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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-K

(Mark One)

        þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended October 31, 2012

        o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For transition period from _________ to ________

Commission File Number: 0-20317

COUPON EXPRESS, INC.

(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 5th Avenue, Room 206,
New York, NY 10016
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:
None.

Securities registered pursuant to Section 12(g) of the Act:
Common stock, $0.001 par value

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

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 o
           
Accelerated filer o
Non-accelerated filer o
   
Smaller reporting company þ
   
 
           
 
(Do not check if a smaller reporting company)
   
 

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

The aggregate market value of the Registrant’s voting and non-voting Common Stock held by non-affiliates as of the close of business on April 27, 2012, the last business day of Registrant’s most recently completed second quarter was approximately $10,000,000. The Registrant’s closing price for April 27, 2012 was $.04. The number of the Registrant’s outstanding Common Stock was 279,039,702 as of February 1, 2013.





COUPON EXPRESS, INC.
FORM 10-K
TABLE OF CONTENTS

            Page
PART I
ITEM 1.
           
Business
         2    
ITEM 1A.
           
Risk Factors
         4    
ITEM 1B.
           
Unresolved Staff Comments
         10    
ITEM 2.
           
Properties
         10    
ITEM 3.
           
Legal Proceedings
         11    
ITEM 4.
           
Mine Safety Disclosures
         11    
 
PART II
ITEM 5.
           
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
         12    
ITEM 6.
           
Selected Financial Data
         12    
ITEM 7.
           
Management’s Discussion and Analysis of Financial Condition and Results of Operations
         12    
ITEM 7A.
           
Quantitative and Qualitative Disclosures About Market Risk
         15    
ITEM 8.
           
Financial Statements and Supplementary Data
         15    
ITEM 9.
           
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
         15    
ITEM 9A(T).
           
Controls and Procedures
         15    
ITEM 9B.
           
Other Information
         15    
 
PART III
ITEM 10.
           
Directors, Executive Officers and Corporate Governance
         16    
ITEM 11.
           
Executive Compensation
         19    
ITEM 12.
           
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
         21    
ITEM 13.
           
Certain Relationships and Related Transactions, and Director Independence
         22    
ITEM 14.
           
Principal Accounting Fees and Services
         23    
 
PART IV
ITEM 15.
           
Exhibits, Financial Statement Schedules
         24    
 


NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause the results of Coupon Express, Inc. (the “Company”) to differ materially from those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of revenue, gross margin, expenses, earnings or losses from operations, synergies or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the rate of market development and acceptance of our products; the execution of our marketing plans; any statement concerning developments, performance or industry rankings relating to products or services; any statements regarding future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. The risks, uncertainties and assumptions referred to above include the performance of contracts by suppliers, customers and partners; employee management issues; the difficulty of aligning expense levels with revenue changes; and other risks that are described herein, including but not limited to the specific risks areas discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report, and that are otherwise described from time to time in the Company’s periodic disclosure statements and for reports filed with the Securities and Exchange Commission. The Company assumes no obligation and does not intend to update these forward-looking statements.

1



PART I

ITEM 1. Business

Overview

Coupon Express, Inc., which we refer to as “we,” “us,” “Coupon Express, Inc.,” “CE,” or the “Company” is a digital signage company that specializes in the placement and management of coupon kiosks. We incorporated as a Nevada corporation under the name Happy Mergers, Inc. on September 26, 1990. In November 1991, Global Spill Management, Inc., a Delaware corporation, was merged into Happy Mergers, Inc., and our name was changed to Global Spill Management, Inc. In October 1998, we changed our name to Biofarm, Inc. For the period of October 31, 1999 through December 10, 2004, we were a public shell company with no revenue from operations. On August 24, 2004, we entered into a Share Exchange Agreement with the stockholders of Friendlyway Corporation (“Friendlyway”), pursuant to which we agreed to acquire all of the outstanding shares of Friendlyway in exchange for the issuance of 18,000,000 shares of our Common Stock and the assumption of outstanding options granted to Friendlyway employees. On April 19, 2005, we filed an amendment to our Articles of Incorporation changing our name to Friendlyway Corporation.

In September 2006, we changed our name to PSI Corporation, which was subsequently changed in October 2011 to Coupon Express, Inc.

Our principal executive offices are located at 303 5th Avenue, Room 206, New York, NY 10016, and our telephone number is
(914) 371-2441. Our fiscal year end is October 31. Our website address is www.couponexpressinc.com. We do not intend for information on our websites to be incorporated into this 10-K.

