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EX-32.1 - EX-32.1 - COUPON EXPRESS, INC.d28649_ex32-1.htm
EX-31.1 - EX-31.1 - COUPON EXPRESS, INC.d28649_ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

 

 

 

FORM 10-Q

 

 

 

 

 

 


 

 

o

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

For the quarterly period ended July 31, 2011

Or

 

 

o

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: 0-20317

 

 

 

PSI CORPORATION
(Exact name of registrant as specified in its charter)

 

 

 


 

 

 

Nevada

 

33-0912085

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

303 Fifth Avenue, Suite 210, New York, NY 10016
(Address of Principal Executive Office) (Zip Code)

(914) 371-2441
(Registrant’s telephone number, including area code)

(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. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

 

 

 

 

Large accelerated filer

o

 

Accelerated filer

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x

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


APPLICABLE ONLY TO CORPORATE ISSUERS:

          Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

          As of September 2, 2011, there were 238,846,797 shares of the Registrant’s Common Stock, $0.001 par value per share, outstanding.

          As of July 31, 2011, there were 8 shares of the Registrant’s Series A Preferred Stock, $0.001 par value per share, outstanding.


PSI CORPORATION

For The Quarterly Period Ended July 31, 2011
TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

Number

 

 

 

Part I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements –

 

 

 

 

 

Balance Sheets as of July 31, 2011(unaudited) and October 31, 2010

2

 

 

 

 

Statements of Income for the three and nine months ended July 31, 2011and 2010(unaudited)

3

 

 

 

 

Statements of Stockholders’ Equity as of July 31, 2011(unaudited) and October 31, 2010

4

 

 

 

 

Statements of Cash Flows for the nine months ended July 31, 2011 and 2010 (unaudited)

5

 

 

 

 

Notes to the Financial Statements

6-15

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16-17

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

18

 

 

 

Item 4

Controls and Procedures

19

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

19

 

 

 

Item 1A

Risk Factors

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

 

Item 3.

Defaults Upon Senior Securities

20

 

 

 

Item 4.

(Removed and Reserved)

21

 

 

 

Item 5.

Other Information

21

 

 

 

Item 6.

Exhibits

21-23

 

 

 

SIGNATURES

 



PART 1 - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

Balance Sheets

 

 

 

July 31,
2011

 

October 31,
2010

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash

 

$

56,407

 

$

96,871

 

Accounts Receivable, net

 

 

1,259

 

 

32,981

 

Notes Receivable, net

 

 

 

 

8,125

 

 

 

   

 

   

 

Total current assets

 

 

57,666

 

 

137,977

 

 

 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

 

306,975

 

 

232,965

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total assets

 

$

364,641

 

$

370,942

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

657,685

 

$

538,312

 

Accrued Interest

 

 

93,500

 

 

1,220,490

 

Notes payable - net of long term

 

 

2,502,963

 

 

3,781,690

 

 

 

   

 

   

 

Total current liabilities

 

 

3,254,148

 

 

5,540,492

 

Notes payable - net of short term

 

 

 

 

300,000

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

3,254,148

 

 

5,840,492

 

 

 

   

 

   

 

Stockholders’ deficiency

 

 

 

 

 

 

 

Preferred stock $.001 par value; 5,000,000 shares authorized, Series A Preferred, 8 shares issued and outstanding

 

 

 

 

 

Common stock, $.001 par value; 300,000,000 shares authorized, 221,703,740 and 120,900,693 shares issued and outstanding at July 31, 2011 and October 31, 2010, respectively

 

 

221,703

 

 

120,900

 

Additional paid-in capital

 

 

16,038,602

 

 

12,103,748

 

Deficit

 

 

(19,148,825

)

 

(17,693,211

)

Less: Common Stock in Treasury

 

 

(987

)

 

(987

)

 

 

   

 

   

 

Total stockholders’ deficiency

 

 

(2,889,507

)

 

(5,469,550

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficiency

 

$

364,641

 

$

370,942

 

 

 

   

 

   

 

The accompany notes are an integral part of these financial statements.

2


PSI Corporation
Income Statements
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

July 31, 2011

 

July 31, 2011

 

 

 

 

 

 

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

1,103

 

$

30,245

 

$

16,774

 

$

53,003

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

 

255,265

 

 

189,678

 

 

831,522

 

 

847,368

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(254,162

)

 

(159,433

)

 

(814,748

)

 

(794,365

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

 

(142,324

)

 

(132,485

)

 

(640,866

)

 

(631,961

)

Gain on disposal of fixed assets

 

 

 

 

 

 

 

 

84,028

 

Loss on settlements

 

 

 

 

 

 

 

 

(24,000

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other income (expense)

 

 

(142,324

)

 

(132,485

)

 

(640,866

)

 

(571,933

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(396,486

)

$

(291,918

)

$

(1,455,614

)

$

(1,366,298

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average shares

 

 

212,755,688

 

 

111,189,917

 

 

186,737,955

 

 

102,053,188

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(0.00

)

$

(0.00

)

$

(0.01

)

$

(0.01

)

 

 

   

 

   

 

   

 

   

 

The accompany notes are an integral part of these financial statements.

