Epcylon (PRFC) 10-Q 2013 Q3 Quarterly report

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 February 28, 2013

¨ 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 February 28, 2013, the Issuer had 164,125,222 shares of its Common Stock outstanding.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION
Item 1: Financial Statements	1
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operation	8
Item 3: Quantitative and Qualitative Disclosures about Market Risk	13
Item 4: Controls and Procedures	13
PART II: OTHER INFORMATION
Item 1: Legal Proceedings	14
Item 1A: Risk Factors	14
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3: Defaults Upon Senior Securities	14
Item 4: Mine Safety Disclosures	14
Item 5: Other Information	14
Item 6: Exhibits	14
SIGNATURES	15

PART I  FINANCIAL INFORMATION

MOBILE INTEGRATED SYSTEMS INC.

(Formerly known as LOTO INC.)

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

	February 28, 2013 (UNAUDITED)			May 31, 2012
CURRENT ASSETS:
Cash	$	132,160		$	30,907
Accounts receivable		41,563			27,675
Prepaid expense		90,306			-
TOTAL CURRENT ASSETS		264,029			58,582
Note Receivable - Related Party (Note 3)		-			-
Property and equipment, net		2,172			5,862
TOTAL ASSETS	$	266,201		$	64,444
LIABILITIES and STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	327,840		$	199,253
Accounts payable - related party		-			10,578
Notes payable - related party		-			752,597
CURRENT LIABILITIES AND TOTAL LIABILITIES		327,840			962,428
STOCKHOLDER'S DEFICIENCY:
Common stock, par value $0.0001
300,000,000 shares authorized
164,125,222 and 154,133,130 issued and outstanding
as of February 28, 2013 and May 31, 2012		16,411			15,412
Additional paid-in capital		5,509,361			3,185,256
Other comprehensive income		458			1,429
Accumulated deficit		(5,587,869	)		(4,100,081	)
TOTAL STOCKHOLDERS' DEFICIENCY		(61,639	)		(897,984	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	266,201		$	64,444

See notes to the consolidated financial statements

1

MOBILE INTEGRATED SYSTEMS INC.

(Formerly known as LOTO INC.)

(A Development Stage Company)

CONSOLIDATED STATEMENT OF OPERATIONS

	Three Months Ended February 28, 2013			Three Months Ended February 28, 2012			Nine Months Ended February 28, 2013			Nine Months Ended February 29, 2012			From Inception  (September 16, 2008) to February 28, 2013
	(UNAUDITED)			(UNAUDITED)			(UNAUDITED)			(UNAUDITED)			(UNAUDITED)
REVENUE	$	20,964		$	33,900		$	20,964		$	33,900		$	92,746
EXPENSES
General and administrative expenses		(312,578	)		(209,738	)		(1,023,228	)		(1,674,875	)		(5,115,724	)
Provision on note receivable from related party (note 3)		(477,798	)		0			(477,798	)		0			(477,798	)
OPERATING LOSS		(769,412	)		(175,838	)		(1,480,062	)		(1,640,975	)		(5,500,776	)
OTHER EXPENSE
Interest income (expense), net		(6,698	)		(7,258	)		(7,726	)		(18,541	)		(87,093	)
NET LOSS	$	(776,110	)	$	(183,096	)	$	(1,487,788	)	$	(1,659,516	)	$	(5,587,869	)
								.
Net loss per common share	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.05	)
Basic and fully diluted weighted average
common shares outstanding		164,002,939			31,739,630			159,995,794			34,199,815

See notes to the consolidated financial statements

2

MOBILE INTEGRATED SYSTEMS INC.

(Formerly known as LOTO INC.)