Our Products

Our proprietary kiosks have been installed in East and West Coast regions. Coupon Express kiosk, our lead product, provides in-store on-demand customized couponing through point of purchase (“POP”) services such as in-store product advertising and on-demand coupons, as well as redeeming text-messaged and loyalty-card coupons. Our in-store coupons have a higher redemption rate compared to the rate for traditional coupons.

Our kiosks employ features including printing ‘on-demand’ coupons issued directly from the kiosks which can only be utilized in a specific venue within a specified period of time. These coupons are bar coded, which makes the processing and data analyzing efficient. Secondly, the kiosks are capable of issuing coupons for redeeming offers sent to cell phones via text-messaging. We filed two patent applications regarding the kiosks because of its ability to serve as a printing and distribution point for on-demand and text-messaged coupons. The third unique feature of the kiosks is their ability to enroll people into a loyalty-card program managed by the particular retailer. The kiosks will permit encrypted data to be read from the associated loyalty card database and has the capability of providing unique offers that the retailer wishes to give to its loyalty-card holding customers. Through a joint marketing agreement with Midax, Inc., a leading systems integrator for the independent grocery store industries, we provide a seamless transaction for issuing, redeeming and reporting coupons, and create a loyalty and shopping list service.

We believe that in order to generate sufficient revenues to implement our business plan, we need to deploy kiosks to retailers in exchange for the retailer receiving a share of the revenues derived from the kiosks. Our current revenue models include a fixed fee plus click charge and a fixed price per store model. Approximately half of such revenues will be shared with the supermarkets and other agents, to encourage them to obtain additional advertising revenue for the Company.

We anticipate that our kiosks’ diverse functions will allow it to compete as a unique coupon distribution point for many products and services. With a footprint of eighteen inches wide, it will permit many types of service establishments to host a kiosk and integrate their own unique point of sale (“POS”) software to this kiosk. The integration of the venue’s POS to the kiosks will permit the retailer and advertiser access to valuable data about consumer behavior. Compared to the standard coupon report system of an average of 100 days, our technology provides advertisers and store owners with electronic sales reports within six minutes.

2



Markets

Our kiosks currently address two primary markets: national and regional supermarket chains. As of October 31, 2012, we have installed Coupon Express kiosks in 119 supermarkets throughout the East and West Coast.

Manufacturing

We depend on outside parties to manufacture our kiosks according to guidelines that we set and fulfill our product needs. Such expansion may be limited by the manufacturing capacity of our third-party manufacturers and suppliers. Third-party manufacturers may not be able to meet our manufacturing needs in a satisfactory and timely manner. If there is an unanticipated increase in demand for coupon kiosks, we may be unable to meet such demand due to manufacturing constraints.

We believe we have a sufficient number of available manufacturers to produce an adequate amount of kiosks to meet anticipated future requirements and further, that switching to another manufacturer would cause little or no disruption to our business at any time. Any failure by us to maintain our existing manufacturing and distribution relationships or to establish new relationships on a timely basis or on acceptable terms could harm our business, financial condition and results of operations. As we expand into new geographic markets, we may establish relationships with additional manufacturing facilities to better serve those new markets.

Our Intellectual Property Portfolio

We seek to protect our novel kiosks, applications and other technologies by, among other things, filing patent applications. Except as specifically noted below, the patent rights described below may be subject to potential patent term extensions and/or supplemental protection certificates extending such term extensions in countries where such extensions may become available. In addition, more patent filings relating to the product described below may be made in the future.

As of October 31, 2012, we have 2 pending U.S. patent applications for our kiosks. Our pending U.S. patent applications involve the intellectual property that creates the functionality of the kiosks to serve as a printing and distribution point for on-demand and text-messaged coupons. Through our patents pending for software applications, our kiosks and services are able to provide in-store customized couponing, in multiple languages, for immediate impact in regional independent retailers in the grocery and convenience store industries. These in-store point-of-purchase coupons enable retailers to quickly determine ideal price-points for new products and mitigate losses from hard-to-sell items. There can be no assurance that patents will be issued from these applications, or if issued, will not be violated or will provide protection that has commercial significance.

Protection of our proprietary technology and our rights over that technology, from copy or unchallenged and improper use, is essential to our future success. Any challenges to, or disputes concerning, our core technology may result in great expense to use, delays in bringing products to market and disruption of our focus on our core activities. They may also result in loss of rights over our technology or the right to operate in particular markets due to adverse legal decisions against us.

Failure to register appropriate patents, copyrights or trademarks in any jurisdiction may impede our ability to create brand awareness in our products, result in expenses in pursuing our rights with respect to our intellectual property, or result in lost revenues due to intellectual property disputes. Where we may be required to purchase licenses from sellers with prior rights in any country, we cannot assure you that we will be able to do so at a commercially acceptable cost.

