Epcylon Technologies, Inc. - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - Epcylon Technologies, Inc.	Financial_Report.xls
EX-3.5 - BYLAWS - Epcylon Technologies, Inc.	f10q0212ex3v_mobileinteg.htm
EX-32.1 - CERTIFICATION - Epcylon Technologies, Inc.	f10q0212ex32i_mobileinteg.htm
EX-31.1 - CERTIFICATION - Epcylon Technologies, Inc.	f10q0212ex31i_mobileinteg.htm
EX-32.2 - CERTIFICATION - Epcylon Technologies, Inc.	f10q0212ex32ii_mobileinteg.htm
EX-31.2 - CERTIFICATION - Epcylon Technologies, Inc.	f10q0212ex31ii_mobileinteg.htm
EX-3.4 - CERTIFICATE OF AMENDMENT - Epcylon Technologies, Inc.	f10q0212ex3iv_mobileinteg.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 29, 2012

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

Commission File Number: 000-53770

Mobile Integrated Systems, Inc.

(Exact Name of Registrant as Specified in its Charter)

Nevada		27-0156048
(State or other jurisdiction of		(IRS Employer
incorporation or organization)		Identification No.)

Suite 502, 25 Adelaide Street

Toronto, Ontario, Canada M5C 3A1

(Address of principal executive offices)

(416) 479-0880

(Registrant’s Telephone Number, Including Area Code)

Loto Inc.

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.323.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-Accelerated Filer	¨	Smaller reporting company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of April 20, 2012, the Issuer had 153,733,130 shares of its Common Stock outstanding.

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

Item 1: Financial Statements		1
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operation		10
Item 3: Quantitative and Qualitative Disclosures about Market Risk		16
Item 4: Controls and Procedures		17

PART II: OTHER INFORMATION

Item 1: Legal Proceedings		17
Item 1A: Risk Factors		17
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds		18
Item 3: Defaults Upon Senior Securities		18
Item 4: Mine Safety Disclosures		18
Item 5: Other Information		18
Item 6: Exhibits		19

SIGNATURES		20

PART I

FINANCIAL INFORMATION

MOBILE INTEGRATED SYSTEMS INC

(A Development Stage Company)

CONSOLIDATED BALANCE SHEET

CURRENT ASSETS:	February 29, 2012 UNAUDITED			May 31, 2011 AUDITED

Cash	$	26,120		$	153,162
Prepaid rent		10,836			10,836
Receivables (Note 3)		29,016			110,848

TOTAL CURRENT ASSETS		65,972			274,846

Property and equipment, at cost		31,060			31,060
Accumulated amortization		(23,217	)		(17,160	)
Net capital assets (Note 4)		7,843			13,900

TOTAL ASSETS	$	73,815		$	288,746


LIABILITIES and STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
Accrued liabilities (Note 5)	$	174,929		$	226,836
Standby loan (Note 6)		463,032			448,737
Promissory Note (Note 6)		204,219
Due to stockholders		2,192			312

CURRENT LIABILITIES AND TOTAL LIABILITIES		844,372			675,885


STOCKHOLDERS' EQUITY:
Common stock, par value $0.0001 (note 7)
100,000,000 shares authorized
32,712,626 issued and outstanding (2011-55,333,334)		3,272			5,533
Additional paid-in capital		3,347,413			2,073,780
Other comprehensive gain (loss)		(5,320	)		(10,046	)
Deficit accumulated during development stage		(4,115,922	)		(2,456,406	)


TOTAL STOCKHOLDERS' DEFICIENCY	$	(770,557	)	$	(387,139	)

TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIENCY	$	73,815		$	288,746

	$	0

See notes to the consolidated financial statements

MOBILE INTEGRATED SYSTEMS INC

(A Development Stage Company)

											From Inception
	For the Three Months			For the Three Months		For the Nine Months		For the Nine Months			(September 16, 2008
	Ended February 29, 2012			Ended February 28, 2011		Ended February 29, 2012		Ended February 28, 2011			to February 29, 2012)
	UNAUDITED			UNAUDITED		UNAUDITED		UNAUDITED			UNAUDITED

