PINX:MIBI Annual Report 10-K Filing - 5/31/2012

Effective Date 5/31/2012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: May 31, 2012
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 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 of other jurisdiction of
  
(IRS Employer Identification
incorporation or organization)
  
Number)
 
Suite 502, 25 Adelaide Street
Toronto, Ontario, Canada M5C 3A1
(Address of principal executive offices)
 
(416) 479-0880
 (Registrant’s telephone number)
 
Securities registered pursuant to Section 12(b) of the Exchange Act: None
 
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $.0001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x No £
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: ¨

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 ¨ No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $21,668,130 at November 30, 2011.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: The Issuer had 152,379,630 shares issued at October 5, 2012.

 
 

 
 
TABLE OF CONTENTS

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Report may be “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. Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on current expectations, estimates and projections about our business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in this Report, including the risks described under “Risk Factors,” “Management’s Discussion and Analysis” and “Our Business.”

There are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors, include, without limitation, the following: our ability to develop our technology platform and our products; our ability to protect our intellectual property; the risk that we will not be able to develop our technology platform and products in the current projected timeframe; the risk that our products will not achieve performance standards in tests; the risk that the testing process will take longer than projected; the risk that our products will not receive regulatory approval; the risk that the regulatory review process will take longer than projected; the risk that we will not be unsuccessful in implementing our strategic, operating and personnel initiatives; the risk that we will not be able to commercialize our products; any of which could impact sales, costs and expenses and/or planned strategies. Additional information regarding factors that could cause results to differ can be found in this Report and in our other filings with the Securities and Exchange Commission.

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, except as required by the Exchange Act.  Unless otherwise provided in this Report, references to the “Company,” “Mobi,” the “Registrant,” the “Issuer,” “we,” “us,” and “our” refer to Mobile Integrated Systems, Inc.

 
 

 
 
PART I
 
BUSINESS

Introduction

Mobile Integrated Systems, Inc., formerly known as Loto Inc., together with its wholly owned subsidiary Mobilotto Systems Inc., are development stage software companies 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.

Corporate Development

The Company was incorporated in the state of Nevada on April 22, 2009, and our 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 (including all of the intellectual property of the mobile lottery software application).  Effective as of March 26, 2012, the Company’s Articles of Incorporation were amended as follows:

1.
Article 1 of the Company’s Articles of Incorporation was amended to read: “Name of Corporation: Mobile Integrated Systems, Inc.” The Company changed its name as part of an effort to re-brand the Company.

2.
Article 3 of the Company’s Articles of Incorporation was amended by (i) increasing the Company’s authorized shares from One Hundred Million Shares (100,000,000) to Three Hundred Million Shares (300,000,000), all of which shares will be common stock, with a par value of $.0001 per share; and (ii) effecting a five for one forward stock split of the Company’s issued and outstanding shares (this action is referred to herein as the “Stock Split”).  The Company increased its number of authorized shares in order to facilitate the Company’s Stock Split.  The Company’s Board of Directors believed that the Company’s stockholders will benefit from greater liquidity in the Company’s Common Stock.    

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.
 
 
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The Company has 152,379,630 common shares issued and outstanding as of the date of this Report.  As of May 31, 2012, the Company had 154,133,130 common shares 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.

Current Status of our Lottery Business

As of the date of this Report, that Company believes that our mobile lottery software application has now been completed according to our stage 1 targets.  Such software application has been internally tested and reviewed, and the Company believes that it is ready for commercial deployment. It has not yet been commercially tested or utilized by any lottery operators and we have not yet generated any revenues from our technology.  We are actively selling our lottery application using SMS features and our smartphone solutions (smartphone is available on most Blackberry smart phones including the Pearl, the Curve, the Bold, and 8800 series and soon on Apple’s iOS such as IPhones and IPads and Google’s Android Platform). The completed software includes lottery game selection, lottery number picking, lottery number authorization, lottery player registration and some aspects of player messaging functions.

We currently maintain appropriate internal resources and manage two external vendors in order to further the development of the technology for both the core SMS and smartphone lottery products.

We are currently soliciting lottery operators and will expand this effort through agent and partnership channels. The completion of the system’s development has enabled us to provide 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). 

We expect the sales cycle with each prospective lottery operator will take between six and eighteen months, covering the period from initiation of our sales solicitation through technical demonstrations, testing, negotiations and closing of contracts for mobile lottery operations. We have signed a lottery operator contract in Venezuela and we are in the process of completing the pre-launch integration activities.

We have also commenced a broad sales and marketing program with several other lottery operators in the USA, Canada and other jurisdictions.   Our current business status and the continuing development of our software application as well as the plans for commercial launch of our product are subject to many uncertainties that present material risks to investors.

Over the course of the next twelve months we also intend to apply for certification of our software from the Gaming Standards Association, which is an international trade association of gaming manufacturers, suppliers, operators and regulators and whose stated mission is to facilitate the identification, definition, development, promotion, and implementation of open standards to enable innovation, education, and communication for the benefit of the entire industry. We also expect to complete appropriate certifications in promising jurisdictions to become a lottery retailer/distributor and/or supplier to specific lottery operators.

Our Business Model Premises

In March of 2012, the Company changed its name from “Loto Inc.” to “Mobile Integrated Systems, Inc.” to better reflect our enhanced business model of expanding our prospective ability to generate revenue using the transaction server technology we have developed.   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.
 
 
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It is anticipated that each of the businesses 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 is anticipated to be sold to lottery operators through a license that entitle MobiLotto to a percentage of total lottery sales.

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

MobiInvest:  This family of financial investment 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.

Industry Overview

The Company’s new focus will be the development of cloud-based software in a diverse range of areas.  During the fiscal year ended May 31, 2012, all of the Company’s activities were in the mobile lottery field.

Lottery Industry Overview

Lotteries are generally regulated and licensed by governmental authorities in over 200 jurisdictions globally. Currently, most U.S. states and four Canadian regions operate lotteries.  In 2009, lottery and instant game revenues approximated $60 Billion in North America. According to LaFleurs 2010 World Lottery Almanac, global lottery, instant and other game revenues approximated $240 billion.

Although many different types of lottery games exist worldwide, they may generally be categorized into two main groups: instant ticket and traditional draw type lotteries. An instant ticket game is usually played by removing a coating from a pre-printed ticket to determine whether the ticket is a winner. With draw type lottery games, such as the Canadian Lotto6/49, winning is based on a purchaser matching numbers with those randomly selected by the lottery operator.  Outside of North America, various types of sports betting are also popular.  All of these game types can be simulated on mobile devices.

Lottery Operational Overview

Our technology can provide location-aware gaming solutions for government-sponsored lotteries and privately operated lotteries.  Our solutions include mobile integration with existing online lottery systems, turnkey mobile gaming systems, custom developed traditional and interactive games, as well as ongoing support, maintenance, and management for each of our solutions.

Our lottery application utilizes proprietary technology to locate, authorize, or restrict game play based on the lottery license holder’s authorized jurisdiction.  When an authorized player leaves the authorized jurisdiction for a game, new game play and additional game features may be disabled.

Lottery Contract Procurement

Government authorized lotteries in the U.S. and Canada typically operates under local government mandated public procurement regulations. Lotteries generally select suppliers by issuing a request for proposal, or RFP, which outlines contractual obligations as well as products and services to be delivered. An evaluation committee frequently comprised of key lottery staff evaluates responses based on various criteria. These criteria usually include quality of product and/or technical solutions, security plan and features, experience in the industry, quality of personnel and services to be delivered, and price. We believe that our product functionality, game content, the quality of our personnel, our technical expertise and our demonstrated ability to help the lotteries increase their revenues may provide us with advantages relative to the competition when responding to government lottery RFP's. However, some lotteries still award the contract to the qualified vendor offering the lowest price, regardless of factors other than price. Contract awards by lottery authorities are sometimes challenged by unsuccessful competitors, which can result in protracted legal proceedings. Internationally, lottery authorities do not always utilize such a formal bidding process, but rather negotiate with one or more potential vendors. 
 
 
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Most lottery contracts typically have an initial term of three to five years and frequently include multiple renewal options, which may be exercised for additional periods ranging from one to five years.  The length of these lottery contracts, together with their renewal options, limits the number of lottery contracts available for bidding in any given year.

Research and Product Development

Our wholly-owned subsidiary, Mobilotto, has developed a ready to deploy SMS system.  Working models of our application version are ready to demonstrate operation of various lottery games through commercially available mobile phones currently including IOS and RIM.

We believe our ability to attract new lottery customers and retain existing customers will depend in part on our ability to continue to incorporate technological advances into, and to improve our products, systems and communication abilities with lottery purchaser end-users of our systems. We intend to maintain a development program focusing on systems development as well as improvement and refinement of our present products as well as the expansion of uses and applications.

We intend to invest in new gaming technologies and new game delivery methods.  We will endeavor to continually improve our existing application as well as research, innovate, and implement new solutions.  Through continual development, we believe that we can attract new players for our customers and grow our company by attracting new lottery operators and potential partners to our company and our technologies.

Intellectual Property

We hold U.S. Provisional Patent 61/106,988 which has established our international priority date as of October 21, 2008.  We are proceeding with the filing of the patent.   Certain technology material to our lottery application products, processes and systems are the subject of patent applications currently pending, in the U.S. and certain other countries. In our business for instance, we intend to utilize our patent-pending technology for the jurisdictional validation and distribution of lottery tickets.

In July 2010, we received confirmation that our wave design logo as well as the phrase “THE FUTURE OF LOTTERY IS IN YOUR HAND” has been allowed by the Canadian Trade-marks Office.  We previously applied for a U.S. Trademark from the United States Patent and Trademark Office (the “USPTO”). This application was not granted.  We intend to re-apply for such U.S. Trademark as soon as reasonably possible. Trademark protection continues in some countries, including the U.S., for as long as the mark is used and in other countries for as long as it is registered.  Registrations generally are for fixed, but renewable, terms.

Should we become aware of any potential infringement of our intellectual property or trade names by competitors and other third parties, we will consider what action, if any, to take in that regard, including, where appropriate, litigation.

Production Processes, Sources and Availability of Components

Our mobile application process is specifically designed to produce secure lottery game tickets for government sanctioned lotteries and promotional games, and to specifically ensure the jurisdiction of play and rules regarding play are complied with, along with meeting social responsibility mandates. Our application is designed for efficient, timely, mobile and secure production of game tickets and storage of game tickets and notification of winning ticket results. Games are delivered consistent with and ready for play with the lottery authority within the jurisdiction of play.
 
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Competition: Mobile Lottery Products

Our lottery gaming business competes with a variety of suppliers from various international markets. There are numerous short message service (SMS) mobile lottery companies that have emerged globally over the past few years.  Due to heavy regulation in Europe and North America the majority of these companies have set their sights on less regulated emerging markets.  These markets are of significant interest to mobile lottery and gaming vendors due to their high population density and the relatively low access to online internet services and traditional convenience store lottery retailers.