Competition

The business services market is highly competitive. We compete with a number of large, well-established and well-funded companies to furnish in-store systems to retailers. We believe that the principal competitive factors in our target market include price, ease of use, consumer preference, and cost effectiveness.

Our product faces competition from a variety of other in-store systems, including Coinstar, Inc. and its subsidiary, Redbox. Our retailers may choose to replace our coupon kiosks with competitors’ machines or may decide that floor space could be used for other purposes and not carry coupon kiosks at all. In addition, retailers, some of which have significantly more resources than we do, may decide to create their own in-store coupon kiosk. An expansion of the companies focused on in-store customized couponing services or a reduction in related fees charged by any of these competitors, or retailer decisions to use floor space for other than interactive customer marketing, could materially and adversely affect our business and results of operations.

3



We strive to provide direct and indirect benefits to our retailers that are superior to or competitive with other providers or systems or alternative uses of the floor space that our kiosks occupy. We believe that our kiosks compete favorably with other in-store systems marketed to retailers because of the quality of our products and our ability to provide timely electronic coupon sales reports to retailers and advertisers. In addition, we focus on distinguishing our products from competitors by offering on-demand customization and on-demand coupons triggered by text messaging.

Employees

We have three full time employees, one who works out of our Colorado Springs office and one who works out of our South Carolina office and our CEO who works out of the New York City office. We also employ consultants to assist management as is required by business needs. Our employees are not part of a union.

Available Information

We will provide, upon request and free of charge, paper copies of our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, including any amendments to the foregoing reports, as soon as is reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. These materials along with our Code of Business Conduct and Ethics are also available through our corporate website at www.mgtci.com. A copy of this annual report on Form 10-K is located at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The public may also download these materials from the Securities and Exchange Commission’s website at http://www.sec.gov. Any amendments to, and waivers of, our Code of Business Conduct and Ethics will be posted on our corporate website.

ITEM 1A: Risk Factors

Discussion of our business and operations included in this annual report on Form 10-K should be read together with the risk factors set forth below. They describe various risks and uncertainties to which we are or may become subject. These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. New risks may emerge at any time, and we cannot predict those risks or estimate the extent to which they may affect our financial performance. Each of the risks described below could adversely impact the value of our securities. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

We cannot assure you that the Company will be successful in commercializing any of the Company’s products and, in particular, our proprietary kiosks, or if any of the products will prove to be profitable for the Company.

The Company has only had a limited operating history and has just commenced generating revenue from operations upon which an evaluation of its prospects can be made. The Company’s prospects must be considered keeping in mind the risks, expenses and difficulties frequently encountered in the establishment of a new business in a constantly changing industry. There can be no assurance that the Company will be able to achieve profitable operations in the foreseeable future if at all.

The Company has identified a number of specific risk areas that may affect the Company’s operations and results in the future.

RISKS RELATED TO OUR BUSINESS

Our independent auditors have issued a going concern opinion and, if we are unable to generate enough financing or cash from operations to sustain our business, then we may have to liquidate assets or curtail our operations.

In its audit report dated February 4, 2013 for the years ended October 31, 2012 and 2011, the opinion of our independent registered public accounting firm, Patrick Rodgers, CPA, PA, was qualified only as to the uncertainty of our ability to continue as a going concern. Most notably, significant recurring net losses through October 31, 2012 raise substantial doubt about our ability to continue as a going concern. During the fiscal year that ended October 31, 2012, we incurred net loss to common shareholders of $3,838,773. We will need to generate significant revenues in order to achieve profitability.

4



We are a development stage company with a limited operating history and expect to continue to incur losses and as such, may never achieve profitability.

We are currently in the development stage, and are the surviving entity of several former corporate incarnations. Over the past several years, we have been principally engaged in organizational, licensing, financing, technology protection, and marketing activities. We are subject to all of the risks inherent to the establishment of a developing business. The potential for success should be considered in light of the unforeseen problems, delays, complications, and added expenses often encountered with a development stage business and the status quo of the environment in which we will operate. We do not have a history of operations from which shareholders and investors can draw reasonable conclusions as to our future performance, and there can be no assurances that we will ever operate profitably or be commercially successful.

We have incurred significant operating losses since inception. As a result, we continue to report negative cash flows from operations. There can be no assurance that our efforts to reduce negative cash flows will be successful, and this could have a material adverse effect on our business, financial condition, and results of operations.

The termination, non-renewal or renegotiation on materially adverse terms of our contracts with one or more of our retailers could seriously harm our business, financial condition and results of operations.

