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EXCEL - IDEA: XBRL DOCUMENT - Epcylon Technologies, Inc.Financial_Report.xls
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. - Epcylon Technologies, Inc.f10q1111ex31i_loto.htm
EX-10.20 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND FULVIO CIANO, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xx_loto.htm
EX-10.15 - EMPLOYMENT AGREEMENT, BY AND BETWEEN THE COMPANY AND FULVIO CIANO, DATED AS OF OCTOBER 21, 2011. - Epcylon Technologies, Inc.f10q1111ex10xv_loto.htm
EX-10.16 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND RANDAL BARRS, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xvi_loto.htm
EX-10.21 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND DONALD ZIRALDO, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xxi_loto.htm
EX-10.19 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND TODD HALPERN, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xix_loto.htm
EX-10.17 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND ALAN RALPH, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xvii_loto.htm
EX-10.22 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND DONALD ZIRALDO, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xxii_loto.htm
EX-10.18 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND TODD HALPERN, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xviii_loto.htm
EX-10.23 - STOCK OPTION AGREEMENT, BY AND BETWEEN THE COMPANY AND RANDAL BARRS, DATED AS OF NOVEMBER 29, 2011. - Epcylon Technologies, Inc.f10q1111ex10xxiii_loto.htm
EX-32.1 - CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - Epcylon Technologies, Inc.f10q1111ex32i_loto.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 November 30, 2011

¨  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

Loto Inc.
(Exact Name of Registrant as Specified in its Charter)

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

Suite 502, 25 Adelaide Street
Toronto, Ontario, Canada M5C 3A1
 (Address of principal executive offices)

(416) 479-0880
(Registrant’s Telephone Number, Including Area Code)

N/A
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.323.405 of this chapter) during the preceding 12 months (or shorter period that the registrant was required to submit and post such files).  Yes x   No o
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

As of January 20, 2012, the Issuer had 32,712,626 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
18
Item 1A: Risk Factors
18
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds
18
Item 3: Defaults Upon Senior Securities
18
Item 4: Reserved
18
Item 5: Other Information
18
Item 6: Exhibits
19
   
SIGNATURES
20
 
 
 

 
  
PART I    FINANCIAL INFORMATION
 
LOTO Inc.
(A Development Stage Company)
 
CONSOLIDATED BALANCE SHEET
 
    November 30, 2011 UNAUDITED    
May 31, 2011
AUDITED
 
CURRENT ASSETS:            
             
Cash
  $ 244,744     $ 153,162  
Prepaid rent
    10,836       10,836  
Receivables (Note 3)
    11,447       110,848  
                 
TOTAL CURRENT ASSETS
    267,027       274,846  
                 
Property and equipment, at cost
    31,060       31,060  
Accumulated amortization
    (21,180 )     (17,160 )
Net capital assets (Note 4)
    9,880       13,900  
                 
TOTAL ASSETS
  $ 276,907     $ 288,746  
                 
                 
LIABILITIES and STOCKHOLDERS' DEFICIENCY
 
                 
CURRENT LIABILITIES:
               
Accrued liabilities (Note 5)
  $ 202,217     $ 226,836  
Standby loan (Note 6)
    458,267       448,737  
Promissory Note (Note 6)
    201,753          
Due to stockholders
    2,192       312  
                 
TOTAL CURRENT LIABILITIES AND TOTAL LIABILITIES
    864,429       675,885  
                 
                 
STOCKHOLDERS' DEFICIENCY:
               
Common stock, par value $0.0001 (note 7)
               
    100,000,000 shares authorized
               
    32,106,330 issued and outstanding (2010-55,333,334)
    3,211       5,533  
Additional paid-in capital
    2,279,246       2,073,780  
Other comprehensive loss
    (5,320 )     (10,046 )
Deficit accumulated during development stage
    (2,864,659 )     (2,456,406 )
                 
TOTAL STOCKHOLDERS' DEFICIENCY
  $ (587,522 )   $ (387,139 )
                 
