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MIBI > SEC Filings for MIBI > Form 10-Q on 26-Oct-2012All Recent SEC Filings

Show all filings for MOBILE INTEGRATED SYSTEMS, INC.

Form 10-Q for MOBILE INTEGRATED SYSTEMS, INC.


26-Oct-2012

Quarterly Report


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.

Plan of Operation

The Company is a development stage software company that operates horizontally across a variety of industry sectors. Prior to the period covered by this Report, the Company developed software for use in lotteries; during the period covered by this Report, 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. 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.

Assets and Liabilities

As of August 31, 2012, the Company had total assets of $980,665, including total current assets of $851,443. The Company's total current assets consisted of cash in the amount of $813,883, prepaid expenses in the amount of $37,560. The Company's total assets as of August 31, 2012 included a loan receivable in the amount of $125,370. In addition, as of August 31, 2012, the Company owned net property and equipment in the amount of $3,852. The Company's total assets and total current assets have increased since May 31, 2012, 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 May 31, 2012 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 August 31, 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 $269,655 at August 31, 2012 from $962,428 at May 31, 2012. The Company's current liabilities and total liabilities at August 31, 2012 included accounts payable and accrued liabilities of $269,655. The Company's current liabilities and total liabilities at May 31, 2012 included accounts payable and accrued liabilities of $199,253, accounts payable-related party of $10,578, and notes payable-related party of $752,597.

Liquidity and Capital Resources

As of August 31, 2012, the Company had $813,041 in cash, which was an increase from $30,907 at May 31, 2012. As a development stage company, we have limited capital and limited operating resources.

During the period ended August 31, 2012, the Company raised $1,049,146 pursuant to the closing of a private placement of 5,250,000 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 August 31, 2012, the Company raised $3,380,463 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.

Results of Operations for the Three Months Ended August 31, 2011 and August 31, 2012

Income

We are a development stage company and now also a deployment stage company. For the three months ending August 31, 2012 the Company had revenue of $0. 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

During the three months ended August 31, 2012, we incurred $412,298 in general and administrative expenses. This was an increase from the three month period ended August 31, 2011 during which we incurred general and administrative expenses of $195,350. Since the Company's inception on September 16, 2008, the Company has incurred general and administrative expenses of $4,504,794.

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 the Mobi 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.

Common Stock

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

During the period ended August 31, 2012, the Company completed formalities related to the issuance of 5,250,000 shares of the Company's common stock as part of a private placement. All of the shares were sold at a price of $0.20 per share.

In addition, during the period ended August 31, 2012, holders of certain warrants to purchase shares of the Company's common stock exercised their rights to acquire 1,100,000 shares of the Company's common stock at an exercise price of $.20 per share.


During the period ended August 31, 2012, the Company eliminated all of its outstanding long-term liabilities pursuant to agreements to convert outstanding debt into 3,972,092 shares of common stock of the Company, at a conversion price of $.15 per share.

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.

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 October 8, 2012, the Company announced that it has signed a customer contract to implement and operate an SMS lottery for Movil Game Solutions C.A., a Venezuelan nationally licensed lottery operator, for a percentage of the gross sales of the lottery operator.

On October 16, 2012, the Company provided an additional $85,000 to Q AT under the Bridge Loan Agreement between the two companies.

On October 24, 2012, the Company issued 550,000 shares of common stock sold in a private placement for $.20 per share.

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