REVENUE		33,900			-		33,900		-			33,900
		33,900			-		33,900		-			33,900

EXPENSES
General and Administrative expenses		(209,738	)		(117,658		(1,674,875		(814,748	)		(4,095,774	)
OPERATING (LOSS)		(175,838			(117,658		(1,640,975		(814,748	)		(4,061,874	)

OTHER EXPENSE
Interest Expense		(7,258	)		(5,378		(18,541		(16,992	)		(54,048	)

NET LOSS FOR THE PERIOD		(183,096	)		(123,036		(1,659,516		(831,740	)		(4,115,922	)




Basic and fully diluted earnings per share	$	0.01		$	0.00	$	0.05	$	(0.02	)

Weighted Average Shares Outstanding		31,739,630			55,477,778		34,199,815		55,141,289

See notes to the consolidated financial statements

MOBILE INTEGRATED SYSTEMS INC

(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

FROM INCEPTION (SEPTEMBER 16, 2008) TO FEBRUARY 29, 2012


	Shares			Amount			Additional Paid-In Capital			Deficit Accumulated During Development Stage			Other Comprehensive Loss			Total

BALANCE - MAY 31, 2009		40,000,000			4,000			16,091			(10,979	)		-			9,112


Sale of shares		15,000,000			1,500			148,500									150,000

Cancellation of Founders' shares		(1,000,000	)		(100	)											(100	)

Sale of shares		572,963			57			859,386									859,443

Other comprehensive loss resulting from foreign exchange transactions														(598	)		(598	)

Net loss											(1,122,792	)					(1,122,792	)

BALANCE - MAY 31, 2010		54,572,963			5,457			1,023,977			(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		200,000			20			149,980									150,000

Sale of shares		1,400,000			140			1,049,860									1,050,000

Cancellation of Founders' shares		(1,212,592	)		(121	)											(121	)

Issuance of shares to certain existing shareholders		572,963			57			(57	)								-

Cancellation of shares issued for Consulting services		(200,000	)		(20	)		(149,980	)								(150,000	)

Net loss											(1,322,635	)					(1,322,635	)

BALANCE - May 31, 2011		55,333,334			5,533			2,073,780			(2,456,406	)		(10,046	)		(387,139	)

Other comprehensive gain / (loss) resulting from foreign exchange conversions														4,726			4,726
Cancellation of Founders' shares (Note 7)		(18,793,704	)		(1,879	)											(1,879	)

Cancellation of Shares (Note 7)		(4,800,000	)		(480	)		(47,520	)								(48,000	)

Sale of shares		366,700			37			274,988									275,025

Share issue costs								(22,002	)								(22,002	)

Stock Options - Stock Compensation Expense								1,068,167									1,068,167

Cancel Share Reinstatement		606,296			61												61

Net loss											(1,659,516	)					(1,659,516	)

BALANCE - February 29, 2012		32,712,626			3,272			3,347,413			(4,115,922	)		(5,320	)		(770,558	)

See notes to the consolidated financial statements

MOBILE INTEGRATED SYSTEMS INC

(A Development Stage Company)

CONSOLIDATED STATEMENT OF CASH FLOWS

UNAUDITED


	For the Nine Months			For the Nine Months			From Inception
	Ended February 29,			Ended February 28,			(September 16, 2008
	2012			2011			to February 29, 2012)

OPERATING ACTIVITIES:
Net loss for the period		(1,659,516	)		(831,740	)		(4,115,922	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization		6,030			7,818			23,190
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		18,541			16,993			41,347
Stock Compensation Expense		1,068,167			-			1,068,167
Changes in operating assets and liabilities:
Prepaid rent		-			(2,717	)		(10,836	)
Other current assets		81,832			(65,858	)		(29,016	)
Accrued liabilities		(51,907	)		37,368			174,929


NET CASH USED IN OPERATING ACTIVITIES		(536,853	)		(838,136	)		(2,848,141	)


INVESTING ACTIVITIES:
Acquisition of capital assets		-			-			(31,060	)

NET CASH USED IN INVESTING ACTIVITIES		-			-			(31,060	)


FINANCING ACTIVITIES:
Deposit for stock subscription		-			-			150,000
Proceeds from loan		200,000			-			625,931
Issuance (net of redemption) of common stock		203,144			1,050,000			2,132,578
Proceeds from stockholder loan		1,941			-			2,132