                 TOTAL LIABILITIES AND STOCKHOLDERS'
               
                         DEFICIENCY
  $ 276,907     $ 288,746  
 
See notes to the consolidated financial statements
 
 
1

 
 
LOTO Inc.
(A Development Stage Company)
 
CONSOLIDATED STATEMENT OF OPERATIONS
 
   
For the Three
Months Ended
November 30, 2011 UNAUDITED
   
For the Three
Months Ended
November 30, 2010 UNAUDITED
   
For the Six
Months Ended
November 30, 2011 UNAUDITED
   
For the Six
Months Ended
November 30, 2010 UNAUDITED
   
From Inception 
(September 16, 2008) to November 30, 2011 UNAUDITED
 
                               
REVENUE
    -       -                   -  
                                     
                                     
                                     
EXPENSES
                                   
General and administrative expenses
    201,620       297,522       396,970       697,090       2,817,869  
OPERATING LOSS
    201,620       297,522       396,970       697,090       2,817,869  
                                         
OTHER EXPENSE
                                       
Interest Expense
    6,518       5,664       11,283       11,254       46,790  
                                         
NET LOSS FOR THE PERIOD
    208,138       303,186       408,253       708,344       2,864,659  
                                         
                                         
                                         
Basic and fully diluted earnings per share
  $ (0.01 )   $ (0.01 )   $ (0.01 )   $ (0.01 )        
                                         
Weighted Average Shares Outstanding
    31,861,863       55,251,181       34,199,815       54,767,328          
 
See notes to the consolidated financial statements
 
 
2

 
 
LOTO Inc.
(A Development Stage Company)
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FROM INCEPTION (SEPTEMBER 16, 2008) TO NOVEMBER 30, 2011
 
   
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
    20,000,000       2,000       18,000                     20,000  
                                               
Shares issued in connection with Acquisition of
    20,000,000       2,000       (2,000 )                   0  
Mobilitto, Inc.
                                             
                                               
BALANCE - MAY 31, 2009
    40,000,000       4,000       16,091       (10,979 )     0       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 )                     0  
                                                 
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 )
                                                 
Net loss
                            (408,253 )             (408,253 )
                                                 
BALANCE -November 30, 2011
    32,106,330       3,211       2,279,246       (2,864,659 )     (5,320 )     (587,522 )
 
See notes to the consolidated financial statements
 
 
3

 
 
LOTO Inc.
(A Development Stage Company)
 
CONSOLIDATED STATEMENT OF CASH FLOWS 
UNAUDITED
 
   
For the Six Months Ended November 30, 2011
   
For the Six Months Ended November 30, 2010
   
From Inception 
(September 16, 2008) to November 30, 2011
 
                   
                   
OPERATING ACTIVITIES:
                 
Net loss for the period
    (408,253 )     (708,344 )     (2,864,659 )
Adjustments to reconcile net loss to net cash
                       
  used in operating activities:
                       
     Amortization
    4,018       5,046       21,178  
     Common stock issued for services
    0       150,000       150,000  
     Cancellation of Common stock issued for services
    0               (150,000 )
     Interest expensed but not paid
    11,283       11,254       34,089  
Changes in operating assets and liabilities:
                       
     Prepaid rent
    0       0       (10,836 )
     Other current assets
    99,401       (57,884 )     (11,447 )
     Accrued liabilities
    (24,617 )     30,526       202,219  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (318,168 )     (569,402 )     (2,629,456 )
                         
                         
INVESTING ACTIVITIES:
                       
     Acquisition of capital assets
    0       0       (31,060 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    0       0       (31,060 )
                         
                         
FINANCING ACTIVITIES:
                       
    Deposit for stock subscription
            0       150,000  
    Proceeds from loan
    200,000       0       625,931  
    Issuance (net of redemption) of common stock
    203,144       1,050,000       2,132,578  
    Proceeds from stockholder loan
    1,880       0       2,071  
                         
NET CASH PROVIDED BY INVESTING ACTIVITIES
    405,024       1,050,000       2,910,580  
 
                       
     Effect of exchange rates on cash
    4,726       5,988       (5,320 )
                         