3


PSI Corporation
Statement of Changes in Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common
Stock

 

 

 

Preferred
Stock

 

 

 

Additional
Paid-in

 

Accumulated

 

Treasury

 

Total
Stockholders’

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Shares

 

Amount

 

Capital

 

Deficit

 

Stock

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, October 31, 2009

 

 

88,074,744

 

$

88,074

 

 

 

 

 

 

 

 

11,060,532

 

$

(16,603,774

)

$

(987

)

$

(5,456,155

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of shares transactions never issued

 

 

(3,000,000

)

 

(3,000

)

 

 

 

 

 

 

 

(297,000

)

 

 

 

 

 

 

 

(300,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants in connection with financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

354,486

 

 

 

 

 

 

 

 

354,486

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Notes Payable

 

 

11,657,750

 

 

11,658

 

 

 

 

 

 

 

 

328,342

 

 

 

 

 

 

 

 

340,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Shares for consulting services

 

 

7,271,401

 

 

7,271

 

 

 

 

 

 

 

 

356,299

 

 

 

 

 

 

 

 

363,570

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for interest

 

 

4,848,998

 

 

4,849

 

 

 

 

 

 

 

 

313,137

 

 

 

 

 

 

 

 

317,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of penalty and anti-dilution shares

 

 

12,047,800

 

 

12,048

 

 

 

 

 

 

 

 

(12,048

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retained earnings adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,624,507

 

 

 

 

 

1,624,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,713,944

)

 

 

 

 

(2,713,944

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance, October 31, 2010

 

 

120,900,693

 

 

120,900

 

 

 

 

 

 

12,103,748

 

 

(17,693,211

)

 

(987

)

 

(5,469,550

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Conversion of Notes Payable

 

 

73,868,614

 

 

73,869

 

 

 

 

 

 

 

 

2,171,998

 

 

 

 

 

 

 

 

2,245,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of Shares for consulting services

 

 

1,183,000

 

 

1,183

 

 

 

 

 

 

 

 

38,137

 

 

 

 

 

 

 

 

39,320

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of penalty and anti-dilution shares

 

 

1,135,890

 

 

1,136

 

 

 

 

 

 

 

 

(1,136

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of warrants in connection with financing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

64,542

 

 

 

 

 

 

 

 

64,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of shares for interest

 

 

23,727,543

 

 

23,728

 

 

 

 

 

 

 

 

1,462,201

 

 

 

 

 

 

 

 

1,485,929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale of convertible preferred stock

 

 

 

 

 

 

 

 

8

 

 

0

 

 

200,000

 

 

 

 

 

 

 

 

200,000

 

Issuance of replacement shares

 

 

888,000

 

 

888

 

 

 

 

 

 

 

 

(888

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,455,614

)

 

 

 

 

(1,455,614

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

Balance, July 31, 2011

 

 

221,703,740

 

$

221,703

 

 

8

 

$

0

 

$

16,038,602

 

$

(19,148,825

)

$

(987

)

$

(2,889,507

)

 

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

The accompany notes are an integral part of these financial statements.

4


PSI Corporation
Statements of Cash Flows
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended
July 31, 2011

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Cash flows from operations

 

 

 

 

 

 

 

Net income (loss)

 

$

(1,455,614

)

$

(1,074,380

)

Adjustment to reconcile net loss to net cash:

 

 

 

 

 

 

 

Depreciation

 

 

38,828

 

 

9,687

 

Allowance for doubtful accounts

 

 

23,020

 

 

 

Amortization of debt financing Costs

 

 

 

 

62,908

 

Amortization of debt discounts

 

 

331,677

 

 

179,336

 

Gain on disposal of fixed assets

 

 

 

 

(84,028

)

Shares issued for consulting fees

 

 

39,320

 

 

258,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

16,827

 

 

27,205

 

Other Current Assets

 

 

 

 

(63,374

)

Accounts payable and accrued expenses

 

 

119,373

 

 

(40,047

)

Accrued interest

 

 

358,939

 

 

 

 

 

   

 

   

 

Net cash provided by (used in) operating activities

 

 

(527,630

)

 

(724,693

)

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Proceeds from sale of fixed assets

 

 

 

 

136,149

 

Purchase of property and equipment

 

 

(112,838

)

 

(125,403

)

 

 

   

 

   

 

Net cash provided by (used for) investing activities

 

 

(112,838

)

 

10,746

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of debt

 

 

620,000

 

 

419,000

 

Proceeds from sale of preferred stock

 

 

200,000

 

 

 

 

Proceeds from sale of common stock

 

 

64,542

 

 

315,972

 

Repayment of debt

 

 

(284,538

)

 

(23,996

)

 

 

   

 

   

 

Net cash provided by (used for) financing activities

 

 

600,004

 

 

710,976

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

(40,464

)

 

(2,971

)

 

 

 

 

 

 

 

 

Cash, beginning of period

 

 

96,871

 

 

29,607

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Cash, end of period

 

$

56,407

 

$

26,636

 

 

 

   

 

   

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest

 

$

10,246

 

$

4,440

 

 

 

   

 

   

 

Supplemental disclosure of non-cash transactions:

 

 

 

 

 

 

 

Common stock issued in payment of accrued interest and previously incurred debt

 

$

3,731,795

 

$

 

 

 

   

 

   

 

The accompany notes are an integral part of these financial statements.