Principal direct competitors exist in such emerging markets as India, Mexico, China and Europe where lottery vendors provide access to national lotteries and sports betting through mobile SMS messaging capabilities.  To date the percentage of individuals who use the mobile device sales channel for lottery has remained low.  The need to purchase prepaid cards from retailers and incompatible handsets still remain a challenge for these vendors. Furthermore, these have an apparent inherent weakness as they lack security and do not identify the user’s location.

Additional competition exists within European markets as lottery regulation continues to evolve.  The market for mobile lottery is in its infancy as vendors address both security and regulatory restrictions; however sports betting over mobile devices is common in many European countries.  

We have engineered our mobile lottery application with both location-based technology and superior cryptology which allows us to meet stringent government regulations.

We are aware of three competitors who are engaged in the business of selling lottery tickets via mobile devices who may become dominant during the foreseeable future:
 
 
Soreto Games (Mexico National Lottery)
 
Sunloto (China)
 
Veikkaus (Finland)
 
The existing lottery terminal manufacturers, with GTech, Scientific Games, Intralot, Wincor, and Sagam Securite being the largest, have not publicly announced plans to develop mobile gaming solutions, but could develop a mobile offering.  In addition, lottery operators could contract with software development and / or mobile software development firms to satisfy their mobile needs.

Competitive Advantages and Disadvantages

Technology Advantages
 
 
1.
Our technology functions as an Application and does not utilize SMS capabilities, which facilitates the following:

 
Controlled end-user experience interactive graphical user interface (GUI), matched to phone capabilities;

 
Includes secure interface standards;

 
Enhanced eCommerce capabilities; and
 
  
Low cost per message.

 
2.
Our product has the ability to identify the geographical location of players.  This patent-pending process limits out of region play for purposes of controlling compliance with jurisdictional legal requirements.

 
3.
Our application has been tested on a number of different phone types:

 
A development plan is underway to cover most of the popular smart model cellular telephones;
 
 
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Current development is underway to enable Windows Mobile platforms; and

 
Non-smart phones using conventional technologies have development potential.

 
4.
Our application has been built to integrate with existing on-line offerings without duplicating processes or databases to create an efficient, seamless mobile and on-line gaming experience.

 
5.
We believe that Phase 2 gaming (including pro-line, sports select, and multiplayer games) could be developed and accommodated on our system.

 
6.
Our product provides the lottery operator with a non-intrusive, 2-way communication capability which includes screen pop-ups, device start-up screen, and survey capability, as well as enhanced personalized marketing opportunities.

 
7.
We provide full screen notification of lottery results.

 
8.
Our application icon resides on the mobile device and application upgrades are automatic.

 
9.
Our working demonstration models are developed and are currently operable for assessment by lottery operators.

Player Experience Advantages:

 
10.
Our product requires few key strokes (as the process is menu driven), which provides for simple and easy play.

 
11.
All functionality and processes can be built onto the mobile device (full mobile solution for player registration, PIN access, lottery purchase, settlement, winning ticket notification, and customer communication).

 
12.
Our application has design and play concepts based on replicating, emulating and interfacing with existing web-based lottery operator offerings for consistency of the lottery experience using a mobile device.
  
The Competitive Disadvantages of Our Technology And Business
 
 
We are a development stage Company, with limited resources to continue to develop our business;
 
 
Our technology exists only in demonstration mode and has not yet been tested by any lottery operators or employed on a commercial scale;
 
 
There is uncertainty whether our software application will actually perform as anticipated in a commercial setting;
 
 
We have only developed the software for lottery game selection, lottery number picking and lottery number authorization components of our system;
 
 
Our system still requires the software development of the player registration, financial settlement and player messaging components;
 
 
We will be dependent on third-party software development companies to develop the remaining components for our full feature system;

 
We expect the completion of our full feature system will take approximately nine months from the date we instruct our development partner to develop the commercial product;
 
 
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There is no assurance that the application will be properly completed by the software development company we have selected;
 
 
There is no assurance that our product will operate in the manner for which it is intended;
 
 
The cost of development and realization of the additional components to our software application may be greater than we anticipate;
 
 
There is no assurance that our mobile lottery software will be certified for use by the Gaming Standards Association or lottery operators;
 
 
There is no assurance that we will be able to market and sell our mobile lottery software system;
 
 
There is no assurance that our mobile lottery software will be acceptable to lottery operators; and
 
 
Larger suppliers in the lottery or software application development industries who have more resources than we do could decide to enter the mobile lottery business and compete more effectively for contracts with lottery operators.
 
We expect to compete in the global market on the basis of being able to provide a full feature mobile lottery application that we have designed to include the following components: secure player registration and authorization, number selection, settlement, winning number notification and direct-to-customer messaging capability for enhanced marketing opportunities.  There are some competitors who are currently offering and developing mobile lottery applications, however, we are not aware of any who are offering solutions with the same full feature characteristics as our product.  We are not yet in a competitive position in the global market because we have not completed the development of all components of our full featured mobile lottery software application.  We expect to complete our full featured mobile lottery software application within approximately nine months from instructing our software development partner to commence work.  We anticipate that lottery operators will make their selection of vendors and service providers on the basis of considerations involving security, product performance, ease of use by the lottery operator and by end-users, as well as ongoing service support for the lottery operator and end-users.  Upon completion of our full feature mobile lottery application, we believe that we will be able to compete globally in a manner which will be competitively attractive to lottery operators, however, the need for continuing development of our software application and the plans for commercial launch of our product are subject to many uncertainties that present material risks to investors.

Competitors of the Company’s New Businesses

The Company anticipates that as it expands into additional business lines, it will compete with software companies of diverse sizes and resources.  The Company’s closest competitors will be diversified software companies with diversified platforms.  The Company’s parking business will compete with ParkNow, PZone and ParkMobile.  The Company’s investment business will compete with Ensign, Trade Station and E-Sign.

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.

Subsequent Events

Arrangement Agreement for the Acquisition of Quantitative Alpha Trading Inc.

On August 20, 2012, the Company and Quantitative Alpha Trading Inc. (“QAT,” and together with the Company, collectively, the “Parties,” and each a “Party”), along with 2338584 Ontario Inc., entered into a definitive Arrangement Agreement (the “Arrangement Agreement”) providing that the Company will acquire all of the outstanding common shares of QAT.  The consideration to be paid to QAT’s shareholders will be equal to 0.2222 of a share of the Company's common stock in exchange for each outstanding share of QAT (the “Transaction”). 
 
 
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The Parties intend to complete the Transaction by way of a Plan of Arrangement under the Business Corporations Act (Ontario).  The Parties have agreed to use their commercial best efforts to close the Transaction as soon as practicable, and in no event later than December 31, 2012.

The Arrangement Agreement contains customary terms and conditions for transactions of this nature, including that (i) no event or condition which has had, or is reasonable likely to have, a material adverse change on the condition (financial or otherwise) of the business or assets of either Party shall have occurred on or prior to the closing date; (ii) all regulatory and statutory requirements for closing of the Transaction shall have been fully satisfied, (iii) approval of the Transaction by the shareholders of QAT; (iv) approval of the Transaction by the Superior Court of Justice of Ontario; (v) all necessary third party consents have been obtained by QAT; and (vi) to the extent required by the Company, the relevant parties have agreed to amend the existing contractual employment arrangements.

To ensure that market liquidity is supported by the business plan, the Common Stock of the Company to be issued to the shareholders of QAT pursuant to the Transaction will be subject to restricted security provisions and will be released over a series of dates between 12 months and 24 months following the date of closing, as follows.

1/5 to be released on the 12 month anniversary of the closing date;
1/5 to be released on the 15 month anniversary of the closing date;
1/5 to be released on the 18 month anniversary of the closing date;
1/5 to be released on the 21 month anniversary of the closing date; and
1/5 to be released on the 24 month anniversary of the closing date.

Todd Halpern and Alan Ralph, two members of the Company’s Board of Directors, are also affiliated with QAT, and as such each has recused himself from any and all deliberations regarding the Transaction.  The Company and QAT established Special Committees each comprised of two independent directors to evaluate the transaction ("Special Committee").  The Board of Directors of each of the Parties approved the Transaction based on a positive recommendation by their respective Special Committees. 

Bridge Loan Agreement

The Company and QAT have entered into a Bridge Loan Agreement, dated as of August 20, 2012 (the “Bridge Loan Agreement”) pursuant to which the Company has agreed to provide a first priority secured bridge loan to QAT to a maximum amount of CDN $800,000 in order to assist QAT in meeting its normal course obligations until the closing of the Transaction.

Technology License and Commercialization Agreement
 
The Parties have entered into a perpetual worldwide Technology License and Commercialization Agreement to develop QAT software and market all of QAT's products, dated as of August 17, 2012 (the “Commercialization Agreement”).  QAT has granted the Company a royalty-free license to use, modify, market, distribute, offer for sale, promote and otherwise fully exploit QAT’s products, subject to the terms of the Commercialization Agreement.
 
 
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WHERE YOU CAN FIND ADDITIONAL INFORMATION

In addition to this Report, we are also required to file periodic reports and other information with the Securities and Exchange Commission, including quarterly reports and annual reports which include our audited financial statements.  You may read and copy any reports, statements or other information we file at the Commission’s public reference facility maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00am to 3:00pm. You can request copies of these documents, upon payment of a duplicating fee, by writing to the Commission. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings are also available to the public through the Commission Internet site at http\\www.sec.gov. These filings may be inspected and copied (at prescribed rates) at the Commission's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.
 
You may also request a copy of our filings at no cost, by writing of telephoning us at:

Mobile Integrated Systems, Inc.
Suite 502, 25 Adelaide Street
Toronto, Ontario, Canada M5C 3A1
Telephone: 416-479-0880
Attention: Mr. Murray Simser
President and Chief Executive Officer
 
 
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ITEM 1A.    RISK FACTORS

Our business is subject to numerous risks. We caution you that the following important factors, among others, could cause our actual results to differ materially from those expressed in forward-looking statements made by us or on our behalf in filings with the SEC, press releases, communications with investors and oral statements. Any or all of our forward-looking statements in this and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Many factors mentioned in the discussion below will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from those anticipated in forward-looking statements. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosure we make in our reports filed with the SEC.

Risks Related To Our Operations And Financial Condition

We are a development stage company and we may never generate revenues which could cause our business to fail.

We are a development stage company and we have not generated any revenues as of the date of this Report.  From the inception of our activities in Mobilotto on September 16, 2008 through the fiscal year ended May 31, 2012, the Company has incurred losses of $4,780,894. We expect to operate with net losses within the current fiscal year-ending May 31, 2013 or longer.  We cannot predict the extent of these future net losses, or when we may attain profitability, if at all.  If we are unable to generate significant revenue or attain profitability, we will not be able to sustain operations and will have to curtail significantly or cease operations.

We are a development stage company with significant capital resources deficiencies and we may not be able to raise adequate capital which could materially and adversely affect our ability to conduct business.