NET CASH PROVIDED BY INVESTING ACTIVITIES		405,085			1,050,000			2,910,641

Effect of exchange rates on cash		4,726			10,631			(5,320	)

INCREASE (DECREASE) IN CASH		(127,042	)		222,495			26,120

CASH - BEGINNING OF PERIOD		153,162			309,018			-

CASH - END OF PERIOD		26,120			531,513			26,120


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year
Interest paid		-			-			-
Income taxes		-			-			-

See notes to the consolidated financial statements

MOBILE INTEGRATED SYSTEMS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FEBRUARY 29, 2012

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization and Business Description

Mobile Integrated Systems, Inc., formerly known as Loto Inc. (the “Company”), together with its wholly owned subsidiary Mobilotto Systems Inc., are development stage companies. The Company is developing a patent-pending software application that permits the secure purchase of lottery tickets on commercially available “smart” phones and similar mobile telecommunications devices. A smart phone is a mobile phone offering advanced capabilities, often with personal computer-like functionality, such as e-mail, Internet access and other applications. 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 operate or license software applications with governments and other lottery operators as the primary source of revenue. The Company has no intention to become a lottery operator. The Company’s mobile lottery software application has not yet been utilized by any lottery operator. For the three months ending February 29, 2012 the Company had revenue of $33,900. This revenue represented a progress payment against the development of a new mobile application for the Princess Margaret Hospital Foundation Home Lottery; the Company did not receive any payment for its mobile lottery software application.

Basis of Consolidation and Development Stage Activities

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. 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.

NOTE 2 – 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 $33,900 since inception, has an accumulated loss of $4,115,922 as of February 29, 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 3 – RECEIVABLES

Receivables totaled $29,016 relating to goods & service tax receivables.

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

			Accumulated
	Cost		Depreciation		Net

Leasehold improvements	$	3,500	$	3,500	$	-

Computer equipment	$	18,950	$	15,200	$	3,750

Office furniture and equipment	$	8,610	$	4,517	$	4,093

Total	$	31,060	$	23,217	$	7,843

Total depreciation expense for the three months ended February 29, 2012 was $6,030.

NOTE 5 – ACCRUED LIABILITIES

Accrued liabilities totaled $174,929 and included the following: Payments due for programming and system testing and consulting of $128,297, accrued legal expenses of $31,104, accrued audit fees of $14,900.

NOTE 6 – STANDBY LOAN

On August 3, 2009, two shareholders, Mhalka Capital Investments Ltd. and 1476448 Ontario Inc., made a standby financing commitment to the Company under which they agreed to provide funding to the Company. (the “Standby Loan”). On April 19, 2010, 2238646 Ontario Inc. entered into a Novation to the Standby Financing Commitment with the Company pursuant to which 2238646 Ontario Inc. has agreed to the remaining commitments of Mhalka Capital Investment Ltd. Draws made on the commitment amount are subject to interest as of the date of the draw at prime rate plus two percent per annum. These amounts are repayable thirty calendar days after demand at any time following the earlier of (a) September 30, 2010 or (b) the date upon which the Company is in receipt of revenues or proceeds from the sales of equity securities. If the Company breaches any of the covenants, the default rate will be 15% per annum. The standby financing commitment expired on September 30, 2010. As of February 29, 2012, $463,032 including accrued interest was drawn and payable against this commitment.

In addition, A Few Brilliant Minds, a related party, has advanced $85,676 including accrued interest. As a result of a Share Cancellation Agreement (see Note 7), this loan has been repaid.

On September 27, 2011, Brantford Resources Ltd. advanced $200,000 to the Company under the terms of a Secured Promissory Note. The terms of this note are as follows: (i) interest shall be calculated at an annual rate of 5%; (ii) the note shall be due on or before September 19, 2012; and (iii) security for the payment of the note shall include any and all assets of the Company and its subsidiaries. In the event of a default, the interest rate on this note shall increase to 15% per annum. The interest accrued up until February 29, 2012 is $4,219.

NOTE 7 – CHANGES TO STOCKHOLDERS’ EQUITY (DEFICIENCY)

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 18,793,704 common shares owned by AFBMI. Concurrent with the execution of the agreement, the Company agreed to repay $85,676 (part of the standby loan, see Note 6) due to the founder within 90 days of that Agreement.