5


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

1. Organization and Going Concern

Organization

PSI Corporation (“PSI” or the “Company”) was organized under the laws of Nevada in June, 1991. PSI provides innovative interactive customer communications systems and applications that support targeted marketing programs with unique point-of-purchase (POP) services and information that serve shoppers and distributors while building loyalty and revenue for the Company’s primary clients. Through its proprietary kiosks, the Company provides in-store customized couponing, in multiple languages, for immediate impact in regional, independent retailers in the grocery and convenience store industries, enabling retailers to quickly determine ideal price-points for new products and mitigate losses from hard-to-sell items. Working with Midax, Inc., a leading systems integrator for the independent grocery and convenience store industries and its software applications, marketing services and existing customer base, PSI provides a seamless transaction for issuing, redeeming and reporting coupons, as well as creating a state-of-the-art loyalty program and shopping list service.

The Company’s kiosks are being installed in supermarket chains and convenience stores throughout the East Coast and Midwest.

Going Concern

The Company’s financial statements have been prepared on the assumption that the Company will continue as a going concern, which contemplates the continuation of operations, the realization of assets and the liquidation of liabilities in the ordinary course of business, and do not reflect any adjustments that might result from the Company being unable to continue as a going concern. At July 31, 2011, the Company had total assets of $364,641 and liabilities of $3,254,148. Management understands that it needs to raise additional capital not only to meet its financial obligations, but also to expand the business. These factors cumulatively indicate that there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

Accounting Principles.

The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States.

Cash and Cash Equivalents.

PSI considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair value of these investments will approximate their carrying value. In general, investments with original maturities of greater than three months and remaining maturities of less than one year will be classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available for current operations. All cash equivalents and short-term investments are classified as available for sale and are recorded at market value using the specific identification method.

Fair Value.

The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, notes payable and accrued liabilities approximate fair value because of the short maturity of these instruments.

6


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Loss per Common Share.

Basic EPS includes no dilution and is computed by dividing the income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the income (loss) of the Company. Total potentially dilutive shares outstanding at July 31, 2011 and 2010 totaled 81,000,000 and 61,238,086, respectively.

Income Taxes

The Company accounts for income taxes in accordance with FASB ASC Topic 740 “Income Taxes,” which requires accounting for deferred income taxes under the asset and liability method. Deferred income tax asset and liabilities are computed for difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce the deferred income tax assets to the amount expected to be realized.

In accordance with GAAP, the Company is required to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. state and local jurisdictions. The tax benefit to be recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. De-recognition of a tax benefit previously recognized could result in the Company recording a tax liability that would reduce net assets. This policy also provides guidance on thresholds, measurement, de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition that is intended to provide better financial statement comparability among different entities. It must be applied to all existing tax positions upon initial adoption and the cumulative effect, if any, is to be reported as an adjustment to stockholder’s equity as of November 1, 2010.

Based on its analysis, the Company has determined that the adoption of this policy did not have a material impact on the Company’s financial statements upon adoption. However, management’s conclusions regarding this policy may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.

Interest and Penalty Recognition on Unrecognized Tax Benefits

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

Comprehensive Income

The Company complies with FASB ASC Topic 220, “Comprehensive Income,” which establishes rules for the reporting and display of comprehensive income (loss) and its components. FASB ASC Topic 220 requires the Company’ to reflect as a separate component of stockholders’ equity items of comprehensive income.

7


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Stock-Based Compensation

The Company complies with FASB ASC Topic 718 “Compensation - Stock Compensation,” which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. FASB ASC Topic 718 focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. FASB ASC Topic 718 requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award the requisite service period (usually the vesting period). No compensation costs are recognized for equity instruments for which employees do not render the requisite service. The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments (unless observable market prices for the same or similar instruments are available). If an equity award is modified after the grant date, incremental compensation cost will be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the original award immediately before the modification. For the nine months ended July 31, 2011, the Company issued 1,183,000 thousand shares of its $.001 par value common stock to consultants for consulting services, and in connection with issuance of these shares, the Company recorded additional compensation expense of $39,320 under FASB ASC 718.

Valuation of Investments in Securities at Fair Value-Definition and Hierarchy

FASB ASC Topic 820 “Fair Value Measurements and Disclosures” provides a framework for measuring fair value under generally accepted accounting principles in the United States and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.

In determining fair value, the Company uses various valuation approaches. In accordance with GAAP, a fair value hierarchy for inputs is used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. FASB ASC Topic 820 establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations, as follows:

          Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 securities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.

          Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

          Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including, the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

8


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Valuation of Investments in Securities at Fair Value-Definition and Hierarchy (continued)

Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined.

Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair value hierarchy.

