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MIBI > SEC Filings for MIBI > Form 10-Q on 14-May-2013All Recent SEC Filings

Show all filings for MOBILE INTEGRATED SYSTEMS, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for MOBILE INTEGRATED SYSTEMS, INC.


14-May-2013

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 technology company that operates within the financial services industry and the broader gaming industry. The Company is engaged, through its Stealth branded products, in the business of researching, developing and maintaining proprietary algorithmic securities trading systems. Furthermore, the Company, through its MOBI branded products, develops software and interactive games for use by charitable organizations and government regulated lotteries.


The Company's technologies are at various levels of development. To date, the Company has minimal revenues. It is anticipated that each of the Company's lines of business will generate revenue through software licensing arrangements.

On October 8, 2012, the Company announced that it 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 August 21, 2012, the Company and Quantitative Alpha Trading, Inc. (QAT) announced the execution of an arrangement agreement dated August 20, 2012 (the "Arrangement Agreement"), providing that the Company would acquire all of the outstanding common shares of QAT on the basis of 0.2222 of a share of Mobile Integrated Systems' common stock in exchange for each outstanding share of QAT. 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 would be sold to securities traders. The Company and QAT later agreed to extend the outside closing date of the Company's acquisition of QAT to June 30, 2013. This extended period was intended to allow the Company and QAT time to focus their combined resources on the continued integration of the businesses and the further development and commercialization of QAT's software.

On August 20, 2012, the Company and QAT entered into a bridge loan agreement to ensure that QAT had sufficient funds to commercialize all of their products. The Company provided a non-revolving term credit facility in a maximum aggregate principal amount not to exceed CDN $800,000. The bridge loan carried an annual interest rate of 12% and was secured by first fixed and specific mortgage on the QAT assets. As of February 28, 2013, the balance due from QAT was $477,798, consisting of principal of $463,274 and accrued interest of $14,524.

On March 15, 2013, the Company announced that it had terminated the Arrangement Agreement. The Company terminated the Arrangement Agreement during the period covered by this Report as a result of QAT being in breach of certain of its covenants under the agreement. Due to QAT being in default of its obligations under the first priority secured bridge loan, the Company took steps to enforce its security interests under the bridge loan, however the outstanding amount of $477,798 as at February 28, 2013 has been fully provided for, as it was determined to be uncollectable as QAT has no assets with which to repay amounts due.

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 marketing 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. Subsequent to the period covered by this Report, the parties agreed to revise the Marketing Services Agreement to reduce the projects contemplated by such agreement and to eliminate the monthly retainer the Marketing Services Agreement originally contemplated. The Company currently anticipates that the total amount due pursuant to the Marketing Services Agreement shall be approximately $300,000 CND.


Results of Operations

The Company was incorporated in the state of Nevada on April 22, 2009, and the 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). The Company has concentrated efforts on developing its business strategy and obtaining private financing. Working models of products are ready for demonstration and the Company has commenced initial marketing and sales efforts.

The Company is engaged, through its Stealth branded products, in the business of researching, developing and maintaining proprietary algorithmic securities trading systems. Furthermore, the Company, through its MOBI branded products, develops software and interactive games for use by charitable organizations and government regulated lotteries. Discussions with financial institutions as well as with charitable organizations and government regulated lotteries are at preliminary stages.

The Company is contemplating expansion into various other technologies as well as the continued development of current technologies. These efforts will require additional financial and management resources. There is no guarantee that the Company will be able to successfully launch technology or that it will generate sufficient revenue to sustain operations.

Assets and Liabilities

As of February 28, 2013, the Company had total assets of $266,201, including total current assets of $264,029. The Company's total current assets consisted of cash in the amount of $132,160, accounts receivable in the amount of $41,563 and prepaid expenses in the amount of $90,306. The Company's total assets as of February 28, 2013 included net property and equipment in the amount of $2,172. 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.