As a development stage company, we have a capital deficiency and limited operating resources.  As of the date of this Report, we had cash on hand of approximately $754,018 U.S. Dollars and $71,661 CAD (unaudited).  The cash on hand in our bank accounts will be only be sufficient to maintain our operations until approximately December 31, 2012.  From inception through May 31, 2012, the Company raised $2,331,317 in initial funding and private placements of restricted common stock.  The money raised in the initial funding and our private placements will not be sufficient to meet our projected cash flow deficits from operations and will not be sufficient to fund the continuation of the development of our technology and products.  Over the next twelve months, the Company will need to raise approximately $1,000,000 to operate as planned.  Even if we are able to obtain third party financing, the terms and condition of financing could have a material adverse affect on our business, results of operations, liquidity and financial condition.  Any investment in our shares is subject to the significant risk that we will not be able to adequately capitalize our Company to enable us to continue to develop and implement our business model.  Even if we are able to raise adequate capital, the cost of such capital may be burdensome and may materially impair our ability to fully implement our business plan.

The administrative costs of public company regulatory compliance could become burdensome and consume a significant amount of our cash resources which could materially and adversely affect our business.

We will incur significant costs and expenses in connection with assuring compliance with all laws, rules and regulations 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.  Our reporting and compliance costs and expenses may increase substantially if we are able to deploy our business model on an international basis, which will add significant cross-border jurisdictional complexity to our regulatory compliance and our accounting controls and procedures.  Our compliance costs and expenses could also increase substantially if we apply for trading of our securities on a national stock exchange which may have listing requirements that engender additional administration and compliance costs.  We have assigned a high priority to establishing and maintaining controls, procedures, corporate compliance and public company reporting; however, there can be no assurance that we will have sufficient cash resources available to satisfy our public company reporting and compliance obligations.  If we are unable to cover the cost of proper administration of our public company compliance and reporting obligations, we could become subject to sanctions, fines and penalties, our stock could be barred from trading in public capital markets and we may have to cease doing business.
 
 
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Our Auditors have issued an opinion expressing uncertainty regarding our ability to continue as a going concern.  If we are not able to continue operations, investors could lose their entire investment in our company.

We have a history of operating losses, and may continue to incur operating losses for the foreseeable future. This raises substantial doubts about our ability to continue as a going concern.  Our auditors expressed uncertainty about our ability to continue as a going concern. This means that there is substantial doubt whether we can continue as an ongoing business without additional financing and/or generating profits from our operations.  If we are unable to continue as a going concern and our Company fails, investors in our shares could lose their entire investment.

We operate in highly competitive industries and our success depends on our ability to effectively compete with numerous domestic and foreign businesses. If we are unable to compete effectively our business could fail.

We face competition from a number of domestic and foreign businesses, some of which have substantially greater financial resources than we do, which could adversely affect our ability to enter into contracts with lottery operators.  We operate in a period of intense price-based competition which could adversely affect the number and the profitability of contracts we may be able to obtain. We currently do not have any contracts and due to competition and the nature of the lottery industry, we do not know when or if we will be able to enter into any contracts. Intense competition could result in pricing pressures, lower sales, reduced margins, and lower market share.  Our ability to compete successfully will depend on a number of factors, both within and outside our control.

We expect these factors to include the following: 

 
our success in designing, testing and delivering new features, including incorporating new technologies on a timely basis;
     
 
our ability to address the needs of end-users and the quality of services for customers of the lottery operators;
     
 
the quality, performance, reliability, features, ease of use and pricing of our application;
     
 
successful implementation and expansion of our application’s capabilities;
     
 
our efficiency of production, and ability to deliver the application to the lottery operators and to end-users;
     
 
the rate at which commercially available smart phone equipment manufactures provide a technologically accessible format for incorporation of our solutions into their devices;
     
 
the market acceptance of our application; and
     
 
product or technology introductions by our competitors.
 
Our competitive position could be damaged if one or more potential lottery operators decide to develop their own solution or utilize a third party solution using alternative software and hardware technologies.  Our prospective lottery operator customers may be reluctant to rely on a relatively small company such as our company.  In addition, contract awards by lottery operators are sometimes challenged by unsuccessful bidders which can result in costly and protracted legal proceedings that can result in delayed implementation or cancellation of the contract.  We cannot assure you that we will be able to compete successfully against current and future competition, and the failure to do so would have a materially adverse effect upon our business, operating results and financial condition and our business.  If we do not compete effectively, our business could fail and investors could lose their entire investment.
 
 
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The market for mobile lottery services is in the early stages of development, and if the market for our services does not develop as we anticipate, it will have a material adverse effect on our business, prospects, financial condition and results of operations.

Mobile lottery services, in general, are in the early stages of development. Our future revenue and profits are substantially dependent upon the widespread acceptance, growth, and use of mobile as an effective sales and purchasing medium.  Most lotteries have generally relied upon more traditional forms of consumer sales of tickets through a variety of third-party owned stores, and most lottery operators have no, or only limited, experience on sales through mobile devices. Mobile lottery services are still in an early stage of development and may not be accepted by consumers or lottery operators for many reasons. If either the consumers or lottery operators reject our services, the commercial utility of our technology and services may not develop as we anticipate.  If the market for mobile lottery services does not develop as we anticipate, our business could be materially and adversely affected.

Risks Related To Our Intellectual Property

We are only at the initial stage of development of our software.  If we are not able to further develop our software our business could fail.

As of the date of this Report, our mobile lottery software application has now been completed according to our stage 1 targets. It has been internally tested and reviewed is ready for commercial deployment for SMS and limited smart phone customers. It has not yet been commercially tested or utilized by any lottery operators and we have not yet generated any revenues from our technology. We have advanced  our  working demonstrations of our lottery and sports betting application (which is currently operable on most Blackberry smart phones including the Pearl, the Curve, the Bold, and 8800 series and soon IOS or apple platforms such as IPhones and IPads), as well as a scratch card game that is operating on Android devices. Our current lottery software solution includes four of the six components that together will constitute our full mobile lottery application. The completed components include lottery game selection, lottery number picking, lottery number authorization, lottery player registration and some aspects of player messaging functions. The two components remaining to be developed for a complete system include financial settlement and some remaining player messaging functions, which will be completed upon contracting.

Failure to adequately protect our intellectual property and proprietary rights could harm our competitive position and adversely affect our ability to conduct business which could result in loss of your entire investment in our Company.

Our success is substantially dependent upon our proprietary technology, which relates to a variety of business, security, and transactional processes associated with our mobile lottery services technology.  We expect to rely on a combination of patent, trademark, copyright and trade secret laws to protect our proprietary rights.  Although we have filed for certain patent protection over aspects of our technology, much of our proprietary information and processes may not be patentable. We cannot assure you that any pending patent applications will be issued or that their scope is broad enough to provide us with meaningful protection.  Although we will file applications for registered trademarks covering certain of the marks we use in our business, we cannot assure you that we will be able to secure significant protection for these marks. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our technology and/or services or to obtain and use information that we regard as proprietary. We cannot assure you that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop similar technology or duplicate our services or design around patents issued to us or our other intellectual property rights. If we are unable to adequately protect our intellectual property and proprietary rights, our business and our operations could be materially and adversely affected.
 
We may be subject to intellectual property claims that create uncertainty about ownership of technology essential to our business and divert our managerial and other resources which could have a material adverse affect on our business.

There has been a substantial amount of litigation in the technology industry regarding intellectual property rights. Our success depends, in part, on our ability to protect our intellectual property and to operate without infringing on the intellectual property rights of others in the process. There can be no guarantee that any of our intellectual property will be adequately safeguarded, or that it will not be challenged by third parties. We may be subject to patent or trademark infringement claims or other intellectual property infringement claims that would be costly to defend and could limit our ability to use certain critical technologies.  We may also become subject to interference proceedings conducted in the patent and trademark offices of various countries to determine the priority of inventions.
 
 
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Any patent litigation or interference proceedings could have a negative effect on our business by diverting resources and management attention away from other aspects of our business and adding uncertainty as to the ownership of technology and services that we view as proprietary and essential to our business. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. If investors perceive these results to be negative, it could have an adverse effect on the trading price of our common stock.

In addition, a successful claim of patent or trademark infringement against us and our failure or inability to obtain a license for the infringed or similar technology or trademark on reasonable terms, or at all, could have a material adverse effect on our business and the value of any investment in our Company.  Also, an adverse determination of any litigation or defense proceedings could cause us to pay substantial damages, including treble damages if we are found to have willfully infringed, and, also, could put our patent applications at risk of not being issued.  

If we are not able to respond to the rapid technological change characteristic of our industry, our products and services may cease to be competitive and our business could fail and cause the entire loss of your entire investment in our Company.

The mobile industry is characterized by rapid change in business models and technological infrastructure, and we will need to constantly adapt to changing markets and technologies to provide new and competitive products and services. If we are unable to ensure that our users, lottery operators, and distribution partners have a high-quality experience with our services, then they may become dissatisfied and stop using our products and services. Accordingly, our future success will depend, in part, upon our ability to develop and offer competitive products and services. We may not, however, be able to successfully do so, and our competitors may develop innovations that render our products and services obsolete or uncompetitive.  If we are not able to compete effectively, our business could fail which could result in the loss of your entire investment in our Company.

Our technical systems are vulnerable to interruption and damage that may be costly and time-consuming to resolve and may harm our business and reputation which could materially and adversely affect the value of your investment in our Company.

Our systems and operations are vulnerable to damage or interruption from fire, floods and other natural disasters. Furthermore, network failures, hardware failures, software failures, power loss, telecommunications failures, break-ins, terrorism, war or sabotage, computer viruses, penetration of our network by unauthorized computer users and “hackers” and other similar events, and other unanticipated problems all pose serious threats to our success. We may not have developed or implemented adequate protections or safeguards to overcome any of these events. We also may not have anticipated or addressed many of the potential events that could threaten or undermine our technology network. In addition, if a person is able to circumvent our security measures, he or she could destroy or misappropriate valuable information or disrupt our operations.  Any of these occurrences could cause material interruptions or delays in our business, result in the loss of data or render us unable to provide services to our customers which could have the further result of materially and adversely affecting the value of your investment in our Company.
 
Our business depends on the protection of our intellectual property and proprietary information.  If we are unable to adequately protect our intellectual property and proprietary information our business and your investment our Company could be materially and adversely affected.

We believe that our success depends, in part, on protecting our intellectual property in those countries in which we will do business. Our intellectual property includes certain pending patents and trademarks relating to our mobile technology and jurisdictional validation as well as proprietary or confidential information that is not subject to patent or similar protection. Our intellectual property protects the integrity of the games, systems, products and services, which is a core value of the industries in which we operate. For example, our intellectual property is designed to ensure the security of the distribution of the lottery tickets we provide as well as simple and secure validation of our lottery tickets sold. Competitors may independently develop similar or superior products, software, systems or business models. In cases where our intellectual property is not protected by an enforceable patent, such independent development may result in a significant diminution in the value of our intellectual property.
 