Valuation Techniques

The Company values investments in securities that are freely tradable and are listed on a national securities exchange or reported on the NASDAQ national market at their last sales price as of the last business day of the year.

Government Bonds

The fair value of sovereign government bonds is generally based on quoted prices in active markets. When quoted prices are not available, fair value is determined based on a valuation model that uses inputs that include interest-rate yield curves, cross-currency-basis index spreads, and country credit spreads similar to the bond in terms of issuer, maturity and seniority.

Certificate of Deposits

The fair values of the bank certificate of deposits are based on the face value of the certificate of deposits.

Product Warranty

PSI provides for the estimated costs of hardware and software warranties at the time the related revenue is recognized. For hardware warranty, PSI estimates the costs based on historical and projected project failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty terms and conditions vary depending upon the product supported and country in which PSI will do business, but generally include technical support, parts, and labor over a period generally ranging from 90 days to three years. For software, PSI estimates the costs to provide bug fixes, such as security patches, over the estimated life of the software. PSI will regularly reevaluate its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. Product warranty costs have not been material to date. PSI has contracted with Pendum at a flat rate of $50.00 per kiosk per month but service has not begun as we have not encountered in-field failures. Therein there are no warranties at this time.

9


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Property and Equipment.

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated life of the asset of 5 years.

Long-Lived Assets

In accordance with FASB ASC Topic 360 “Property, Plant, and Equipment,” the Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts.

Fair Value of Financial Instruments

The fair values of the Company’s assets and liabilities that qualify as financial instruments under FASB ASC Topic 825, “Financial Instruments,” approximate their carrying amounts presented in the accompanying balance sheets at July 31, 2011 and 2010.

Revenue Recognition.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. In the event PSI should enter into contracts where it is obligated to deliver multiple products and/or services, total revenue will be generally allocated among the products based upon the sale price of each product when sold separately.

The Company may also license or lease its products (rather than effect outright sales of the same). Revenues derived from licenses or leases will be treated as subscriptions, with billings recorded as unearned revenue and recognized as revenue ratably over the billing coverage period. PSI’s potential multiple year licensing/lease transactions may include the right to receive future updated improvements to its product line. Some multi-year licensing/lease arrangements may include a perpetual license for current products combined with rights to receive future improved/updated versions of such products. Online advertising revenue derived from the kiosks and signage products are and will be recognized as advertisements are displayed. Costs related to PSI’s product line are recognized when the related revenue is recognized.

Advertising

The Company expenses all advertising expenditures as incurred. The Company’s did not incur any advertising expenses during the nine months ended July 31, 2011 and 2010.

Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities at the date of the financial statements, as well as their related disclosures. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting period. Actual results could significantly differ from those estimates.

10


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Recently Adopted Accounting Pronouncements

In December 2010, FASB issued ASC ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (Topic 350) — Intangibles — Goodwill and Other.” ASU 2010-28 amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2, if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The amendments to this update are effective for us in the first quarter of 2011. Any impairment to be recorded upon adoption will be recognized as an adjustment to our beginning retained earnings. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements. In April 2010, the FASB issued ASU No. 2010-13, “Compensation - Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which addresses the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU No. 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of operations. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-06,“Fair Value Measurements and Disclosures (Topic 820) - Improving Disclosures about Fair Value Measurements” (ASU 2010-06), to require new disclosures related to transfers into and out of Levels 1 and 2 of the fair value hierarchy and additional disclosure requirements related to Level 3 measurements. The guidance also clarifies existing fair value measurement disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The additional disclosure requirements are effective for the first reporting period beginning after December 15, 2009, except for the additional disclosure requirements related to Level 3 measurements, which are effective for fiscal years beginning after December 15, 2010. The Company adopted the pronouncement on January 1, 2011 resulting in no impact to the Company’s financial statement

In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-17, “Consolidations (FASB ASC Topic 810) - Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which codifies FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R). ASU 2009-17 represents a revision to former FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities,” and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. ASU 2009-17 also requires a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. ASU 2009-17 is effective at the start of a reporting entity’s first fiscal year beginning after November 15, 2009, or the Company’s fiscal year beginning January 1, 2010. Early application is not permitted. We have not yet determined the impact, if any, which of the provisions of ASU 2009-15 may have on the Company’s financial statements.

11


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Recently Adopted Accounting Pronouncements (Continued)

In November 2009, The Company adopted FASB ASC Topic 805 (ASC 805), “Business Combinations,” which generally requires an acquirer to recognize the identifiable assets acquired, liabilities assumed, contingent purchase consideration and any noncontrolling interest in the acquiree at fair value on the date of acquisition. It also requires an acquirer to recognize as expense most transaction and restructuring costs as incurred, rather than include such items in the cost of the acquired entity. For the Company, ASC 805 applies prospectively to business combinations for which the acquisition date is on or after October 1, 2009. The adoption of ASC 805 did not have a material impact on the Company’s financial statements.

In November 2009, the Company adopted FASB ASC Topic 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures,” for nonfinancial assets and liabilities that are not recognized or disclosed at fair value in the financial statements on a recurring basis. The adoption of ASC 820-10 did not have a material impact on the Company’s financial statements.