INCREASE IN CASH
    91,582       486,586       244,744  
                         
CASH - BEGINNING OF PERIOD
    153,162       309,018       0  
                         
CASH - END OF PERIOD
    244,744       795,604       244,744  
                         
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
                       
Cash paid during the year
                       
    Interest paid
    0       0       0  
    Income taxes
    0       0       0  
 
See notes to the consolidated financial statements
 
 
4

 
 
LOTO INC.
(A Development Stage Company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOVEMBER 30, 2011
 
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION
 
Organization and Business Description
 
Loto Inc. (“Loto” or the “Company”), together with its wholly owned subsidiary Mobilotto Systems, Inc. (“Mobilotto”), 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 intention to operate or license software applications with governments and other lottery operators as the primary source of revenue. There is no intention to become a lottery operator. The mobile lottery software application has not yet been utilized by any lottery operator, and no revenues have yet been generated from the technology.
 
Basis of Consolidation and Development Stage Activities
 
These consolidated financial statements include the accounts of Loto 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.
 
 
5

 
 
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 not generated any revenues since inception, has an accumulated loss of $2,864,659 as of November 30, 2011 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 $11,447 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
   
$
0
 
                         
Computer equipment
 
$
18,950
   
$
13,620
   
$
5,330
 
                         
Office furniture and equipment
 
$
8,610
   
$
4,060
   
$
4,550
 
                         
Total
 
$
31,060
   
$
21,180
   
$
9,880
 
 
Total depreciation expense for the six months ended November 30, 2011 was $4,020 (2010 - $5,046).
 
NOTE 5 – ACCRUED LIABILITIES
 
Accrued liabilities totalled $202,217 and included the following: Payments due for programming, system testing and consulting of $123,797, accrued legal expenses of $11,374, accrued audit fees of $14,900, due to former shareholder $48,000 and G&A Expenses of $4,148.
 
 
6

 
 
NOTE 6 – STANDBY LOAN
 
On August 3, 2009, two shareholders, Mhalka Capital Investments Ltd. and 1476448 Ontario Inc., made a standby financing commitment to Loto under which they agreed to provide funding to Loto. (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 Loto breaches any of the covenants, the default rate will be 15% per annum. The standby financing commitment expired on September 30, 2010. As of November 30, 2011, $458,267 including accrued interest was drawn and payable against this commitment.
 
Included in the standy note is $85,676 inlcuding accrued interest owing to A Few Brilliant Minds, a related party. As a result of a Share Cancellation Agreement (see Note 7), this loan is to be 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 Loto and its subsidiaries. In the event of a default, the interest rate on this note shall increase to 15% per annum.
 
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 $85,675 (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.
 
 
7

 
 
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:
 
1.  
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.
 
2.  
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.

4.  
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.
 
5.  
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 Chief Executive Officer and Chief Financial Officer.
 
 
8

 
 
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 November 30, 2011 and none were exercisable during the quarter ended November 30, 2010. The Company has determined that the vested options had an exercise price in excess of fair value and as such no expense was recorded.
 
NOTE 10 – CANCELLATION OF SHARES OF COMMON STOCK
 
During the fiscal years ended May 31, 2010 and May 31, 2011, the Company 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., 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 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 May 31, 2011, the Shareholders had agreed to cancel an aggregate total of 2,212,592 common shares.
 
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 cancelations. 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 cancelation. 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 January 20, 2012, the Company now has 32,712,626 shares issued and outstanding, as a result of the reversion.
 
 
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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," “Loto,” the "Registrant," the "Issuer," "we," "us," and "our" refer to Loto 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.
 
 
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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 early 2012.