 
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There can be no assurance that we will be able to protect our intellectual property. We expect to enter into confidentiality or license agreements with our employees, vendors, consultants, and, to the extent legally permissible, our customers.  We intend to generally control access to, and the distribution of, our game systems and other software documentation and other proprietary information, as well as the designs, systems and other software documentation and other information we license from others. Despite our efforts to protect these proprietary rights, unauthorized parties may try to copy our gaming technology, business models or systems, use certain of our confidential information to develop competing products, or develop independently or otherwise obtain and use our gaming products or technology, any of which could have a material adverse effect on our business. Policing unauthorized use of our technology is difficult and expensive, particularly because of the global nature of our operations. The laws of other countries may not adequately protect our intellectual property.
 
There can be no assurance that our business activities, products and systems will not infringe upon the proprietary rights of others, or that other parties will not assert infringement claims against us. Any such claim and any resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietary rights, distract management, and/or require us to enter into costly and burdensome royalty and licensing agreements. Such royalty and licensing agreements, if required, may not be available on terms acceptable to us, or may not be available at all. In the future, we may also need to file lawsuits to defend the validity of our intellectual property rights and trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources.  If we are unable to adequately protect our intellectual property and proprietary information, our business and your investment our Company could be materially and adversely affected.

Risks Related To Our Business

Our success will depend heavily on our management.  If we fail to hire and retain qualified management and other key personnel, the implementation of our business plan will be materially and adversely affected.

Our performance is substantially dependent on the continued services and performance of our executive officers and other key personnel, and our ability to retain and motivate our officers and key employees. Our future success also depends on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial and marketing personnel. Competition for qualified personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such personnel. The failure to attract and retain our officers or the necessary technical, managerial and marketing personnel could have a material adverse effect on our business, prospects, financial condition and results of operations.

Our dependence on management and directors creates risks. The loss of our experienced officers, key employees, or directors could materially and adversely affect our ability to professionally manage our business.

Our plan for success is dependent, in large part, on the active participation of our executive officers and board of directors. The loss of their services would materially and adversely affect our business and future success.  We do not have key-man life insurance in effect at the present time.  Should any of our key employees die or become incapacitated, we may not be able to replace them in a timely or cost effective manner which could materially and adversely harm our business, financial condition and results of operations.

We expect that our anticipated future growth may strain our management, administrative, operational and financial infrastructure.  Failure of our ability to reasonably manage anticipated growth could materially and adversely affect our business.

We anticipate that significant expansion of our present operations will be required to capitalize on market opportunities. This expansion is expected to place a significant strain on our management, operational and financial resources. We expect to add a substantial number of additional key personnel in the future, including key managerial, technical, and software development employees who will have to be fully integrated into our operations. In order to manage our growth, we will be required to continue to implement and improve our operational and financial systems, to expand existing operations, to attract and retain superior management, and to train, manage and expand our employee base. We cannot assure you that we will be able to effectively manage the expansion of our operations, that our systems, procedures or controls will be adequate to support our operations or that our management will be able to successfully implement our business plan. If we are unable to manage growth effectively, our business, financial condition and results of operations could be materially and adversely affected.
 
 
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Providing our products to customers outside of the United States exposes us to risks inherent in international business which could have a material and adverse affect on our operations.

For the foreseeable future, we expect to pursue business outside of the United States. Accordingly, we are subject to risks and challenges that we would otherwise not face if we conducted our business only in the United States. The risks and challenges associated with providing our products to customers outside the United States include: localization of our products, including translation into foreign languages and associated expenses; laws and business practices favoring local competitors; compliance with multiple, conflicting and changing governmental laws and regulations; foreign currency fluctuations; 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.
 
We will need additional funding in the future to pursue our business strategy and expand our operations.  If additional future funding is not available to us our financial condition could be materially and adversely affected and our business may fail.

Over the next twelve months, the Company will need to raise approximately $1,000,000 to operate as planned.   There can be no assurance that additional financing arrangements will be available in amounts or on terms acceptable to us, if at all. Furthermore, if adequate additional funds are not available, we will be required to delay, reduce the scope of, or eliminate material parts of the implementation of our business strategy.  If we do not obtain additional financing in amounts and on terms acceptable to us, our business may fail.
  
The current economic slowdown may adversely affect our business and financial condition in ways that we cannot predict.  If the economy does not recover during the reasonably foreseeable future our ability to conduct business may not be viable and we may have to cease operations which could result in the entire loss of your investment in our Company.

The current economic slowdown may have a negative effect on our business and financial condition. We cannot predict the effect that the economic slowdown will have on us as it also impacts our customers, vendors and business partners. We believe that the lottery gaming businesses are less susceptible to reductions in consumer spending and other parts of the consumer sector. However, there can be no assurance that the continuation or worsening of the current economic slowdown will not negatively impact the lottery gaming businesses.  If the economy does not recover during the reasonably foreseeable future, our ability to conduct business may not be viable and we may have to cease operations which could result in the loss of your entire investment in our Company.  

The current economic slowdown and general unavailability of commercial credit may adversely affect our ability to obtain financing and could have a material adverse effect on our ability to conduct business.

The uncertainty surrounding the future of the global credit markets has resulted in reduced access to financing and credit worldwide. Major market disruptions and the current adverse changes in global market conditions and the evolving regulatory restrictions in the United States and worldwide may adversely affect our business or impair our ability to obtain funds as needed.  The current adverse market conditions may last longer than we anticipate. These recent and developing economic and governmental factors may have a material adverse effect on our results of operations, financial condition or cash flows and could cause the price of our common stock to decline significantly. If we require credit financing for any aspect of our conducting business we may not be able to obtain it on a timely basis or on reasonable terms, if at all.
 
 
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Our business is subject to evolving technology.  If we are unable to upgrade our technologies responsive to changes in the industry our Company could fail.

The markets for all of our products and services are affected by changing technology, new legislation and evolving industry standards. Our ability to anticipate or respond to such changes and to develop and introduce new and enhanced products and services on a timely basis will be a significant factor in our ability to expand, remain competitive and attract new customers. We can give no assurance that we will achieve the necessary technological advances or have the financial resources needed to introduce new products or services on a timely basis or that we will otherwise have the ability to compete effectively in the markets.  If we are unable to remain current with industry developments and upgrade our technologies in response to changes in the industry, the Company could fail and investors could lose their entire investment in the Company.

Our business competes on the basis of the security and integrity of our systems and our mobile lottery software application.  If there is a breach in our security systems, our business and our Company could suffer materially adverse consequences.

We believe that our success depends, in part, on providing secure products and systems to the lottery operators and their playing customers. Attempts to penetrate security measures may come from various combinations of customers, retailers, vendors, employees and others. Our ability to monitor and ensure quality of our products is periodically reviewed and enhanced. Similarly, we intend to regularly assess the adequacy of our security systems to protect against security breaches and take reasonable measures to protect the integrity of the product for end-users. There can be no assurance that our business will not be affected by a security breach or lapse, which could have a material adverse impact on our results of operations, business or prospects.  

Implementation of additions or changes in third-party hardware and software platforms used to deliver our services may result in performance problems and may not provide additionally anticipated functionality, which could result in material and adverse affects on our ability to conduct business.

From time to time, we may implement additions to or changes in the hardware and software platforms we use for providing our services. During and after the implementation of additions or changes, a platform may not perform as expected, which could result in interruptions in operations, an increase in response time or an inability to track performance metrics. In addition, in connection with integrating with our customers, we may move their operations to our hardware and software platforms or make other changes, any of which could result in interruptions in those operations. Any significant interruption in our ability to operate any of our services could have an adverse effect on our relationships with users and clients and, as a result, on our financial results. We rely on a combination of purchasing, licensing, internal development, and acquisitions to develop our hardware and software platforms. Our implementation of additions to or changes in these platforms may cost more than originally expected, may take longer than originally expected, and may require more testing than originally anticipated.  In addition, we cannot provide assurance that additions to or changes in these platforms will provide the additional functionality and other benefits that were originally expected.  If we are unable to conform our technology to third-party additions or changes in hardware and software platforms used to deliver our services, our business could be materially and adversely affected. 

We rely on third party technology and hardware providers. A failure of service by these providers could adversely affect our business and reputation.

We will rely on third party providers for components of our technology platform, such as hardware and software providers. A failure or limitation of service or available capacity by any of these third party providers could materially and adversely affect our business and reputation with corresponding adverse affects upon the value of your investment in our Company.
 
 
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Risks Related to the Legal and Regulatory Environment in Which We Operate

Government and legal regulations may require significant time, money and allocation of Company resources.  If we are unable to allocate adequate Company resources for compliance with such regulations, our Company and our business could be materially and adversely affected.

During the foreseeable future, we expect to pursue our business outside of the United States until applicable laws in the United States permit sales of lottery tickets utilizing mobile telecommunications devices.  As of the date of this Report, current U.S. laws prohibit sales of lottery tickets utilizing mobile telecommunications devices. Existing or future laws and regulations in other countries may impair our ability to expand our business and introduce new products and services, or may restrict the use of our services or the features we offer.  Changes to the existing regulatory framework in countries where we intend to offer our services could adversely affect our business plans.

In addition to regulation of lottery ticket sales, the mobile telecommunications industry faces uncertainty related to future government regulation. Due to the rapid growth and widespread use of mobile telephones, legislatures have enacted and may continue to enact various laws and regulations applicable to the mobile telecommunications industry.  Laws and regulations may be adopted in the future which directly govern mobile device lottery services.  The adoption of laws or regulations could decrease the demand for our technology and services and increase our cost of doing business or otherwise have a material adverse effect on our business, prospects, financial condition and results of operations.

In addition, foreign governments may pass laws which could negatively impact our business and/or may prosecute us for violating existing laws. Such laws might include EU member country conforming legislation under applicable EU Privacy and Data Protection Directives. Any costs incurred in complying with foreign laws could negatively affect the viability of our business.

Our industry is subject to strict government regulations that may limit our existing operations and have a negative impact on our ability to grow, which could be materially adverse to our business and prospects.

In the United States and many other countries, lotteries and other forms of wagering must be expressly authorized by law. Once authorized, such activities are subject to extensive and evolving governmental regulation. Moreover, these gaming regulatory requirements vary from jurisdiction to jurisdiction.  We expect to be subject to a wide range of complex gaming laws and regulations in the jurisdictions in which we intend to operate which could be time consuming, expensive and distracting to management.  As a result, such regulatory requirements could be materially adverse to our business and prospects.

The regulatory environment in any particular jurisdiction may change in the future, and any such change could have a material adverse effect on our results of operations, business or prospects. Moreover, there can be no assurance that the sale of lottery services over mobile devices will be approved by additional jurisdictions or that those jurisdictions in which these activities are currently permitted will continue to permit such activities. Although we believe that we plan to develop procedures and policies to comply with the requirements of evolving laws, there can be no assurance that law enforcement or gaming regulatory authorities will not seek to restrict our business in their jurisdictions or institute enforcement proceedings if we are not compliant.

Moreover, in addition to the risk of enforcement action, we are also at risk of loss of business reputation in the event of any potential legal or regulatory investigation whether or not we are ultimately accused of or found to have committed any violation.