3. Fixed Assets

Furniture and equipment consist of the following:

 

 

 

 

 

 

 

 

 

 

July 31,

 

October 31,

 

 

 

 

 

Description

 

2011

 

2010

 

 

 

 

 

 

 

Kiosks

 

$

371,688

 

$

258,850

 

Less: accumulated depreciation

 

 

64,713

 

 

25,885

 

 

 

   

 

   

 

 

 

$

306,975

 

$

232,965

 

 

 

   

 

   

 

Depreciation expense for the nine months ended July 31, 2011and 2010 totaled $38,829 and $23, 950, respectively.

4. Stockholders’ Equity

Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants

 

Exercise Price

 

 

 

 

 

 

 

 

 

 

Outstanding, November 1, 2008

 

 

 

 

 

35,343,949

 

$

0.12

 

 

 

 

Granted

 

 

1,037,500

 

 

0.13

 

 

 

 

Exercised

 

 

(2,500,000

)

 

0.03

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding, October 31, 2009

 

 

 

 

 

33,881,449

 

$

0.12

 

 

 

 

Granted

 

 

25,828,572

 

 

0.05

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding, October 31, 2010

 

 

 

 

 

59,710,021

 

$

0.13

 

 

 

 

Granted

 

 

21,436,865

 

 

0.05

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

Expired

 

 

 

 

 

 

 

 

 

 

   

 

   

 

Outstanding July 31, 2011

 

 

 

 

 

81,146,886

 

$

0.10

 

 

 

 

 

 

   

 

   

 

12


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

6. Debt

Bridge Loans

In February and March 2007, the Company entered into notes (“Bridge Notes”) with several unrelated parties totaling approximately $325,000. The Bridge Notes were due on November 11, 2009 and incurred an interest rate of 12% per annum. In August 2007, the Company entered into exchange agreements with the holders of 300,000 of the Bridge Notes, wherein the notes were to be converted into 3,000,000 shares of the Company’s common stock. In May and June of 2008, the Company entered into a new series of Bridge Notes with several unrelated parties totaling $470,000. The Bridge Notes were originally due six months from the date of issuance and incur interest at the rate of 10% per annum. On December 1, 2010, the Bridge Note was amended to extend the due date to June 1, 2011. The notes are convertible by the holder at any time at a conversion price equal to the per share price of a new issuance. In connection with the Bridge Notes, the Company also issued warrants to purchase 470,000 shares of the Company’s common stock at an exercise price $.15 and warrants to purchase 470,000 shares of the Company’s common stock at an exercise price of $.25, reduced to $.05 and $.15, respectively, by the July 2, 2010 Amendment to the Bridge Notes. The warrants may be exercisable at any time for a period of 5 years. In connection with the issuance of the warrants, the Company reflected a value for the warrants totaling $47,112; no value adjustment was reflected for the price reduction, as the value change was not material. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 4.86%; and expected lives of 5 years. On December 1, 2010 the Company amended these notes to change the warrant exercise price to $.05. During the three months ended January 31, 2011, the Company issued 1,135,890 common stock shares in connection with the Bridge Note amendments. During the nine months ended July 31, 2011, the Company issued 41,709,577 common stock shares in payment of accrued interest and principal.

In March 2009, the Company obtained interest free advances from two of its officers totaling $40,000.

Round D Loans

Commencing May through October 2007, the Company entered into notes (“Round D Notes”) with several unrelated parties totaling approximately $2,916,000. The Round D Notes incur interest at rates ranging from 12% to 14% per annum, payable semi-annually and are due 3 years from the date of issuance. These notes were not paid by October 31, 2010. In connection with the Round D Notes, the Company also issued warrants to purchase 9,445,744 shares of the Company’s common stock at an exercise price of $.15. The warrants may be exercisable at any time for a period of 5 years. In connection with the issuance of the warrants, the Company has reflected a value for the warrants totaling $549,011. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 3.57%; and expected lives of 5 years. During the nine months ended July 31, 2011, the Company issued 42,510,842 common stock shares in payment of accrued interest and principal.

Round E Loans

In April, July and August 2009, the Company entered into a series of convertible notes aggregating $170,000. The notes are due one year from the date of issuance and incur interest at the rate of 10% per annum. In connection with the notes, the Company issued five year warrants to purchase 1,602,857 shares of the Company’s common stock at an exercise price of $.05 per share. The warrants may be exercisable at any time for a period of 5 years. No expense was recorded for these warrants as the additional cost was not material. The notes were not paid by the due date; however, the note holders waived the default. During the nine months ended July 31, 2011, the Company issued 1,279,050 common stock shares in payment of accrued interest.

13


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

Round F Loans

In November 2009, January 2010 and March 2010 the Company entered into a series of convertible notes aggregating $419,000. The notes are due one year from the date of issuance and incur interest at the rate of 10% per annum. In connection with the notes, the Company issued five year warrants to purchase 11,971,429 shares of the Company’s common stock at an exercise price of $.05 per share. The warrants may be exercisable at any time for a period of 5 years. In connection with the issuance of the warrants and conversion features, the Company has reflected a value totaling $236,417. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 2.068 to 2.60% and expected lives of 5 years. During the nine months ended July 31, 2011, the Company issued 1,729, 753 common stock shares in payment of accrued interest and principal. The notes were not paid by the due date; however, the note holders waived the default.