In addition, the Company also entered into Share Cancellation Agreements dated June 20, 2011 with two shareholders to cancel 4,800,000 common shares in return for the original purchase price of $48,000. The amount due is included in accounts payable.

On November 18, 2011, the Company sold 366,700 shares of the Company’s common stock to nine purchasers (the “Purchasers”) for a purchase price of $.75 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 $1.00 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 29,336 shares of the Company’s common stock, at an exercise price of $1.00 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).

NOTE 8 – 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 9 – STOCK OPTION GRANTS

On April 19, 2010, the Company granted 1,900,000 options to three members of the Company’s Board of Directors at an exercise price of $1.50 per share. The options vested on April 19, 2011, and 950,000 options may be exercised on April 19, 2011 and a further 950,000 options may be exercised on April 19, 2012. The right to exercise all of the options will expire and terminate on April 19, 2013.

As of November 29, 2011, the Company issued additional stock options to the following officers and directors of the Company, and revised certain grants made in April of 2010. Such stock options were revised by the Company’s Board of Directors as of January 13, 2012, as follows:

Donald Ziraldo was issued options to purchase 300,000 shares of the Company’s common stock, with a vesting date effective as of November 29, 2011 and an exercise price of $.75 per share. Such options are exercisable on November 29, 2011. Such options will terminate on November 29, 2014. Certain other stock options previously issued by the Company to Mr. Ziraldo have been reduced from options to purchase 900,000 shares to options to purchase 500,000 shares, at an exercise price of $1.50 per share. Half of such options vested as of April 19, 2011 and the other half shall vest as of April 19, 2012. These options to purchase 500,000 shares shall expire on April 19, 2013.

Randal Barrs was issued options to purchase 312,000 shares of the Company’s common stock, with a vesting date effective as of November 29, 2011 and an exercise price of $.75 per share. Such options are exercisable on November 29, 2011. Such options will terminate on November 29, 2014. Certain other stock options previously issued by the Company to Mr. Barrs have been reduced from options to purchase 450,000 shares to options to purchase 250,000 shares, at an exercise price of $1.50 per share. Half of such options vested as of April 19, 2011 and the other half shall vest as of April 19, 2012. These options to purchase 250,000 shares shall expire on April 19, 2013.

3.	Alan Ralph was issued options to purchase 300,000 shares of the Company’s common stock, with a vesting date effective as of November 29, 2011 and an exercise price of $.75 per share. Such options are exercisable on November 29, 2011. Such options will terminate on November 29, 2014.

Todd Halpern was issued options to purchase 1,400,000 shares of the Company’s common stock, with a vesting date effective as of November 29, 2011 and an exercise price of $.75 per share. Such options are exercisable on November 29, 2011. Such options will terminate on November 29, 2014. Todd Halpern was also issued options to purchase 150,000 shares of the Company’s common stock, with a vesting date effective as of November 29, 2012 and an exercise price of $1.50 per share. Half of such options are exercisable on November 29, 2012 and the other half on November 29, 2013. Such options will terminate on November 29, 2014.

Fulvio Ciano was issued options to purchase 1,269,585 shares of the Company’s common stock, with a vesting date effective as of November 29, 2012 and an exercise price of $1.50 per share. Half of such options are exercisable on November 29, 2012 and the other half on November 29, 2013. Such options will terminate on November 29, 2014.

Each of Mr. Ziraldo, Mr. Barrs, Mr. Ralph and Mr. Halpern are directors of the Company. Mr. Ciano is the Company’s former Chief Executive Officer and Chief Financial Officer.

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 250,000 shares at the option exercise price of $1.00 per share if election for options; in 2011 $150,000 if election for cash or 300,000 shares at the option exercise price of $1.00 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 250,000 options for his 2010 grant.

No options were exercised during the quarter ended February 29, 2012. The Company valued the options as of the grant date using the Black Scholes model.

NOTE 10 – CANCELLATION OF SHARES OF COMMON STOCK

The Company has sold 2,212,592 shares of the Company’s common stock 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, and Regulation S promulgated thereunder. In connection therewith, two of the Company’s shareholders, A Few Brilliant Minds Inc. and 2238646 Ontario Inc., had each entered into an agreement with the Company, the Tender And Cancellation Agreement Re Company Private Placements, dated as of April 19, 2010, pursuant to which they have each agreed to tender one-half-of-one share for each one share to be sold by the Company in private placements, and to each tender up to 4,000,000 shares of the Company’s common stock for cancellation, such that a total of up to 8,000,000 shares in the aggregate would be tendered and cancelled by such shareholders collectively.