We may be required to obtain licenses from various jurisdictions in order to operate certain aspects of our business and we might be subject to extensive background investigations and suitability standards in our lottery business. Lottery authorities generally conduct background investigations of the selected vendor and its employees prior to and after the award of a lottery contract. Generally, regulatory authorities have broad discretion when granting, renewing or revoking these approvals. Lottery authorities may require the removal of any of our employees deemed to be unsuitable and are generally empowered to disqualify us from receiving a lottery contract or operating a lottery system as a result of any such investigation. Our failure, or the failure of any of our key personnel or systems in obtaining a required license or approval in one jurisdiction could negatively impact our ability (or the ability of any of our key personnel or systems) to obtain required licenses and approvals in other jurisdictions. The failure to obtain a required license or approval in any jurisdiction would decrease the geographic areas where we may operate and generate revenues, decrease our share in the gaming marketplace and put us at a disadvantage compared with our competitors.
 
 
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Some jurisdictions also require extensive personal and financial disclosure and background checks from persons and entities beneficially owning a specified percentage (typically 5% or more) of our equity securities. The failure of these beneficial owners to submit to such background checks and provide required disclosure could jeopardize the award of a contract to us. Additional restrictions are often imposed by international jurisdictions.

While we are firmly committed to full compliance with all applicable laws, there can be no assurance that such steps will prevent the violation of one or more laws or regulations, or that a violation by us or an employee will not result in the imposition of a monetary fine or suspension or revocation of any contract.

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

Legalized gaming is subject to opposition from gaming opponents. There can be no assurance that this opposition will not succeed in preventing gaming in jurisdictions where these activities are presently legalized, prohibited or prohibiting or limiting the expansion of gaming where it is currently permitted.  If we cannot legally conduct business, our Company could fail.

Failure to perform under lottery contracts may result in litigation, substantial monetary liquidated damages and contract termination which would materially and adversely affect our business.

Our business may subject us to contractual penalties and risks of litigation, including due to potential allegations that we have not fully performed under contracts or that goods or services we supply are defective in some respect.  Lottery contracts typically permit a lottery authority to terminate the contract at any time for material failure to perform, other specified reasons and, in many cases, for no reason at all. Lottery contracts also frequently contain exacting implementation schedules and performance requirements and the failure to meet these schedules and requirements may result in substantial monetary liquidated damages, as well as possible contract termination. Material amounts of liquidated damages could be imposed on us in the future, which could, if imposed, have a material adverse effect on our results of operations, business or prospects and on our ability to continue to conduct business.

Risks Related To Our Stock

Our limited operating history makes evaluation of our business difficult, and may discourage trading in our stock which could adversely affect the price of our stock.

We started to develop our lottery technology in 2008 and we have not yet commercially deployed our technology.  We, therefore, have limited historical financial data related to our current business upon which to analyze operating expenses or forecast accurately our future operating results. Our limited operating history will make it difficult for investors to evaluate our business and prospects which may discourage trading in our stock with potential further adverse affect on the price of our stock.
 
 
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We will need to raise additional capital. If we are unable to raise additional capital, our business may fail.

We will need to raise additional capital to provide cash for our operations. Our current working capital is not expected to be sufficient to carry out all of our plans and to fund our operating losses until we are able to generate enough revenues to sustain our business.  The fact that we have not generated any revenues to date may deter potential investors from providing financing.  Uncertainty regarding our ability to generate revenues may make it difficult for us to find financing on acceptable terms.  If we are unable to obtain adequate funding, we may not be able to successfully develop and market our products and our business will most likely fail.  To secure additional financing, we may need to borrow money or sell more securities.  Under the current circumstances, we may be unable to secure additional financing on favorable terms, if available at all.

The market price of our common stock may be volatile which could adversely affect the value of your investment in our common stock.

The trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors. Some of the factors that may cause the market price of our common stock to fluctuate include:

 
fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 
changes in estimates of our financial results or recommendations by securities analysts;

 
failure of any of our products to achieve or maintain market acceptance;

 
changes in market valuations of similar companies;

 
significant products, contracts, acquisitions or strategic alliances of our competitors;
 
 
success of competing products or services;

 
changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 
regulatory developments in Canada, the United States or foreign countries;

 
litigation involving our company, our general industry or both;

 
additions or departures of key personnel;

 
investors’ general perception of us; and

 
changes in general economic, industry and market conditions.
 
In addition, if the market for technology or mobile lottery service stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management, which could further adversely affect the value of your investment in our common stock.

Fluctuations in the value of foreign currencies could result in increased costs and operating expenses which could adversely affect our business.

For our projected international operations, the local currency will be designated as the functional currency. Accordingly, assets and liabilities must be translated into U.S. Dollars at year-end exchange rates, and revenues and expenses will be translated at average exchange rates prevailing during the year.  Fluctuations in the value of other currencies in which we may generate revenues or incur costs may be difficult to predict and could cause us to incur currency exchange losses.  Receivables and liabilities in currencies other than the functional currency could also move adversely to us from the date of accrual by us to the date of actual settlement of receivables or liabilities in a currency other than the functional currency. A disparity between the accrual and settlement amounts due to currency exchange costs could have a material adverse affect on our business. We cannot predict the effect of exchange rate fluctuations on our future operating results.  Future fluctuations in currency exchange rates could materially and adversely affect our business.
 
 
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Certain governments with whom we may do business may impose restrictions over the conversion of their currencies into U.S. dollars or other foreign currencies.  There can be no assurance that we will be able to convert foreign revenues into U.S. dollars for repatriation and this may adversely affect our business.

We do not currently intend to pay dividends on our common stock and, consequently, the ability to achieve a return on your investment in our common stock will depend on appreciation in the price of our common stock.  If our common stock does not appreciate in value, investors could suffer losses in their investment in our common stock.

We do not expect to pay cash dividends on our common stock. Any future dividend payments are within the absolute discretion of our Board of Directors and will depend on, among other things, our results of operations, working capital requirements, capital expenditure requirements, financial condition, contractual restrictions, business opportunities, anticipated cash needs, provisions of applicable law and other factors that our Board of Directors may deem relevant. We may not generate sufficient cash from operations in the future to pay dividends on our common stock.  As a result, the success of your investment in our common stock will depend on future appreciation in its value.  The price of our common stock may not appreciate in value or even maintain the price at which you purchased our shares.  If our common stock does not appreciate in value, investors could suffer losses in their investment in our common stock.

You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock which could be materially adverse to the value of our common stock.

As of the date of this Report, we have 152,379,630 shares of our common stock issued and outstanding. We are authorized to issue up to 300,000,000 shares of common stock. Our Board of Directors may authorize the issuance of additional common or preferred shares under applicable state law without shareholder approval.  We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with the hiring of personnel, future acquisitions, future private placements of our securities for capital raising purposes or for other business purposes. Future sales of substantial amounts of our common stock, or the perception that sales could occur, could have a material adverse effect on the price of our common stock.  If we need to raise additional capital to expand or continue operations, it may be necessary for us to issue additional equity or convertible debt securities.  If we issue equity or convertible debt securities, the net tangible book value per share may decrease, the percentage ownership of our current stockholders may be diluted and such equity securities may have rights, preferences or privileges senior or more advantageous to our common stockholders.

We anticipate that our common stock will continue to be considered to be a "Penny Stock" in the immediate future, which will cause the trading of our stock to be subject to significant regulations that could adversely affect the value of our common stock.

We anticipate that in the immediate future our common stock will continue to be a low-priced security, or a “penny stock” as defined under rules promulgated under the Exchange Act.  A stock is a "penny stock" if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Exchange Act. These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a "recognized" national exchange; (iii) it is not quoted on The NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a "penny stock" is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.
 
 
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In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.  As a result of these effects, the trading value of our common stock could be materially and adversely affected.

Broker-dealer requirements may affect the trading and liquidity of our stock which could materially and adversely affect the value of our common stock.

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated there under by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effectuating any transaction in a penny stock for the investor's account.  Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.  These requirements could discourage interest in trading in our common stock and could materially and adversely affect the public trading value of our common stock. 

Our securities will be subject to sales restrictions imposed by state “Blue Sky Laws” that will limit the States where our stock may be traded and could reduce the public market value of our stock.

State securities regulations may affect the transferability of our shares.  We have not registered any of our shares for sale or resale under the securities or "blue sky" laws of any state.  We do not currently plan to register or qualify our shares for sale or resale in any state.  In many states, but not all states, shareholders can generally make unsolicited sales of securities through registered broker-dealers.  Arkansas, Georgia, Illinois, Louisiana, New York, North Dakota, Ohio, Oregon and Tennessee, do not permit shareholders to make unsolicited sales of securities through broker dealers.  Persons who desire to purchase our shares in any trading market that may develop in the future should be aware that these state regulations may limit sales and purchases of our shares.  The inability to trade or sell our common stock in certain states could materially and adversely affect the public market value of our stock.

If a trading market for our securities develops, it may be volatile which could make it difficult to sell shares of common stock or cause sales of common stock at a loss.

If an active trading market does develop, the market price of our common stock is likely to be highly volatile due to, among other things, the nature of our business and because we are a new public company with a limited operating history.  Furthermore, even if a public market develops, the volume of trading in our common stock will presumably be limited and likely be dominated by a few individual stockholders.  The limited volume, if any, will make the price of our common stock subject to manipulation by one or more stockholders and will significantly limit the number of shares that one can purchase or sell in a short period of time.

The equity markets have recently experienced significant price and volume fluctuations that have adversely affected the market prices for many companies' securities.  These fluctuations may not be directly attributable to the operating performance of these companies.  Any such fluctuations may adversely affect the market price of our common stock, regardless of our actual operating performance.  As a result, stockholders may be unable to sell their shares, or may be forced to sell shares of our common stock at a loss.
 
 
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Shares eligible for future sale may adversely affect the market price of our common stock.  The future sale of a substantial amount of our restricted stock in the public marketplace could reduce the price of our common stock.

From time to time, certain of our stockholders may be eligible to sell their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 of the Securities Act of 1933, as amended, subject to certain compliance requirements.  In general, under Rule 144, unaffiliated stockholders (or stockholders whose shares are aggregated) who have satisfied a six month holding period may sell shares of our common stock, so long as we have filed all required reports under Section 13 or 15(d) of the Exchange Act during the applicable period preceding such sale.  Generally, once a period of six months has elapsed since the date the common stock was acquired from us or from an affiliate of ours, unaffiliated stockholders can freely sell shares of our common stock so long as the requisite conditions of Rule 144 and other applicable rules have been satisfied.  Also generally, twelve months after acquiring shares from us or an affiliate, unaffiliated stockholders can freely sell their shares without any restriction or requirement that we are current in our SEC filings.  Any substantial sales of common stock pursuant to Rule 144 may have an adverse affect on the market price of our common stock.

Failure to achieve and maintain internal controls in accordance with Sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time, we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud.  If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price.

Certain holders of our common stock exert significant influence over our company and may make decisions with which other stockholders may disagree that could reduce the value of our stock.