Round G Loans

In May through November 2010, the Company entered into a series of convertible notes aggregating $805,000. The notes are due one year from the date of issuance and incur interest at the rate of 10% per annum. The interest is payable in cash or common shares at the discretion of the Company. The notes are convertible into common shares at a conversion price of $.035 per share. In connection with the notes, the Company issued five year warrants to purchase 23,000,000shares of the Company’s common stock at an exercise price of $.05/share. Through October 31, 2010, the Company issued 2,900,157 shares of common stock in payment of accrued interest and principal. In connection with the issuance of the warrants and conversion features, the Company has reflected a value totaling $192,608. The fair value of the warrant grant was estimated on the date of grant using the Black-Sholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rates between 1.23% and 2.03%, and expected lives of five years. In November 2010 the company entered into a convertible note for $50,000. The note is due nine months from the issuance date and bears interest at 8% per annum. The note is payable in cash or common shares at the discretion of the Company. The notes are convertible into common shares at 58% of the closing share price on the date of conversion. During the nine months ended July 31, 2011, the Company issued 10,183,493 common stock shares in payment of accrued interest and principal.

Round H loan

In March 2011 the Company issued a convertible note aggregating $100,000. The note is due one year from the date of issuance and incurs interest at the rate of 10% per annum. The notes are convertible into common shares at a conversion price of $.035 per share. In connection with the notes, the Company issued five year warrants to purchase 2,857,143 shares of the Company’s common stock at an exercise price of $.05 per share.

For all of the debt financing described above, the Company has the option to either pay the interest due in cash or in shares of the Company’s common stock.

7. Preferred Stock

Convertible Preferred Stock

In June and July 2011, the Company entered into preferred stock subscription agreements for 8 shares of the company’s preferred stock aggregating $200,000. The preferred stock is convertible into 10,000,000 of common stock 60 days from date of issuance. In connection with the preferred stock, the Company issued five year warrants to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $.04/share.

14


PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
July 31, 2011

7. Commitments

Operating Leases

The Company leases office space and equipment under a non-cancelable operating lease agreement expiring in November 2011. Total rent expense for these operating leases were approximately $30,800 and $32,949 for the nine months ended July 31, 2011 and 2010, respectively.

In June 2011 the Company entered into a Master Leasing Agreement with Yellow Box Leasing LLC. The terms of the agreement provide up to $1.25 million in equipment lease financing for Coupon Express Kiosks. The lease provides for the creation of sub-leases for each order of 25 Kiosks ordered. In June of 2011 the Company ordered 25 new Kiosks with a value of $ 125,000. These Kiosks are expected to be received from the manufacturer on September 15, 2011. Terms of this sub-lease provide for payments of $140/month over 3 years.

Legal

          We are currently involved in a dispute over a services contract. S.O.S. Resources (“SOS”) and its president, Sol Russo have claimed that SOS fully performed under an agreement with us and is entitled to receive 3,110,000 shares of our registered common stock, and later asserted that they would seek a sum of $1,191,600 from us. However, in order to avoid the expense and uncertainties that accompany protracted litigation, we intend to settle all claims that SOS might have against us in exchange for $100,000, comprised of an initial payment of $50,000 upon execution of the Settlement Agreement, followed by a second payment of $ 50,000 one year later. In addition, all shares that have been issued to SOS will be cancelled.

8. Income Taxes

The Company has not filed federal or state tax returns for the years ended October 31, 2004 to 2010. The Company did not believe it owed material federal or state taxes for these fiscal years as a result of its operating losses. At July 31, 2011, the Company had approximately $13.5 million of net operating losses (“NOL”) carryforwards for federal and state income purposes. These losses are available for future years and expire through 2030.Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.

The deferred tax asset is summarized as follows: Generally accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets.

9. Prior Period Adjustment

For the year ended October 31, 2010, the Company identified approximately $1.642 million of errors relating to an overstatement primarily of accounts payable, accrued expenses and other balance sheet items from the year ended October 31, 2009; $1.144 million was disclosed in the quarter ended July 31, 2010, the balance was included in the fourth quarter ended October 31, 2010. Accordingly, the Company’s October 31, 2010 balance sheet, included in its annual report on Form 10-K, was adjusted to reduce accounts payable , accrued expenses and other balance sheet accounts by the $1.642 million; a corresponding entry was recorded to reduce previously reported accumulated deficit by the same amount.

10. Subsequent Events

Subsequent to the three months ended July 31, 2011, a note holder in the Bridge and D rounds converted their outstanding principal $152,783 into 1,439,861 shares of the Company’s common stock.