(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

	Nine Months Ended February 28, 2013			Nine Months Ended February 28,  2012			From Inception  (September 16, 2008) to February 28,  2013
	(UNAUDITED)			(UNAUDITED)			(UNAUDITED)
OPERATING ACTIVITIES:
Net loss for the period	$	(1,487,788	)	$	(1,659,516	)	$	(5,587,869	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		3,689			6,030			28,887
Stock based compensation		59,500			1,068,167			826,660
Common stock issued for services		455,467			-			605,467
Cancellation of Common stock issued for services		9,833			-			(140,167	)
Changes in operating assets and liabilities:
Prepaid expenses		(90,306	)		-			(90,306	)
Accounts receivable		(13,888	)		81,832			(41,563	)
Accounts payable and accrued liabilities		118,010			(33,366	)		394,195
NET CASH USED IN OPERATING ACTIVITIES		(945,483	)		(536,853	)		(4,004,696	)
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		1,046,736			203,144			3,378,052
Advancement of Third Party loan		-			200,000			686,122
Proceeds from stockholder loan		-			1,941
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,046,736			405,085			4,166,486
Effect of exchange rates on cash		-			4,726			1,430
INCREASE (DECREASE) IN CASH		101,253			(127,042	)		132,160
CASH - BEGINNING OF PERIOD		30,907			153,162			-
CASH - END OF PERIOD	$	132,160		$	26,120		$	132,160
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Note Payable settled through share issuance		(752,597	)		-			(752,597	)

See notes to the consolidated financial statements

3

MOBILE INTEGRATED SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FEBRUARY 28, 2013

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 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on October 18, 2012.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

NOTE 2 – PREPAID EXPENSE

The prepaid expense relates to (i) Harmonized Sales Taxes paid in Ontario, Canada; and (ii) the payment of 540,000 common shares valued at $118,800, of which $39,600 was expensed in the period to 2238646 Ontario Inc., the Company’s majority shareholder, pursuant to a Corporate Development Agreement dated as of November 1, 2012.

NOTE 3 – NOTES RECEIVABLE FROM RELATED PARTY

On August 20, 2012, the Company and Quantitative Alpha Trading (“QAT”), Inc., a related party, entered into two agreements: (i) an Arrangement Agreement, pursuant to which the Company was to acquire QAT; and (ii) a bridge loan agreement to ensure that QAT had sufficient funds to commercialize all of its products pending the closing of the Arrangement Agreement. 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, as QAT was in breach of certain of its covenants under the Arrangement Agreement. The Company has taken 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.

4

MOBILE INTEGRATED SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FEBRUARY 28, 2013

NOTE 4 – 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 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.

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.

5

MOBILE INTEGRATED SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FEBRUARY 28, 2013

NOTE 4 – STOCKHOLDERS’ DEFICIENCY - continued

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 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 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 $0.20 per share to convert $752,597 in outstanding debt. In doing so the Company recognized a loss on the issuance of shares of $41,821.

On October 5, 2012, the Company issued 550,000 shares of the Company’s common stock as part of a private placement.  All of the shares were issued at a price of $0.20 per share.

On November 1, 2012, the Company issued 540,000 shares of common stock valued at $118,800 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.

On January 2, 2013, the Company issued 333,500 shares of the Company’s common stock related to warrant exercises. All of the shares were issued at a price of $0.20 per share.

6

MOBILE INTEGRATED SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FEBRUARY 28, 2013

NOTE 5 – COMMITMENTS

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.

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:

2013 – $ 66,572

NOTE 6 – SUBSEQUENT EVENTS

Management has evaluated the subsequent events through the date of filing, and has determined that there are no subsequent events that require recognition or disclosure.

7

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.

8

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.

9

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.

10

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.

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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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Item 3.   Qualitative and Quantitative Disclosure About Market Risk

Not applicable.

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 February 28, 2013.

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 February 28, 2013 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

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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.

ITEM 2:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the quarterly period ended February 28, 2013, the Company issued 333,500 shares of common stock in connection with the exercise of certain warrants, at an exercise price of $.20 per share.  Such shares were issued 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.

ITEM 3:  DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4:  MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5:  OTHER INFORMATION

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.  Also on March 8, 2013, Donald Ziraldo resigned from the Company’s Board of Directors.

ITEM 6.	EXHIBITS
Exhibit	Description
Exhibit 31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1*	Certification of the Principal Executive Officer and 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

* This certification is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

** Pursuant to applicable securities laws and regulations, these interactive data files will not be deemed “filed” for the purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor will they be deemed filed or made a part of a registration statement or prospectus for purposes of Sections 11 and 12 of the Securities Act, or otherwise subject to liability under those sections.

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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/ Emlyn David
	Name:	Emlyn David
	Title:	Interim Chief Executive Officer and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer)

Dated:      May 14, 2013

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