2238646 Ontario Inc. owns a total of 96,500,000 of 152,379,630 issued and outstanding shares. This represents 63.3% of our issued and outstanding shares.  As a result 2238646 Ontario Inc. has the ability to exert significant influence over our business and may make decisions with which other stockholders may disagree, including, among other things, the appointment of officers and directors, changes in our business plan, delaying, discouraging or preventing a change of control of the Company or a potential merger, consolidation, tender offer, takeover or other business combination.

UNRESOLVED STAFF COMMENTS

Pursuant to permissive authority, we have omitted Unresolved Staff Comments.

PROPERTIES

Our principal executive offices are located at Suite 502, 25 Adelaide Street, Toronto, Ontario, M5C 3A1.  We have a sub-lease in effect until November 2013, with a cost of approximately $6,100.00 per month, which commenced in July 2011. We anticipate that we will need to move to larger offices following the closing of the planned QAT acquisition.  At the present time, we do not own any real estate.  We do not have any policies regarding investments in real estate, securities or other forms of property.

LEGAL PROCEEDINGS

We are not aware of any pending or threatened litigation against us that we expect will have a material adverse effect on our business, financial condition, liquidity, or operating results. We cannot assure you that we will not be adversely affected in the future by legal proceedings.
 
MINE SAFETY DISCLOSURES

Not Applicable.

 
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PART II

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES     
   
Market Information
 
Our common stock trades on the over-the-counter bulletin board quotation system (OTCBB) under the symbol “MIBI”.  The following table shows the range of high and low bids per share of our Common Stock as reported by the Over-the-Counter Bulletin Board for the fiscal year periods indicated. Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.  The information set forth below has been adjusted to reflect the Company’s five for one stock split on March 26, 2012.  The Company’s shares trade on the Over-the-Counter Bulletin Board.  The Company’s shares traded on the Over-the-Counter Bulletin Board only once during the fiscal year ended May 31, 2011, during the quarter ended February 28, 2011, at an adjusted price of $.50 per share.

Common Stock
 
High
Low
Quarter Ended May 31, 2012
.32
.20
Quarter Ended February 29, 2012
.30
.20
Quarter Ended November 30, 2011
.58
.34
Quarter Ended August 31, 2011
.58
.40
Quarter Ended May 31, 2011
.50
.50
Quarter Ended February 28, 2011
.50
.50
Quarter Ended November 30, 2010
.50
.50
Quarter Ended August 31, 2010
.50
.50

Holders

As of the date of this Report there are 152,379,630 shares of common stock issued and outstanding.

As of the date of this Report there are 28 holders of record of our common stock in certificate form, exclusive of those brokerage firms and/or clearing houses holding our Common Stock in street name for their clientele (with each such brokerage house and/or clearing house being considered as one holder).

Dividend Policy

We have not paid any dividends to the holders of our common stock and we do not expect to pay any such dividends in the foreseeable future as we expect to retain our future earnings for use in the operation and expansion of our business.

Securities Authorized for Issuance Under Equity Compensation Plans

At the present time, we have no securities authorized for issuance under equity compensation plans.

Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
(a)
(b)
(c)
Equity compensation plans approved by security holders
0
$0
0
Equity compensation plans not approved by security holders
16,710,000(1)(2)
$0.20
n/a
Total
16,710,000(1)(2)(3)
$0.20
n/a
 
(1)  
The Company has granted options to purchase 16,710,000 shares of the Company’s Common Stock to certain directors and former directors.  These were grant pursuant to individual agreements which were not part of a Company stock option plan.
(2)  
Of the options to purchase 16,710,000 shares, options to purchase 750,000 have not yet vested.
(3)  
See also Item 12 herein, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters,” which describes certain option grants by 2238646 Ontario Inc., the Company’s controlling shareholder, to certain officers and directors of the Company.

SELECTED FINANCIAL DATA

Pursuant to permissive authority under Regulation S-K, Rule 301, we have omitted Selected Financial Data.
 
 
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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.
 
 
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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.
 
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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.
 
 
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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.
 
 
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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.
 
 
31

 
 
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;
  
 
32

 
 
  
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;
 
 
33

 
 
  
We will have to continuously analyze the specific impact on our Company of all significant SEC initiatives, policies, proposals and developments, as well as assess the rules of Public Company Accounting Oversight Committee on governance procedures of Company and our audit committee;
 
  
We will have to comply with the specific listing requirements of a stock exchange if we qualify and apply for such listing;
     
  
We expect that being a public company will increase our director and officer liability-insurance costs;
     
  
We will have to engage and interface with a Transfer Agent regarding issuance and trading of our common stock, which may include Rule 144 stock transfer compliance matters; and
     
  
We will incur additional costs for legal services as a function of our needs to seek guidance on securities law disclosure questions and evolving compliance standards.
 
In addition to the foregoing, our reporting and compliance costs and expenses may increase substantially if we are able to deploy our business model on an international basis, which will add significant cross-border jurisdictional complexity to our regulatory compliance program and our accounting controls and procedures.  We have assigned a high priority to corporate compliance and our public company reporting obligations, however, there can be no assurance that we will have sufficient cash resources available to satisfy our public company reporting and compliance obligations.  If we are unable to cover the cost of proper administration of our public company compliance and reporting obligations, we could become subject to sanctions, fines and penalties, our stock could be barred from trading in public capital markets and we may have to cease operations.

Our actual results may differ from our projections if there are material changes in any of the factors or assumptions upon which we have based our projections.  Such factors and assumptions, include, without limitation, the development of our proprietary technology platform and our products, the timing of such development, market acceptance of our products, protection of our intellectual property, our success in implementing our strategic, operating and personnel initiatives and our ability to commercialize our products, any of which could impact sales, costs and expenses and/or planned strategies and timing.  As a result, it is possible that we may require significantly more capital resources to meet our capital needs.

Off-Balance Sheet Arrangements

None.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We did not have any operations which implicated market risk as of the end of the latest fiscal year.  We expect that our planned operations will engender market risk, particularly with respect to foreign currency exchange rate risk.  We intend to implement an analysis and assessment program which will on a regular basis determine exposures of the Company to such risks.  We expect to report the results of all such quantitative and qualitative risk assessments prior to entering into any material agreements, and on a regular monthly and annual basis to our audit committee so that responsive risk management measures can be discussed and actions taken to the extent reasonably feasible. Inflationary factors in the future, such as increases in overhead costs, may adversely affect our operating results.  A high rate of inflation in the future may have an adverse effect on our ability to manage selling, general and administrative expenses as a percentage of net revenues if our revenues do not increase with these increased costs.

 
34

 

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 
Paritz & Company, P.A.
 
15 Warren Street, Suite 25
Hackensack, New Jersey 07601
(201)342-7753
Fax: (201) 342-7598
 
 
     Certified Public Accountants
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Mobile Integrated Systems, Inc.

We have audited the accompanying consolidated balance sheets of Mobile Integrated Systems, Inc. and subsidiary (A Development Stage Company)  (“The Company”) as of May 31, 2012 and 2011, and the related consolidated statements of operations, changes in shareholders’ deficiency and cash flows for the years then ended and for the period from inception (September 16, 2008 to May 31, 2012). These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mobile Integrated Systems, Inc. and subsidiary (A Development Stage Company) as of May 31, 2012 and 2011 and the results of  its operations and its cash flows for the years then ended and from the period from inception (September 16, 2008) to May 31, 2012 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company does not have sufficient cash balances to meet working capital and capital expenditure needs for the next twelve months. In addition, as of May 31, 2012, the Company has a shareholder deficiency of $897,984 and negative working capital of the same amount. The continuation of the Company as a going concern is dependent on, among other things, the Company’s ability to obtain necessary financing to repay debt that is in default and to meet future operating and capital requirements. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

/s/ Paritz and Company. P.A.

Hackensack, N.J.
October 17, 2012
 
 
F-1

 
 
   
May 31, 2012
   
May 31, 2011
 
             
CURRENT ASSETS:
           
             
Cash
  $ 30,907     $ 153,162  
Prepaid rent
    -       10,836  
Accounts receivable
    27,675       110,848  
                 
TOTAL CURRENT ASSETS
    58,582       274,846  
                 
Net property and equipment, Net (Note 4)
    5,862       13,900  
                 
TOTAL ASSETS
    64,444       288,746  
                 
LIABILITIES and STOCKHOLDERS' DEFICIENCY
               
                 
CURRENT LIABILITIES:
               
                 
Accounts payable and accrued liabilities (Note 5)
    199,253       222,148  
Accounts payable - related party (Note 6)
    10,578       5,000  
Notes payable - related party (Note 7)
    752,597       448,737  
                 
CURRENT LIABILITIES AND TOTAL LIABILITIES
    962,428       675,885  
                 
STOCKHOLDER'S DEFICIENCY:
               
Common stock, par value $0.0001 (note 8)
               
    300,000,000 shares authorized
               
154,133,130 and 276,666,670 issued and outstanding
         
    as of May 31, 2012 and 2011, respectively
    15,412       27,666  
Additional paid-in capital
    3,185,256       2,051,647  
Other comprehensive loss
    1,429       (10,046 )
Accumulated deficit
    (4,100,081 )     (2,456,406 )
                 
TOTAL STOCKHOLDERS' DEFICIENCY
    (897,984 )     (387,139 )
                 
                 TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
  $ 64,444     $ 288,746  
 
 
F-2

 
 
   
For the Year
Ended
May 31, 2012
   
For the Year
Ended
May 31, 2011
   
From Inception 
(September 16, 2008) to May 31, 2012
 
REVENUE
  $ 71,782     $ -     $ 71,782  
                         
EXPENSES
                       
General and administrative expenses
    1,671,597       1,299,829       4,092,496  
OPERATING LOSS
    1,599,815       1,299,829       4,020,714  
                         
OTHER EXPENSE
                       
Interest Expense
    43,860       22,806       79,367  
                         
NET LOSS
  $ 1,643,675     $ 1,322,635     $ 4,100,081  
                         
Net loss per common share
  $ 0.01     $ 0.00          
                         
Basic and fully diluted weighted average
                 
common shares outstanding
    166,404,623       275,948,475          
 
 
F-3

 
 
   
Shares
   
Amount
   
Additional
Paid-In
Capital
   
Deficit Accumulated During Development Stage
   
Other Comprehensive Loss
   
Total
 
BALANCE - SEPTEMBER 16, 2008
 
 
   
 
   
 
   
 
         
 
 
                                     
Capital contribution in connection with formation
of Mobilotto, Inc.
                91                   91  
                                         
Net loss
 
 
   
 
              (10,979 )           (10,979 )
                                           
Sale of 20,000,000 shares
    100,000,000       10,000       10,000                     20,000  
                                               
Shares issued in connection with Acquisition of
Mobilitto, Inc.
    100,000,000       10,000       (10,000 )                   0  
                                               
BALANCE - MAY 31, 2009
    200,000,000       20,000       91       (10,979 )     0       9,112  
                                                 
Sale of shares
    75,000,000       7,500       142,500                       150,000  
                                                 
Cancellation of Founders' shares
    (5,000,000 )     (500 )     400                       (100 )
                                                 
Sale of  shares
    2,864,815       286       859,157                       859,443  
                                                 