15


ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion of the financial condition and result of operations of the Company set forth below should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements that involve risks and uncertainties. The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act. When used in this Form 10-Q, or in the documents incorporated by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend” and “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, without limitation, the statements regarding the Company’s strategy, future sales, future expenses, future liquidity and capital resources. All forward-looking statements in this From 10-Q including those relating to the Company’s (i) ability to obtain licenses to any necessary third-party intellectual property; (ii) ability to retain and hire necessary employees and appropriately staff our development programs; (iii) cash requirements; and (iv) financial performance are based upon information available to the Company on the date of this Form 10-Q, and the Company assumes no obligation to update any such forward-looking statements. The Company’s actual results could differ materially from those discussed in this Form 10-Q. Factors that could cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed in Item 1. Business – “Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K, which are incorporated by reference herein and in this report. All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements.

Introduction

Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our financial statements and the accompanying notes to the financial statements included elsewhere in this report. MD&A consists of the following sections:

Overview

The Company is a full service kiosk and digital signage company that specializes in the placement and management of coupon kiosks throughout the country. These kiosks come standard with the ability to process coupons and provide loyalty enrollment cards in a loyalty program designed for specific stores.

Our kiosks provide consumers with information and functionality needed to redeem coupons for obtaining immediate discounts in store. Digital signage screens attached to the kiosks provide advertising opportunities for both national and local advertisers

The kiosks are currently placed in supermarkets; however, during the fiscal year ending October 31, 2011, the company will deploy the kiosk into convenience stores on a pilot basis in retail pharmacies. The kiosks display promoted products on the digital screen as well providing the ability to redeem coupons in order to purchase at a discounted rate. The system tracks the number of dispensed coupons and as well calculates the rebates that the store is due. The upper screen can be used as a tool to advertise store promotions and it has an interface allowing the local store to display and show special promotions. It receives its information from central servers that distributes the data to specific locations as required. The loyalty enrollment program and dispensing of loyalty cards is designed to automate the manual function provided by the store employees and allow the system to gather information on specific purchase trends.

16


Results of Operations

For the three and nine months ended July 31, 2011 and 2010, the Company reported revenues of $1,103 and $16,774 and $30,245 and $53,003 respectively, a decrease of $29,142 (96.3%) and $36,229 (68.3%), respectively.

The Company’s net loss from operations for the three and nine months ended July 31, 2011 and 2010 was $396,486 and $291,918 and $1,455,614 and $1,366,298, respectively, an increase of $104,568 (35.8%) and $89,316 (6.5%), respectively.

The increases in net loss for the three and nine month periods ended July 31, 2011 is primarily attributable to a decrease in revenues discussed above, an increase in administrative expenses of approximately $66,000 (34.5%) and an increase in interest expense of approximately $10,000.

The increase in net loss for nine months ended July 31, 2011 is primarily attributable to a decrease in advertising revenue as discussed above, and an increase in interest expense of approximately $9,000 (1.4%), a decrease in gain on disposal of fixed assets of approximately $84,000, partially offset by a decrease of approximately $16,000 (1.8%) in general administrative expenses, and a $24,000 decrease in loss on settlements.

Our revenues for the three and nine months ended July 31, 2011 were derived exclusively from advertising revenue. Our losses from operations for the three and nine months ended July 31, 2011 and 2010 were attributable to our inability to achieve significant revenues while incurring material working capital costs, including costs of development and deploying our kiosks.

Liquidity and Capital Resources

Cash Flows

Cash used in operations for the nine months ended July 31, 2011and 2010 was approximately $528,000 and $725,000, respectively, a decrease of approximately $198,000 (27.1%). This decrease in use of funds for operations is primarily attributable to increases in accounts payable and accrued expenses, increases in depreciation, amortization of debt discount, and shares issued for consulting fees, partially offset by amortization of debt financing cost, a decrease in gain on disposal of fixed assets, and a decrease of other current assets.

Cash flows used in and provided by investing activities for the nine months ended July 31, 2011 were approximately $113,000 and $11,000, respectively, a decrease of $124,000; this decrease is primarily attributable to the decrease of approximately $136,000 from proceeds received from the sale of fixed assets during the nine months ended July 31, 2010.

Cash flows provided by financing activities for the nine months ended July 31, 2011 and 2010 were approximately $600,000 and $711,000, respectively, a decrease of approximately $111,000 (15.6%). This decrease is primarily attributable to a decrease of approximately $51,000 in proceeds from the sale of common stock and preferred stock, an increase of approximately $ 261,000 in repayment of debt, partially offset by $ 201,000 in proceeds received from the issuance of debt.

Other Debt Transactions

During the course of the nine months ended July 31, 2011, note holders of the Company’s convertible debt converted a total of $2,245,867 into 73,868,614 shares of the Company’s common stock.

Subsequent to the three months ended July 31, 2011, a note holder in the Bridge and D rounds converted their outstanding principal ($152,783) into 1,439,861 shares of the Company’s common stock.

Cash and cash equivalents

We had cash and cash equivalents of $56,407 as of July 31, 2011.

Due to the substantial doubt of our ability to meet our working capital needs, history of losses and current shareholders’ deficit, in their report on the annual financial statements for the year ended October 31, 2010 our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

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Critical Accounting Policies and Procedures and Recent Accounting Pronouncements

The Company’s critical accounting policies and procedures and recent accounting pronouncements are set forth in the Notes to our Consolidated Financial Statements set forth in Item 8 hereof.