As of February 29, 2012, the Shareholders had agreed to cancel an aggregate total of 2,212,592 common shares. A Few Brilliant Minds Inc. is no longer a party to this agreement.

Pursuant to such Tender and Cancellation Agreement Re Company Private Placements, 606,296 shares of the Company’s common stock were to be canceled by 2238646 Ontario Inc., such that 2238646 Ontario Inc. would have 18,693,704 issued and outstanding shares of the Company’s common stock, as the Company has previously disclosed. On November 29, 2011, the Company’s Board of Directors determined that it was advisable to reverse the Tender and Cancellation Agreement Re Company Private Placements and not cancel the shares of 2238646 Ontario Inc. However, this reversion was not implemented until December 1, 2011. As a result of this reversion, 2238646 Ontario Inc. will retain all 19,300,000 shares of its common stock without giving effect to any cancellations. Mr. Randall Barrs, one of the Company’s directors, is also a shareholder and director of 2238646 Ontario Inc., the Company’s majority shareholder. Mr. Barrs abstained from deliberation and voting regarding this cancellation. A Few Brilliant Minds Inc. previously tendered and canceled all of its shares of the Company, and the reversion will have no effect on such previously tendered and canceled shares owned by A Few Brilliant Minds Inc.

As of November 30, 2011, the Company had 32,106,330 shares issued and outstanding. As of December 1, 2011, the Company had 32,712,626 shares issued and outstanding, as a result of the reversion.

NOTE 11 – SUBSEQUENT EVENTS

Cancellation of 2,100,000 shares

On March 7, 2012, a shareholder of the Company tendered for cancellation 2,100,000 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.

Amendment to the Company’s Articles of Incorporation

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.” (this action is referred to herein as the “Name Change”). The Company changed its name as part of an effort to re-brand the Company.

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 (this action is referred to herein as the “Increase in Authorized Shares,”) 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” and together with the Increase in Authorized Shares and the Name Change, as the “Amendments”). The Company increased its number of authorized shares in order to facilitate the Company’s Stock Split. The Company declared a forward stock split of our Common Stock so that each outstanding share of our Common Stock before the Stock Split now represents five (5) shares after the 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. On the effective date of the Stock Split, each one share of our Common Stock issued and outstanding immediately prior to the Stock Split was converted into five shares of our Common Stock.

Sale of Securities

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 $.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 shall pay 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.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OFOPERATIONS

Forward Looking Statements

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Report. Some of the statements contained in this Report that are not historical facts are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which can be identified by the use of terminology such as "estimates," "projects," "plans," "believes," "expects," "anticipates," "intends," or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. However, as the Company intends to issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, the Company is ineligible to rely on these safe harbor provisions. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting our operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, our performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

	·	Our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
	·	Our ability to raise capital when needed and on acceptable terms and conditions;

	·	The intensity of competition;
	·	General economic conditions; and

Changes in government regulations.

The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained or incorporated by reference herein to reflect future events or developments.

Unless otherwise provided in this Report, references to the "Company," the "Registrant," the "Issuer," "we," "us," and "our" refer to Mobile Integrated Systems, Inc.

Critical Accounting Policies and Estimates

The Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different conditions.

Plan of Operation

We are a development stage company and now also a deployment stage company. We are developing a patent-pending software application which permits the secure purchase of lottery tickets on commercially available “smart” phones and similar mobile telecommunications devices. A smart phone is a mobile phone offering advanced capabilities, often with personal computer-like functionality, such as e-mail, Internet access and other applications. Our proprietary technology for facilitating the purchase of lottery tickets through commercially available smart phones and other mobile devices 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. We intend to license our software application to governments and other lottery operators as our primary source of revenue. We do not intend to become a lottery operator. During the foreseeable future, we expect to pursue our business outside of the United States. Our business plan calls for launching our mobile lottery application in the target markets of the Caribbean, Canada, Mexico, South America, Asia (China, Vietnam), Africa, Europe (Turkey and the United Kingdom of Great Britain) and the Eastern bloc region.