Other comprehensive loss resulting from foreign exchange transactions
                      (598 )     (598 )
                                                 
Net loss
                            (1,122,792 )             (1,122,792 )
                                                 
BALANCE - MAY 31, 2010
    272,864,815       27,286       1,002,148       (1,133,771 )     (598 )     (104,935 )
                                                 
Other comprehensive gain / (loss) resulting from foreign exchange conversions
              (9,448 )     (9,448 )
                                                 
                                                 
Issuance of shares for Consulting services
    1,000,000       100       149,900                       150,000  
                                                 
Sale of  shares
    7,000,000       700       1,049,300                       1,050,000  
                                                 
Cancellation of Founders' shares
    (6,062,960 )     (606 )     485                       (121 )
                                                 
Issuance of shares to certain existing shareholders
    2,864,815       286       (286 )                     0  
                                                 
Cancellation of shares issued for Consulting services
    (1,000,000 )     (100 )     (149,900 )                     (150,000 )
                                                 
Net loss
                            (1,322,635 )             (1,322,635 )
                                                 
BALANCE - May 31, 2011
    276,666,670       27,666       2,051,647       (2,456,406 )     (10,046 )     (387,139 )
                                                 
Other comprehensive gain / (loss) resulting from foreign exchange conversions
              11,475       11,475  
                                                 
Sale of  shares, net of expense
    2,803,500       280       386,603                       386,883  
                                                 
Cancellation of Founders' shares
    (107,500,000 )     (10,750 )     11,062                       312  
                                                 
Exercise of Stock options
    100,000       10       14,990                       15,000  
                                                 
Cancellation of shares issued for Consulting services
    (24,000,000 )     (2,400 )     (45,600 )                     (48,000 )
                                                 
Stock based compensation
                    767,160                       767,160  
                                                 
Share reinstatement
    6,062,960       606       (606 )                     -  
                                                 
Net loss
                            (1,643,675 )             (1,643,675 )
                                                 
BALANCE - May 31, 2012
    154,133,130     $ 15,412     $ 3,185,256     $ (4,100,081 )   $ 1,429     $ (897,984 )
 
 
F-4

 
 
   
For the Year
Ended 
May 31, 2012
   
For the Year
 Ended 
May 31, 2011
   
From Inception 
(September 16, 2008) to May 31, 2012
 
OPERATING ACTIVITIES:
                 
Net loss
  $ (1,643,675 )   $ (1,322,635 )   $ (4,100,081 )
Adjustments to reconcile net loss to net cash
                 
  used in operating activities:
                       
     Depreciation
    8,038       9,828       25,198  
     Stock based compensation
    767,160       -       767,160  
     Common stock issued for services
    -       150,000       150,000  
     Cancellation of Common stock issued for services
    -       (150,000 )     (150,000 )
     Interest expensed but not paid
    43,860       22,806       66,666  
Changes in operating assets and liabilities:
                       
    Prepaid rent
    10,836       (2,717 )     -  
Other current assets
    83,173       (81,021 )     (27,675 )
    Accounts payable and accrued liabilities
    (17,317 )     177,331       209,519  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (747,925 )     (1,196,408 )     (3,059,213 )
                         
INVESTING ACTIVITIES:
                       
     Acquisition of property & equipment
    -       -       (31,060 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    -       -       (31,060 )
                         
FINANCING ACTIVITIES:
                       
    Cancellation of shares
    (47,688 )     -       102,312  
    Proceeds from related party loans
    260,000       -       686,122  
    Issuance (net of redemption) of common stock
    401,883       1,050,000       2,331,317  
                         
NET CASH PROVIDED FROM INVESTING ACTIVITIES
    614,195       1,050,000       3,119,751  
 
                       
     Effect of exchange rates on cash
    11,475       (9,448 )     1,429  
                         
(DECREASE) INCREASE IN CASH
    (122,255 )     (155,856 )     30,907  
                         
CASH - BEGINNING OF YEAR
    153,162       309,018       -  
                         
CASH - END OF YEAR
  $ 30,907     $ 153,162     $ 30,907  
 
 
F-5

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MAY 31, 2012

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization and Business Description

Mobile Integrated Systems, Inc., formerly known as Loto Inc. (the “Company” or “MIS”), together with its wholly owned subsidiary Mobilotto Systems Inc., (“MIBI”) are development stage software companies that operate horizontally across a variety of industry sectors.  The Company intends to develop and operate proprietary mobile software platforms in the Lottery, Financial and Parking spaces and intends to line extend into other verticals.  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 mobile lottery software application has not yet been utilized by any lottery operator.  The Company's financial software will be sold to securities traders by providing an algorithmic stock signals intelligence system that predicts future stock behaviour.  The Company plans to license its financial software to financial organizations and individuals.  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 February 1, 2012 the Company changed its name from Loto, Inc. to Mobile Integrated Solutions, Inc. and also changed is symbol from LOTI to MIBI.

Basis of Consolidation

These consolidated financial statements include the accounts of Mobile Integrated Systems, Inc., which was incorporated on April 22, 2009 in the state of Nevada and its wholly-owned subsidiary, Mobilotto Systems, Inc., which was incorporated in Ontario, Canada on September 16, 2008. On May 13, 2009 the stockholders of Mobilotto contributed all of the outstanding equity interests in Mobilotto to the Company in exchange for 20,000,000 shares of the Company’s common stock. This transaction has been accounted for as a transaction between entities under common control in accordance with authoritative guidance issued by the Financial Accounting Standards Board.  Accordingly, the net assets were recognized in the consolidated financial statements at their carrying amounts in the accounts of Mobilotto at the transfer date and the results of operations of Mobilotto are included as though the transaction had occurred at the beginning of the period.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. All intercompany balances and transactions have been eliminated.

Since inception the Company has been engaged in organizational activities, has been developing its business model and software, and marketing its product to lottery operators, but has not earned any revenue from operations, other than a onetime payment for a new mobile application. Accordingly, the Company’s activities have been accounted for as those of a “Development Stage Enterprise”, as set forth in authoritative guidance issued by the Financial Accounting Standards Board. Among the disclosures required are that the Company’s financial statements be identified as those of a development stage company, and that the statements of operations, stockholders’ equity and cash flows disclose activity since the date of the Company’s inception.

 
F-6

 
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity or remaining maturity at the date of purchase of three months or less to be cash equivalents.

Property and Equipment

Property and Equipment are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the expected useful life as follows:

Computer equipment and software
3 years
Office furniture and equipment
5 years
Leasehold improvements
Term of the lease
 
Repairs and maintenance expenditures are charged to operating expense as incurred. Replacements and major renewals are capitalized.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of the asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset, or group of assets, is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

Revenue is recognized when it is realized or realizable and earned. Revenue is realized or realizable when there is persuasive evidence of an arrangement, prices are fixed or determinable, services or products are provided to the customer, and collectability is probable and reasonably assured depending upon the applicable revenue recognition guidance followed. The following are specific revenue recognition policies.

MIBI expects to have contracts between the mobile network operators and/or the lottery operators, depending upon the jurisdiction of business. Revenue from lottery services is determined as a percentage of the amount of retail sales of lottery tickets pursuant to the terms of the contract. This revenue will be recognized when the lottery purchase transaction is completed and confirmed to the mobile device.

Revenue from the sale of a lottery system, which includes the customization of software, is recognized on the percentage of completion method of accounting, based on the ratio of costs incurred to estimated costs to complete.

 
F-7

 
 
Revenue from the licensing of customized lottery software is recognized over the term of license on the basis as identified in the contracts.

Revenue derived from software maintenance on lottery software is recognized ratably over the maintenance period.

Revenue derived from enhancements to lottery software is recognized at the time such enhancements are accepted by the customer.

Accounts Receivable and Allowance for Doubtful Accounts

We have a policy of reserving for uncollectible accounts based on our best estimate of the amount of probable credit losses in our existing accounts receivable. We extend credit to our customers based on an evaluation of their financial condition and other factors. We generally do not require collateral or other security to support accounts receivable. We perform ongoing credit evaluations of our customers and maintain an allowance for potential bad debts if required. We determine whether an allowance for doubtful accounts is required by evaluating specific accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, we use assumptions and judgment, based on the best available facts and circumstances, to record a specific allowance for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific allowances are re-evaluated and adjusted as additional information is received. The amounts calculated are analyzed to determine the total amount of the allowance. We may also record a general allowance as necessary. Direct write-offs are taken in the period when we have exhausted our efforts to collect overdue and unpaid receivables or otherwise evaluate other circumstances that indicate that we should abandon such efforts.

As of May 31, 2012 and 2011, there was no allowance required.

Foreign Currency Translation

The Company’s functional and reporting currency is the United States dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Revenue and expenses accounts are translated at average exchange rates during the period. Historical cost balances are re-measured using historical exchange rates. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the determination of income. Foreign currency transactions are primarily undertaken in Canadian dollars. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Income Taxes

We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.

 
F-8

 
 
Fair Value of Financial Instruments

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The estimated fair value of certain financial instruments, including cash, prepaid rent, receivables, accrued liabilities, and notes payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

Stock-Based Compensation

We recognize compensation expense for stock-based compensation in accordance with ASC Topic 718. For employee stock-based awards, we calculate the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. For non-employee stock-based awards, we calculate the fair value of the award on the date of grant in the same manner as employee awards. However, the awards are revalued at the end of each reporting period and the pro rata compensation expense is adjusted accordingly until such time the nonemployee award is fully vested, at which time the total compensation recognized to date equals the fair value of the stock-based award as calculated on the measurement date, which is the date at which the award recipient’s performance is complete. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. We consider many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

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.

Concentration of Credit Risk

Financial instruments that potentially expose us to concentrations of credit risk consist principally of cash and cash equivalents. We maintain our cash accounts at high quality financial institutions with balances, at times, in excess of federally insured limits. Management believes that the financial institutions that hold our deposits are financially sound and therefore pose minimal credit risk.

Research and development

Research and development expenditures are charged to operations as incurred.

 
F-9

 
 
NOTE 3 – GOING CONCERN

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated revenues of $71,782 since inception, has an accumulated loss of $4,100,081, as at May 31, 2012 and is unlikely to generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon, among other things, the continued financial support from its shareholders, the ability of the Company to obtain necessary equity or debt financing, and the attainment of profitable operations. These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. There is no assurance that the Company will be able to generate revenues in the future. These financial statements do not give any effect to any adjustments that would be necessary should the Company be unable to continue as a going concern.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

         
Accumulated
             
   
Cost
   
Depreciation
   
Net
   
2011
 
Leasehold improvements
 
$
3,500
   
$
3,500
   
$
0
   
$
0
 
Computer equipment
   
18,950
     
16,777
     
2,173
     
8,490
 
Office furniture and equipment
   
8,610
     
4,921
     
3,689
     
5,410
 
Total
 
$
31,060
   
$
25,198
   
$
5,862
   
$
13,900
 

Depreciation expense for the years ended May 31, 2012 and 2011 was $8,038 and $9,828 respectively

NOTE 5 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
   
May 31, 2012
   
May 31, 2011
 
Programming and systems testing
  $ 102,302     $ 154,306  
Legal
    33,000       25,577  
Audit
    33,400       17,500  
Rent
    5,356       16,505  
Consulting
    22,171       5,000  
General and administrative
    3,024       3,260  
Total
  $ 199,253     $ 222,148  

NOTE 6 –  RELATED PARTY
 
(a)  ACCOUNTS PAYABLE

At May 31, 2012, the Company owed $10,578 (2011 - $5,000) in consulting fees payable to the former President and Chief Financial Officer of the Company.  The amounts were paid subsequent to year-end.