Off-Balance Sheet Arrangements

In June 2011 the Company entered into a Master Leasing Agreement with Yellow Box Leasing LLC. The terms of the agreement provide up to $1.25 million in equipment lease financing for Coupon Express Kiosks. The lease provides for the creation of sub-leases for each order of 25 Kiosks ordered. In June of 2011 the Company ordered 25 new Kiosks with a value of $ 125,000. These Kiosks are expected to be received from the manufacturer on September 15, 2011. Terms of this sub-lease provide for payments of $140/month over 3 years.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

          Not applicable.

Item 4.

Controls and Procedures

          EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

          The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

          Based upon their evaluation as of the end of the period covered by this report, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that information required to be included in the Company’s periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.

          CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

          No changes in the Company’s internal control over financial reporting have come to management’s attention during the Company’s last fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1.

          Legal Proceedings

          We are currently involved in a dispute over a services contract. S.O.S. Resources (“SOS”) and its president, Sol Russo have claimed that SOS fully performed under an agreement with us and is entitled to receive 3,110,000 shares of our registered common stock, and later asserted that they would seek a sum of $1,191,600 from us. In order to avoid the expense and uncertainties that accompany protracted litigation, PSI (through mediation) intends to agree to settle all claims that SOS might have against PSI in exchange for a total of $100,000, comprised of an initial payment of $50,000 upon the execution of the Settlement Agreement, followed by a second $50,000 payment 12 months later. In addition, PSI would cancel the 3,310,000 shares that have been issued to SOS.

          From time to time the Company may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of business.

Item 1A.

          Risk Factors

          There have been no material changes to our Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended October 31, 2010.

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

In the period November 1, 2010 to July 31, 2011, the Company issued 1,183,000 shares of restricted stock to various parties that provided professional fees in lieu of payment. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

In January 2011, the Company issued 1,135,890 shares of restricted stock to holders of its 10% Convertible Subordinated Bridge Round Notes, to meet the requirements of the anti-dilution provisions. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

For the nine months ended July 31, 2011, the Company issued 657,222 shares of restricted stock to a holder of its 14% Convertible Subordinated Bridge Round note upon conversion of the $78,866 outstanding principal balance of such note at a price per share of $0.12 and issued 1,633,339 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.10. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

For the nine months ended July 31, 2011, the Company issued 29,666,667 shares of restricted stock to a holder of its 14% Convertible Subordinated Roger May Bridge Round note upon conversion of the $445,000 outstanding principal balance of such note at a price per share of $0.015 and issued 9,752,349 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.015. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

For the nine months ended July 31, 2011, the Company issued 31,371,710 shares of restricted stock to holders of its 14% Convertible Subordinated Round D note upon conversion of $1,385,000 outstanding principal balance of such note at a price per share of $0.10 and issued 11,139,132 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.10. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

For the nine months ended July 31, 2011, the Company issued 951,086 shares of restricted stock to a holder of its 10% Convertible Subordinated Round E upon conversion of $70,000 outstanding principal balance of such note at a price $0.0736 and issued 327,964 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.10. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

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For the nine months ended July 31, 2011, the Company issued 1,200,000 shares of restricted stock to a holder of its 10% Convertible Subordinated Round F note upon conversion of the $42,000 outstanding principal balance of such note at a price per share of $0.035 and issued 529,753 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.10. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

For the nine months ended July 31, 2011, the Company issued 9,771,929 shares of restricted stock to a holder of its 10% Convertible Subordinated Round G note upon conversion of the $200,000 outstanding principal balance of such note at a price per share of $0.02 and issued 595,006 shares of restricted stock in lieu of the accrued interest thereon, at a price per share of $ 0.064. These shares were issued in reliance on Section 4(2) of the Securities Act of 1933.

In June and July 2011, the Company entered into preferred stock subscription agreements for 8 shares of the company’s preferred stock aggregating $200,000. The preferred stock is convertible into 10,000,000 of common stock 60 days from date of issuance. In connection with the preferred stock, the Company issued five year warrants to purchase 10,000,000 shares of the Company’s common stock at an exercise price of $.04/share.

Item 3.

Defaults Upon Senior Securities

NONE

See Note 6 to our Financial Statement for a complete discussion of all defaults with respect to various promissory notes issued by us that have occurred prior to this fiscal quarter.

Item 4.

(Removed and Reserved)

Item 5.

Other Information

          This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subjected to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

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Item 6.

 

 

 

Exhibits

 

 

 

 

 

EXHIBIT
NUMBER

 

DESCRIPTION

 

 

 

31.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Section 302

 

 

 

32.1

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Section 906


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SIGNATURES

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

 

 

 

 

 

PSI Corporation

 

 

 

 

 

 

By:

/s/ Eric Kash

 

 

 

 

 

Name:

Eric Kash

 

 

Title:

Chief Executive Officer, Chief Financial Officer

 

 

 

(Principal Executive and Financial Officer)

 

 

Date:

September 9, 2011

 

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