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. We believe our application is commercially viable and will provide a complete, fully functional and flexible mobile lottery platform for lottery operators worldwide.

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 anticipate our current in progress deployment in Haiti will generate revenues in 2012.

Assets and Liabilities

As of February 29, 2012, the Company had total assets of $73,815, including total current assets of $65,972. This represented a decline from May 31, 2011, at which time the Company’s total assets were $288,746, including total current assets of $274,846. We have prepaid rent in the amount of $10,836 as a condition of renting business premises, which commenced on March 11, 2011 at Suite 502, 25 Adelaide Street in Toronto, Ontario. We also own fixed assets with a cost of $31,060 which consists of computer equipment, office furniture and equipment and leasehold improvements. The decrease in assets is predominately a result of using cash to fund expenses in the course of normal operations.

The Company’s total liabilities increased from $675,885 at May 31, 2011 to $844,372 at February 29, 2012. This increase is the result of regular accruals made in the ordinary course of operations and a promissory note in the amount of $200,000 issued by the Company (this note, with accrued interest, now represents a liability of $204,219). Accrued liabilities at February 29, 2012 totalled $174,929, which was a decrease from $226,836 at May 31, 2011, and included the following: Payments due for programming and system testing and consulting of $128,297, accrued legal expenses of $31,104, accrued audit fees of $14,900. Standby loans and interest totalled $463,032 at February 29, 2012, which was an increase from $448,737 at May 31, 2011.

Liquidity and Capital Resources

As of February 29, 2012, the Company had $26,120 in cash, which was a decrease from $153,162 at May 31, 2011. As a development stage company, we have limited capital and limited operating resources. We do not have sufficient funds to pay our current accrued liabilities and the current cash on hand in our bank accounts is not sufficient to maintain our operations.

Through February 29, 2012, we have raised $2,282,457 via private placements of common stock, and $660,020 via loan agreements. 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. Therefore we anticipate further capital raises will be required to bring the company to revenues.

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 $1,200,000. We will need additional amounts of funding in order to expand our operations.

Management believes that without obtaining additional financing or developing an ongoing source of revenue, we will not launch successfully. Although we have actively been pursuing new business opportunities, we cannot give assurance that we will succeed in this endeavor, or be able to enter into necessary agreements to pursue our business on terms favorable to us. Should we be unable to generate additional revenues or raise additional capital, we could eventually be forced to cease business activities altogether.

Results of Operations for the Three and Nine Months Ended February 29, 2012 and February 29, 2012

Income

We are a development stage company and now also a deployment stage company. For the three months ending February 29, 2012 the Company had revenue of $33,900. This revenue represented a progress payment against the development of a mobile application for the Princess Margaret Hospital Foundation Home Lottery. This contract was a development fee contract and represents the Company’s first successful development and deployment of its technology capabilities. The Company believes that this project demonstrates the marketability of the Company’s core lottery offering. Furthermore, the Company believes it has also opened up a new market opportunity in the Fundraising/Foundation market place. We will continue to concentrate 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 also now have identifiable opportunities and are working closely with partners in Venezuela and Haiti, as well as with some lottery operators in Canada. In addition, we are actively pursuing other opportunities elsewhere. Our core mobile lottery software application has not yet been utilized by any lottery operators and we have derived limited revenues from our technology. Based on the progress we have achieved to date we anticipate revenue to increase as we move into 2012. There is no guarantee that we will be able to successfully develop and launch any of these current projects or that it will generate sufficient revenue to sustain our operations.

The Company has also now partnered with Quantitative Alpha Trading Inc. (QAT), a proprietary development company with a leading edge trading platform, to “mobilize” its core product. The product will be a mobile application displaying QAT’s proprietary market sentiment indicator. The Company is currently in beta testing on this product and is excited about the new opportunity that this product offers. The Company intends to execute a Licensing agreement and sell this product on a monthly fee basis and anticipates having a product available in the market by the end of the August 31, 2012. Although there is no guarantee that this product will gain market acceptance and earn revenue, the Company believes that it is in the unique position to be able to offer an advanced proprietary product not currently available in the market.

Expenses

During the three months ended February 29, 2012, we incurred $209,738 in total operating expenses. This was an increase from the three month period ended February 29, 2011 during which we incurred expenses of $117,658 in total operating expenses. Since the Company’s inception on September 16, 2008, expenses have totaled $4,095,774.