Assets and Liabilities

As of November 30, 2011, the Company had total Assets of $276,907, including total current assets of $267,027. 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 $864,429 at November 30, 2011.  This increase is the result of regular accruals made in the ordinary course of operations and a promissory note of $200,000 issued by the company.  Accrued liabilities at November 30, 2011 totalled $202,217 and included the following: Payments due for programming and system testing and consulting of $123,797, accrued legal expenses of $11,374, accrued audit fees of $14,900, payable due to former shareholders of $48,000 and general and administration payables of $5,300. Standby loans and interest totalled $458,267 at November 30, 2011.

Liquidity and Capital Resources

As of November 30, 2011, the Company had $244,744 in cash. 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 November 30, 2011, 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. 
 
 
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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 Six Months Ended November 30, 2011 and November 30, 2010

Income

We are a development stage company and as of November 30, 2011 there were no contracts in place and no revenue has been received. We do not expect that revenue will be realized until June 2012.  We have concentrated our efforts on developing our business strategy and obtaining financing.  We have working models ready for demonstration and we have commenced our initial sales and marketing program.  We have had early stage meetings with some lottery operators in Canada and we are actively pursuing other opportunities in Canada and elsewhere. Our mobile lottery software application has not yet been utilized by any lottery operators and we have not yet derived any revenues from our technology.  There is no guarantee that we will be able to successfully develop and launch our technology or that it will generate sufficient revenue to sustain our operations.
  
Expenses
 
During the three months ended November 30, 2011, we incurred $208,138 in total operating expenses.  This was a decrease from the period ended November 30, 2010, during which we incurred expenses of $303,186 in total operating expenses.  Since the Company’s inception on September 16, 2008, expenses have totaled $2,864,659.

During the six months ended November 30, 2011, we incurred $408,253 in total operating expenses.  This was a decrease from the six month period ended November 30, 2010, during which we incurred expenses of $708,344 in total operating expenses.

Systems development expenses of $78,088 for the three months ended November 30, 2011 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 $56,155 for the three months ended November 30, 2010 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 November 30, 2011, salaries expense was $114,110 compared to $218,555 for the three months ended November 30, 2010. The Company has reduced the salaries of full time staff and has allocated staff expense to systems development expense.

During the three months ended November 30, 2011, rent and office expenses of $15,572 were incurred for the head office of the company.  During the three months ended November 30, 2010 rent and office expenses were $23,460.

Legal and accounting fees of $24,180 were incurred for the six months ended November 30, 2011, for the creation of all required public company filings, financial statements and internal corporate needs.  This was a decline from the six months ended November 30, 2010, in which legal and accounting fees of $85,482 were incurred.
 
 
12

 
 
Director, Officer and Liability Insurance expenses of $15,707 were incurred for the six months ended November 30, 2011.

Marketing expenses for the three months ended November 30, 2011 were minimal at $4,822 Marketing expenses of $5,475 for the three months ended November 30, 2010 were incurred in the creation and printing of investor information, product information, specific lottery operator presentations and RFP’s.

Interest expense accrued on the Standby Loans was $6,518 for the three months ended November 30, 2011, which was an increase from $5,664  for the three months ended November 30, 2010.

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 Loto 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.
 
 
13

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

4.  
While brand and product marketing will be supported by the lottery operators and by the mobile network operators, we intend on pursuing additional local marketing efforts including mass awareness campaigns, cause support, and seeking specific customer input.

5.  
Develop relationships with existing internet gaming companies to “mobilize” their product offerings.

6.  
Once Loto’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 financing in the amount of $1,000,000.

$200,000 Loan to the Company

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 Loto and its subsidiaries. In the event of a default, the interest rate on this note shall increase to 15% per annum.
 
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 November 30, 2011, we had no outstanding warrants.
 
Common Stock
 
As of November 30, 2011, there were 32,106,330 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 and CFO, President and CTO, our Director of Development, our Development Analyst, 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.
 
 
14

 
 
Officer and Director Transitions

Resignation of Stephen Knight as Chief Executive Officer, Chief Financial Officer and Director

Effective as of October 21, 2011, Mr. Stephen Knight resigned as the Chief Executive Officer, Chief Financial Officer and as a member of the Board of Directors of the Company.