 
F-10

 
 
(b)  NOTES PAYABLE

   
May 31, 2012
   
May 31, 2011
 
Note payable on demand bearing interest at Prime+2% per annum
  $ 382,122     $ 363,061  
Note payable due September 19, 2012 bearing interest at 5% per annum
collateralized by certain assets of the Company
    220,301        
Note payable due on demand bearing interest at Prime+2%
    90,174       85,676  
Note payable due on demand and is non-interest bearing
    60,000        
    $ 752,597     $ 448,737  

(c)  OPTION AWARDS

Several employees of the Company entered into stock option agreements with 2286468 Ontario Inc., a 63% shareholder of MIS.

NOTE 7 – 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.

 
F-11

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

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

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

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

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

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

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

NOTE 8 – INCOME TAXES

The Company has approximately $2,450,000 of net operating loss carryforwards available to reduce future taxable income which expire from 2012 to 2031.  Utilization of these carryforwards may be revised under Internal Revenue Code section 382 that reduces utilizable losses following a greater than 50% ownership change as determined under regulations.

The comparison of income tax expense at the U.S. statutory rate of 35% in tax years 2012 and 2011, to the Company’s effective tax is as follows:

 
 
May 31,
 
 
 
2012
   
2011
 
 
           
U.S. Statutory Rate of 35%
 
$
(813,600
)
 
$
(463,000
)
Valuation Allowance on U.S. Net Operating Loss
   
813,600
     
463,000
 
Effective Tax
 
$
-
   
$
-
 
 
               
Deferred income taxes assets are summarized as follows:
               
Available net operating losses
 
$
1,650,000
   
$
860,000
 
Valuation allowance
   
(1,650,000
   
(860,000
 
 
$
-
   
$
-
 
 
 
F-12

 
 
NOTE 9 – COMMITMENTS

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

2012 – $ 72,624
2013 – $ 66,572
 
NOTE 10 – STOCK OPTION GRANTS

A summary of the Company’s stock option activity and related information is as follows:

Stock options
 
Number of shares
   
Weighted average
 exercise price per share
   
Aggregate
Intrinsic
Value
 
Outstanding, May 31, 2010
    7,250,000     $ 0.2621     $ 1,900,000  
Granted
                 
Exercised
                 
Cancelled or expired
                 
Outstanding, May 31, 2011
    7,250,000     $ 0.2621     $ 1,900,000  
Granted
    18,657,925     $ 0.2071       3,863,378  
Exercised
    (100,000 )   $ 0.1500       (15,000 )
Cancelled or expired
    (9,097,925 )   $ 0.2698       (2,454,378 )
Outstanding, May 31, 2012
    16,710,000     $ 0.1971     $ 3,294,000  


The following summarizes information about shares under option and the respective exercise price range at May 31, 2012:

     
Options Outstanding
   
Options Exercisable
 
Range Of Exercise Price Per Share
   
Number Outstanding
   
Weighted Average Remaining Life (Years)
   
Weighted Average Remaining Exercise Price Per Share
   
Number Exercisable
   
Weighted Average Remaining Life (Years)
   
Weighted Average Remaining Exercise Price Per Share
 
$ 0.10 - $0.25       11,460,000       2.50     $ 0.15       11,460,000       2.50     $ 0.15  
$ 0.26 - $0.50       5,250,000       1.12     $ 0.30       4,500,000       0.89     $ 0.30  
          16,710,000       2.06     $ 0.20       15,960,000       2.04     $ 0.19  

For fiscal years 2012 and 2010, the Company granted 18,657,925 and 7,250,000 respectively option awards to directors of the Company.  The weighted average fair value per share of the options granted for the year ended May 31, 2012 as computed using the Black –Scholes pricing model was $0.03.  The weighted average assumptions used to estimate these fair values are as follows:

   
Fiscal Year Ended
 
   
May 31, 2012
   
May 31, 2011
   
May 31 2010
 
Dividend yield
    0.0 %           0.0 %
Expected volatility
    30.3 %           34.8 %
Expected term (years)
    2.88             3  
Risk-free interest rate
    0.34 %           1.59 %
 
 
F-13

 
 
A summary of the status of the Company’s unvested stock options is as follows:

   
Number of Options
   
Weighted Average Grant Date Fair Value (per share)
 
Unvested options at May 31, 2011
           
Options granted
    18,657,925     $ 0.21  
Options exercised
    (100,000 )   $ 0.15  
Options cancelled or expired
    (9,097,925 )   $ 0.27  
Options vested
    (8,710,000 )   $ 0.15  
Unvested options at May 31, 2012
    750,000     $ 0.30  

On April 19, 2010, the Company granted 4,500,000 options to three members of the Company’s Board of Directors at an exercise price of $0.30 per share.  The options will vest on April 19, 2011, and 4,750,000 options may be exercised on April 19, 2011 and a further 4,750,000 options may be exercised on April 19, 2012.  The right to exercise all of the options will expire and terminate on April 19, 2013. The Company has determined that the options were issued at fair value and as such no expense has been recorded.

On April 19, 2010 a director of the Company was granted compensation arrangements which provide that he may elect compensation in either cash or in options of the Company as follows: in 2010, $75,000 if election for cash or 1,250,000 shares at the option exercise price of $0.20 per share if election for options; in 2011 $150,000 if election for cash or 1,500,000 shares at the option exercise price of $0.20 per share if election for options.  The director may elect compensation either in cash or in options with respect to 2010 on April 19, 2011 and April 19, 2012 with respect to 2011.  In the event options are selected all such options shall be fully vested and exercisable upon the respective date of grant and may exercised until expiration on April 19, 2013.  The Company has determined that the options were issued at fair value and as such no expense has been recorded. The director chose 1,250,000 options for his 2010 grant.  The director resigned on February 1, 2012 thereby surrendering all of his options in the Company.

100,000 were exercised during the year ended May 31, 2012.

NOTE 11 – SUBSEQUENT EVENTS
 
On August 20, 2012, the Company entered into a Definitive Agreement to acquire Quantitative Alpha Trading Inc. (“QAT”), on the basis of 0.2222 of a share of MIBI common stock in exchange for each outstanding share of QAT.  The Company has also agreed to provide a first priority secured bridge loan to QAT to a maximum amount of $800,000 in order to assist QAT in meeting its normal course obligations until the close of the transaction. The loan carries an annual interest rate of 12% and is secured by first fixed and specific mortgage on the QAT assets.
 
On August 17, 2012, the Company entered into a perpetual, non-exclusive, fully-transferable, sub-licenseable, irrevocable, royalty-free worldwide licensing and commercialization agreement with QAT to develop and market QAT software and products.  In consideration of the agreement, MIBI and QAT will share equally in the net income earned under the agreement.  It is anticipated that upon closing of the acquisition of QAT by MOBI, the agreement would be terminated.
 
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.
 
On June 27, 2012, pursuant to an agreement with a shareholder, 1,753,500 shares of the Company’s common stock were cancelled.
 
 
F-14

 
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE     

We have not had any changes in or disagreements with our accountants regarding accounting and financial disclosure.
 
CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
In connection with the preparation of this annual report on Form 10-K, an evaluation was carried out by our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of May 31, 2012. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.  Based on such evaluation, our management concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were not effective in recording, processing, summarizing, and reporting information required to be disclosed, within the time periods specified in the SEC's rules and forms.

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. 

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 May 31, 2012.
 
 
35

 
 
As noted above, 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 May 31, 2012 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

OTHER INFORMATION

Not Applicable.
 
 
36

 
 
PART III

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE
 
MANAGEMENT AND CERTAIN SECURITY HOLDERS

Directors, Executive Officers, Promoters and Control Persons

The following table presents information with respect to our officers, directors and significant employees as of October 5, 2012:

Name
Age
Position
Murray P.J.B. Simser
40
President, Chief Executive Officer and Director
Emlyn J. David
48
Chief Financial Officer and Director
Donald Ziraldo
63
Director
Todd Halpern
52
Director
Alan Ralph
67
Director

Biographical Information Regarding Officers and Directors

Murray Simser.  Mr. Simser has served as the President and Chief Executive Officer of the Company since May 14, 2012.  Mr. Simser has also served as a member of the Company’s Board of Directors since July 3, 2012.  Mr. Simser founded and operated tech companies in the cloud-based computing, mobile app and enterprise software spaces and was a key executive of several Silicon Valley start-ups.   Mr. Simser is the Founder and Chairman of Resmis Ventures, a privately held company that takes equity positions in early stage mobile technology companies. He served as the President of Merchant World Services, a privately held company that offers mobile apps focused on personal safety and security.  Previously, Mr. Simser was Director of Worldwide Incubation for Microsoft Corporation, where he led an incubation team that worked on M&A deals, integration of bought assets and the globally related products, solutions and assets.  He co-founded the cloud-based CRM software company eAssist, funded by eighty million dollars in venture capital.  Mr. Simser also founded the business process offshore (BPO) company OSP that was responsible for least-cost shoring two hundred and fifty million dollars in corporate infrastructure.  He was the Vice President of business development at Wireless Services Corporation, a company that offers mobile messaging platforms to MNOs, where he helped raise multi-million dollar rounds of capital and developed channel and partner relationships.  Mr. Simser has also served as a manager at both Clearnet Communications, a fast growing wireless carrier, and at IDRC, an outsourcer.  Mr. Simser studied Economics at the University of Ottawa where he commits time supporting school fund raising activities.
 
Emlyn David.  Mr. David has served as the Company’s Chief Financial Officer since May 14, 2012.  Mr. David served as a member of the Company’s Board of Directors since February 1, 2012.  From February 1, 2012 until May 14, 2012, Mr. David served as the Company’s Chief Executive Officer.  Mr. David has over 20 years of investment analysis and corporate financial management experience.  Mr. David is CEO and Director of Bellair Ventures, a company listed on the Toronto Stock Exchange. Bellair is a Diversified Industrial Services Business in the Alternative Energy and Mechanical Contracting sectors, prior to this he was the managing partner of Cangap Capital Corp., a niche merchant bank which invests in and lends to a wide range of companies, including those with interests in Transportation, Business Aviation, Environmental Services and Media Finance.  Mr. David began his career working as a Corporate Financial Manager with Cambridge Shopping Centres, which was one of the largest public real estate companies in North America at that time.  Subsequent to that position, Mr. David co-founded a niche real estate investment-banking group within a large national brokerage firm, participating in over 15 listings of REITS and Real Estate companies on the Toronto Stock exchange.