During the nine months ended February 29, 2012, we incurred $1,674,875 in total expenses. These expenses included operating expenses of $606,708 and stock compensation expenses of $1,068,167. This was an increase from the nine month period ended February 29, 2011, during which we incurred $814,748 in total operating expenses.

Systems development expenses of $77,985 for the three months ended February 29, 2012 were incurred for the creation and scoring of the Company’s development request for proposal which was issued in late August of 2011, and on-going refinement of the Statement of Work and contract. Systems development expenses of $74,936 for the three months ended February 29, 2011 were incurred for the creation, modification, and maintenance of game demonstrations as well as furtherance of defining the carrier-grade product.

During the three months ended February 29, 2012, salaries expense was $42,357 compared to $97,263 for the three months ended February 29, 2011. The Company has reduced the salaries of full time staff and has allocated staff expense to systems development expense.

During the three months ended February 29, 2012, rent and office expenses of $16,917 were incurred for the head office of the Company. During the three months ended February 29, 2011 rent and office expenses were $19,407.

Legal and accounting fees of $53,624 were incurred for the three months ended February 29, 2012, for the creation of all required public company filings, financial statements and internal corporate needs. This was an increase from the three months ended February 29, 2011, in which legal and accounting fees of $18,612 were incurred.

Director, Officer and Liability Insurance expenses of $8,052 were incurred for the three months ended February 29, 2012.

Marketing expenses for the three months ended February 29, 2012 were $5,951. Marketing expenses of $1,563 for the three months ended February 29, 2011were incurred in the creation and printing of investor information, product information, specific lottery operator presentations and RFP’s.

Interest expense accrued on the Standby Loan(s) was $7,258 for the three months ended February 29, 2012.

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.	Changing the name of the Company to Mobile Integrated Systems Inc. to represent the Company’s expanded focus on developing and deploying mobile applications around its core technology platform.

2.	Partner with Quantitative Alpha Trading Inc. to offer a mobile offering of the Company’s proprietary market sentiment indicator.

3.	Completion of the patent and trademark registrations.

4.	Adherence to our Marketing Plan (see section below).

5.	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).

6.	As opportunities arise, partner with existing suppliers of games to lottery operators in order to mobilize existing lottery games.

7.	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.

8.	Complete appropriate certifications in promising jurisdictions to become a lottery retailer/distributor and/or supplier to specific lottery operators.

9.	Partner with the emerging internet gaming suppliers and new lottery licensees to mobilize their offerings.

10.	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.	Changing the name of the Company to Mobile Integrated Systems Inc. to represent the Company's expanded focus on developing and deploying mobile applications around in core technology platform

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

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.

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 the Company’s products. Currently, opportunities appear to be strong in Canada, Africa, Mexico, Asia, and Europe. Also, the U.S. may become a market for the Company should existing restrictions on internet lottery be changed, or the Company’s geo-locational restrictions be confirmed.

5.	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.

6.	Develop relationships with existing internet gaming companies to “mobilize” their product offerings.

7.	Once the Company’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 negotiating 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 February 29, 2012, the Company had issued warrants to purchase 396,036 shares of the Company’s common stock, at an exercise price of $1.00 per share.

Common Stock

As of February 29, 2012, there were 32,712,626 shares of the Company’s common stock issued and outstanding. Following the cancellation of 2,100,000 shares, the Company’s five for one stock split, and the issuance of 670,000 shares in April pursuant to securities purchase agreements, there are now 153,733,130 shares of the Company’s common stock issued and outstanding.

Employees

We currently have 5 full-time employees who are dedicated to the primary functions of proprietary technology, sales and marketing to lottery operators, development of existing and next generation games for mobile application, and corporate administration. These include our Chief Executive Officer, our President, CFO and CTO, our Director of Development, our Development Analyst, and our Director of Human Resources and Administration.

We expect to hire additional full time employees in the coming year as necessities dictate.

We have engaged consultants for accounting, legal, and other part-time and occasional services.