The Company's current liabilities and total liabilities were both $327,840 at February 28, 2013, which represents a decrease from total liabilities of $962,428 at May 31, 2012. The majority of this debt was eliminated during the quarterly period ended November 30, 2012, at which time the Company eliminated 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 the common stock of the Company. The Company's current liabilities and total liabilities at February 28, 2013 included accounts payable and accrued expenses. At May 31, 2012, the Company's current liabilities and total liabilities included accounts payable and accrued expenses 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 February 28, 2013, the Company had $132,160 in cash, which was an increase from $30,907 at May 31, 2012. The Company has limited capital and limited operating resources. Since inception through February 28, 2013, the Company has raised funding through private placements of restricted common stock. The funds raised in the prior private placements may not be sufficient to meet projected cash flow deficits from operations or to fund the development of current and future technologies and products.

The Company is actively pursuing alternative and significant sources of revenue within the financial services marketplace and the charitable and lottery space. While the Company believes that it will experience pressure on cash flows in the near term, it intends to continue operations through maintaining limited expenditures. The Company will seek to supplement its existing cash balance through fundraising activities as necessary.


Results of Operations

Three Months and Nine Months Ended February 28, 2012 and February 28, 2013

Income

We are a development stage company. For the three and nine months ending February 28, 2013 the Company had revenue of $20,964. To date, the Company has received $92,746 in revenue. 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.

The Company's financial services product is now available for purchase for use on Bloomberg Terminals.

Expenses

During the three months ended February 28, 2013, we incurred $312,578 in general and administrative expenses. This was an increase from the three month period ended February 28, 2012 during which we incurred general and administrative expenses of $209,738. During the nine months ended February 28, 2013, we incurred $1,023,228 in general and administrative expenses. This was a decrease from the nine month period ended February 28, 2012 during which we incurred general and administrative expenses of $1,674,875. Since the Company's inception on September 16, 2008, the Company has incurred general and administrative expenses of $5,115,724.

Net Loss

During the three months ended February 2013, we incurred $776,110 in net losses, consisting of $769,412 in operating loss and interest expenses of $6,698. This net loss was an increase from the three month period ended February 28, 2012 during which we incurred net losses of $183,096, consisting of $175,838 in operating losses and interest expenses of $7,258. During the nine months ended February 28, 2013, we incurred $1,487,788 in net losses, consisting of $1,480,062 in operating losses and $7,726 in interest expenses. This net loss was a decrease from the nine month period ended February 28, 2012 during which we incurred net losses of $1,659,516, consisting of $1,640,975 in operating losses and $18,541 in interest expenses. Since the Company's inception on September 16, 2008, the Company has incurred net losses of $5,587,869, consisting of operating losses of $5,500,776 and $87,093 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.

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.

9. Commercialize the Company's trading platform

10. Concentrate on marketing and sales related to the Company's proprietary trading platform.

Marketing Plan

The Company's 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 non-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

The Company has in-place working capital to fund normal business activities for only a limited period. The Company anticipates that it will need to seek private financing within 3-6 months requiring additional funding to execute on and expand operations according to current plans.

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 of approximately $6,100 per month.

Employees

We currently have seven full-time employees. We expect to hire additional full time employees in the coming year as necessities dictate. We have engaged additional services 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 March 8, 2013, Murray Simser, the Company's Chief Executive Officer and a member of the Company's Board of Directors, resigned from his positions. Mr. Simser was paid severance equal to three month's salary (at CND $13,333.33 per month). Also on March 8, 2013, Donald Ziraldo resigned from the Company's Board of Directors. No severance was paid to Mr. Ziraldo. Neither Mr. Simser nor Mr. Ziraldo has expressed any disagreement with the Company on any matter relating to the Company's operations, policies or practices. Mr. Emlyn David, the Company's Chief Financial Officer and a member of the Company's Board of Directors, is now serving as the Company's Interim Chief Executive Officer.


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