Appointment of Fulvio Ciano as Chief Executive Officer and Chief Financial Officer

Effective as of October 21, 2011, Mr. Fulvio Ciano has been appointed as the Chief Executive Officer and Chief Financial Officer of the Company.   Since June 2, 2011, Mr. Ciano has served as the Company’s President and Chief Technology Officer. 

As of October 21, 2011, the Company and Mr. Ciano entered into an Employment Agreement, pursuant to which Mr. Ciano will be paid One Hundred and Twenty Thousand (120,000) Canadian Dollars per annum, less any applicable statutory and regulatory deductions (the “Base Salary”).  This Base Salary shall be increased to one hundred fifty thousand (150,000) Canadian Dollars per annum upon the Company’s receipt of revenue from the sale of its products and services. 

Reversal of Tender and Cancellation Agreement Re Company Private Placements

During the fiscal years ended May 31, 2010 and May 31, 2011, the Company 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., 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 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 May 31, 2011, the Shareholders had agreed to cancel an aggregate total of 2,212,592 common shares.
 
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 cancelations. 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 cancelation. 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 January 20, 2012, the Company now has 32,712,626 shares issued and outstanding, as a result of the reversion.

Stock Option Grants

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

1.  
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.

2.  
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.
 
 
15

 
 
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.

4.  
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.

5.  
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 Chief Executive Officer and Chief Financial Officer.

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
 
 
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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 November 30, 2011, 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 November 30, 2011 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

 
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PART II.  OTHER INFORMATION

ITEM 1.       LEGAL PROCEEDINGS
 
The Company is not, and has not been during the period covered by this Quarterly Report, a party to any legal proceedings.
 
ITEM 1A.    RISK FACTORS
 
Not Applicable.

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

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).

ITEM 3:       DEFAULTS UPON SENIOR SECURITIES

Not Applicable.
 
ITEM 4:       RESERVED
 
Not Applicable.
 
ITEM 5:       OTHER INFORMATION

Those sections of the Management’s Discussion and Analysis of Financial Condition and Results of Operations entitled “Officer and Director Transitions,” “Reversal of Tender and Cancellation Agreement Re Company Private Placements,” and “Stock Option Grants” are incorporated herein by reference thereto.

 
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ITEM 6.       EXHIBITS
 
Exhibit
Description
   
Exhibit 10.15
Employment Agreement, by and between the Company and Fulvio Ciano, dated as of October 21, 2011.
   
Exhibit 10.16
Stock Option Agreement, by and between the Company and Randall Barrs, dated as of November 29, 2011.
   
Exhibit 10.17
Stock Option Agreement, by and between the Company and Alan Ralph, dated as of November 29, 2011.
   
Exhibit 10.18
Stock Option Agreement, by and between the Company and Todd Halpern, dated as of November 29, 2011.
   
Exhibit 10.19
Stock Option Agreement, by and between the Company and Todd Halpern, dated as of November 29, 2011.
   
Exhibit 10.20
Stock Option Agreement, by and between the Company and Fulvio Ciano, dated as of November 29, 2011.
   
Exhibit 10.21
Stock Option Agreement, by and between the Company and Donald Ziraldo, dated as of November 29, 2011.
   
Exhibit 10.22
Stock Option Agreement, by and between the Company and Donald Ziraldo, dated as of November 29, 2011.
   
Exhibit 10.23
Stock Option Agreement, by and between the Company and Randall Barrs, dated as of November 29, 2011.
   
Exhibit 31.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
Exhibit 32.1
Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS
XBRL Instance Document
   
101.SCH
XBRL Taxonomy Extension Schema
   
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF
XBRL Taxonomy Extension Definition Linkbase
   
101.LAB
XBRL Taxonomy Extension Label Linkbase
   
101.PRE
XBRL Taxonomy Extension Presentation Linkbase

 
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  LOTO INC.
     
 
By:
/s/ Fulvio Ciano
  Name: Fulvio Ciano
  Title:
Chief Executive Officer,
Principal Financial Officer
and Chief Accounting Officer
 
Dated:  January 20, 2012
 
 
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