Officer and Director Transitions

Effective as of February 1, 2012: (i) Mr. Emlyn David has been appointed as the Chief Executive Officer of the Company and as a Member of the Company’s Board of Directors (the “Board”); (ii) Mr. Rich Schaeffer has been appointed as a Member and as Co-Chairman of the Board; (iii) Mr. Todd Halpern, a Member of the Board, has been appointed as Co-Chairman of the Board; (iv) Mr. James McGovern has been appointed as a Member of the Board; (v) Mr. Fulvio Ciano has resigned as the Chief Executive Officer of the Company; and (vi) Mr. Donald Ziraldo has resigned as the Chairman of the Board.

Effective as of February 14, 2012, Mr. Benjamin Chesir has been appointed as a Member of the Board.

Amendment to the Company’s By-Laws

Effective as of February 1, 2012, the Board approved the following amendment to the Company’s By-Laws, to increase the maximum authorized number of members of the Board from seven (7) to ten (10). Article III, Section 3.2 of the Company’s By-Laws was deleted in its entirety and replaced with the following:

Section 3.2 Number, Tenure, and Qualifications. The Board of Directors of the Corporation shall consist of at least one (1) individual(s) and not more than ten (10) individuals. The number of directors within the foregoing fixed minimum and maximum may be established and changed from time to time by resolution adopted by the Board of Directors of the Corporation without amendment to these Bylaws or the Articles of Incorporation. Each director shall hold office until his or her successor shall be elected or appointed and qualified or until his or her earlier death, retirement, disqualification, resignation or removal. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his or her term of office. No provision of this Section shall be restrictive upon the right of the Board of Directors to fill vacancies or upon the right of the stockholders to remove directors as is hereinafter provided.

Subsequent Events

Cancellation of 2,100,000 shares

Amendment to the Company’s Articles of Incorporation

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.” (this action is referred to herein as the “Name Change”). The Company changed its name as part of an effort to re-brand the Company.

On February 14, 2012, the Board of Directors of the Company approved and recommended the Amendments. Stockholders holding a majority of the voting rights of all outstanding shares of capital stock then voted in favor of the foregoing proposals by written consent.

Securities Purchase Agreements

Off-Balance Sheet Arrangements

There are no off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Item 3.

Qualitative and Quantitative Disclosure About Market Risk

Not applicable

Item 4.

Controls and Procedures

Management's Report on Internal Control Over Financial Reporting

Management of our Company is responsible for establishing and maintaining adequate internal control over financial reporting. Our Company's internal control over financial reporting is a process, under the supervision of the Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's 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 all reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

·	Provide reasonable assurance of the completeness and authorization for checks to be issued;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally acceptable accounting principles, and that the 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 acquisitions, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

As of the end of the period covered by this report, the Company carried out, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) in ensuring that information required to be disclosed by the Company in its reports is recorded, processed, summarized and reported within the required time periods. Based on their evaluation of the Company’s disclosure controls and procedures as of February 29, 2012, the Company’s Chief Executive Officer and Chief Financial Officer has concluded that, as of that date, the Company’s controls and procedures were effective for the purposes described above.

Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended February 29, 2012 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

The Company is not, and has not been during the period covered by this Quarterly Report, a party to any legal proceedings.

ITEM 1A.

RISK FACTORS

Not Applicable.

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3:

DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4:

MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5:

OTHER INFORMATION

Those sections of the Management’s Discussion and Analysis of Financial Condition and Results of Operations entitled “Cancellation of 2,100,000 shares,” and “Securities Purchase Agreements” are incorporated herein by reference thereto.

ITEM 6:

EXHIBITS

Exhibit	Description

Exhibit 3.4	Bylaws of the Company, as amended.

Exhibit 3.5	Amendment to the Articles of Incorporation of the Company.

Exhibit 31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1	Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.2	Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema

101.CAL	XBRL Taxonomy Extension Calculation Linkbase

101.DEF	XBRL Taxonomy Extension Definition Linkbase

101.LAB	XBRL Taxonomy Extension Label Linkbase

101.PRE	XBRL Taxonomy Extension Presentation Linkbase

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MOBILE INTEGRATED SYSTEMS, INC.

	By:	/s/ Emlyn David
	Name:	Emlyn David
	Title:	Chief Executive Officer

	By:	/s/ Fulvio Ciano
	Name:	Fulvio Ciano
	Title:	Principal Financial Officer and Chief Executive Officer

Dated: April 23, 2012

Attached files

Epcylon Technologies, Inc. Reports

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