purchasers for a purchase price of $.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 $.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 $.20 per share.

These sales were made in reliance upon the exemption from Securities Act registration provided by Section 4(2) of the U.S. Securities Act, and the rules and regulations promulgated thereunder, including Rule 903 of Regulation S. The Purchasers are not a U.S. person (as such term is defined in Rule 902(k) of Regulation S).

Common Stock

As of May 31, 2012, there were 154,133,130 shares of the Company's common stock issued and outstanding. As of the date of this Report, there are now 152,379,630 shares of the Company's common stock issued and outstanding.

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


Significant Business Challenges

In addition to the challenge of raising adequate capital in order to fully deploy our business plan, the significant business challenges that our management expects to encounter over the next year and beyond, as well as the known trends, demands, uncertainties that may affect our Company's financial condition include the following matters:

? We have not yet completed the software development of all components constituting our full feature mobile lottery application and our financial condition would be materially and adversely affected if we are not able to complete our software development;

? Since there has not yet been any commercial utilization of our application it will be more difficult for us to close sales of our untested product with prospective lottery operator customers of our Company and we may not able to derive any revenues from our product;

? If our product does not perform as anticipated, we may be unable to obtain any contracts with lottery operators, or if we are able to enter into contracts but the product is not performing, we could become subject to litigation, which in either case could adversely affect our financial condition;

? Our patent application is currently pending and if the patent is not granted we may not be able to fully protect our intellectual property which could adversely affect our ability to benefit from our technology;

? If our pending patent is granted, the costs of enforcing our patent and other intellectual property rights may be disproportionate to any potential revenues, or we may be required to defend allegations from third parties alleging infringement of their rights, which in either case could adversely affect our financial condition;

? We rely on a small management team and a small group of employees who may not be able to be fully responsive to all aspects of operating our business, and if we increase our personnel the additional administrative and overhead costs could be burdensome, which in either case could adversely affect our financial condition;

? The international focus of our business model implicates higher costs and expenses than domestic companies, including foreign language translation, compliance with local laws, business practices favoring local competitors, compliance with multiple, conflicting and changing governmental laws and regulations as well as changing governments, any of which could adversely affect our financial condition;

? We expect intensifying competition in our target markets which could force us to lower our pricing, reduce our margins, lower our market share and reduce expectations of profitability;

? Foreign competitors who are not subject to U.S. anti-corruption laws and regulations may engage in illegal and unfair business practices with which we cannot compete that could impair our ability to obtain contracts from lottery operators in our target foreign markets;

? Our financial results could be damaged if prospective lottery operator customers decide to develop their own mobile lottery solution or utilize a third party solution using alternative software and hardware technologies;

? The market for mobile lottery services is still in the early stages of development, and if the market for our services does not develop as we anticipate, it will have an adverse effect on our financial condition;

? Our business is subject to evolving technology and if we are unable to upgrade our technologies responsive to changes in the industry our financial condition could be adversely affected;


? We will rely on third party technology and hardware providers and if there is a failure of the products or services rendered by these providers our financial condition could be adversely affected;

? Implementation of additions or changes in third-party hardware and software platforms used to deliver our services to our customers and end-users may result in performance problems which could adversely affect our financial condition;

? There has not yet been adoption of international standards applicable to mobile lottery solutions and as such we may have to change or modify our application to conform to disparate standards which could adversely affect our financial condition;

? If we are able to enter into contracts with international lottery operators, we will be subject foreign currency exchange risks, different pricing environments; different tax regimes and regional economic and political conditions. Any of these factors, either individually or collectively, could have a material adverse effect on our business and results of operations; and

? Gaming opponents persist in their efforts to curtail legalized gaming which, if successful, could limit our operations or cause us to cease doing business.

Publicly Reporting Company Considerations

We will continue to face several material challenges of operating as a publicly reporting company and we expect to incur significant costs and expenses applicable to us as a public company. We anticipate that our ongoing costs and expenses of complying with our public reporting company obligations will be approximately $166,000 annually which we expect to pay for out of proceeds from our financing efforts during the next twelve months from the date of this Report. Subsequent to the next twelve month reporting and compliance period, we expect to pay for our publicly reporting company compliance and reporting costs from our revenues. We must structure, establish, maintain and operate our Company under corporate policies designed to ensure compliance with all required public company laws, rules, regulations, including, without limitation, the Securities Act of 1933, the Securities Act of 1934, the Sarbanes-Oxley Act of 2002, the Foreign Corrupt Practices Act and the respective rules and regulations promulgated thereunder. Some of our more significant challenges of being a publicly reporting company include the following:

? We will have to carefully prepare and file in the format mandated by the SEC all periodic filings required by the Securities Exchange Act of 1934 (Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and interim reports of material significant events on Form 8-K), as well as insider reporting compliance for all officers and director under Section 16 of the Securities Exchange Act of 1934 on Forms 3, 4 and 5;

? In addition to auditing our annual financial statements and maintaining our books and records in accordance with the requirements of the Securities Act of 1934, we will have to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which requires increased corporate responsibility and accountability;

? We will have to assure that our Board committee charters, corporate governance principles, Board committee minutes are properly drafted and maintained;

? We will have to carefully analyze and assess all disclosures in all forms of public communications, including periodic SEC filings, press releases, website postings, and investor conferences to assure legal compliance;

? We will have assure corporate and SEC legal compliance with respect to proxy statements and information statements circulated for our annual shareholder meetings, shareholder solicitations and other shareholder information events;

? We will have to assure securities law compliance for all equity-based employee benefit plans, including registration statements and prospectus distribution procedures;

. . .

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