The success of our business depends in large part on our ability to develop and maintain relationships with retailers. We strive to provide direct and indirect benefits to our retailers that are superior to or competitive with other providers or systems or alternative uses of the floor space that our machines occupy. If we are unable to provide our retailers with adequate benefits, we may be unable to maintain or renew our contractual relationships on acceptable terms causing our business, financial condition and results of operations to suffer.

We must be able to adapt to rapidly changing technology trends and evolving industry standards or we risk our products becoming obsolete.

There are numerous risks associated with the development and commercialization of new products, including the risk of unforeseen delays and expenses, and the uncertainty of market acceptance. Currently, we have limited sources of revenue, whether from services or product sales, and there can be no assurance that we will be able to develop such revenue sources or that our operations will become profitable.

We may be unable to identify and define product and service trends or anticipate, gauge and react to changing consumer demands in a timely manner.

Our strategy is based upon leveraging our core competencies in the automated retail space to provide the consumer with convenience and value and to help retailers drive incremental traffic and revenue. If we cannot execute on our strategy, our business could suffer. To be competitive, we need to develop or otherwise provide product and service offerings that are accepted by the market and establish third-party relationships necessary to develop and commercialize such product and service offerings. If we misjudge the market for our products and services or unable to enhance the capabilities of our kiosks and equipment to meet technology demand, we cannot assure you that the products or services that we provide will be successful.

Because we do not have our own manufacturing facilities and must rely on contractual relationships to fulfill our manufacturing needs, our dependency could result in lost revenue if such relationships are terminated.

We do not have manufacturing facilities, nor do we presently intend to manufacture any of our products. Thus, we will be dependent upon relationships with manufacturers to fulfill our product needs. Our ability to market our product requires that certain products be manufactured in commercial quantities and at an acceptable cost. We have no prior experience in manufacturing and will be materially dependent upon others in these respects. In June 2011, the Company entered into a Master Leasing Agreement with Yellow Box Leasing LLC (“Yellow Box”). The terms of the agreement provide up to $1.25 million in equipment lease financing for our kiosks. However, Yellow Box has advised the Company that they are presently unable to finance the purchase of additional kiosks. Until such time as we are able to obtain suitable replacement equipment financing, or Yellow Box resumes financing our kiosks, there can be no assurance that the Company will be able to acquire additional kiosks.

We rely on outside software developers to develop our key product and are subject to their timelines for deployment, unforeseen delays, and problem resolution.

We continue to develop proprietary software, interfaces, and hardware for our kiosks. There are many risks associated with the development of proprietary software, including the risk of unforeseen delays and expenses.

5



The loss of key members of our senior management team could adversely affect our business.

Currently, we are managed by Eric L. Kash, Chief Executive Officer and Chief Financial Officer. Mr. Kash will continue to play a key role in our management, and the loss of his services could adversely affect our business and our prospects. We currently have an employment agreement with Mr. Kash. We intend to expand our management team by attracting senior management with relevant, current expertise. There can be no assurance that we will be successful in attracting and retaining additional technical, marketing, and management personnel as may be required to fully implement our short and long-term business plans.

Our inability to attract, hire or retain the necessary technical and managerial personnel could have a material adverse effect on our business, financial position, results of operations, and cash flows.

We will need to attract, retain and motivate skilled technical and managerial personnel, especially highly skilled engineers involved in ongoing product development and consulting personnel who assist in the development and implementation of our total business solutions. The market for such individuals is intensely competitive. Due to the critical role of our product development and consulting staff, the inability to recruit successfully or the loss of a significant part of our product development or consulting staffs could have a material adverse effect on us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. We can provide no assurance that we will be able to retain our current personnel, or that we will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract, hire or retain the necessary technical and managerial personnel could have a material adverse effect upon our business, financial position, results of operations, and cash flows.

If our products and services do not gain market acceptance, our business will suffer because we might not be able to fund future operations.

A number of factors may affect the market acceptance of our products or any other products we develop or acquire, including, among others:

•  
  the price of our products relative to other company’s services for the same purpose;

•  
  the perception by retailers of the effectiveness of our products and the benefit to them;

•  
  our ability to fund our sales and marketing efforts; and

•  
  the effectiveness of our sales and marketing efforts.

If our products do not gain market acceptance, we may not be able to fund future operations, including developing, testing and obtaining regulatory approval for new product candidates and expanding our sales and marketing efforts for our approved products, which would cause our business to suffer.

We are highly dependent on a limited number of clients, the loss of one or more of which could have a material adverse effect on our business, operating results and financial condition.

We currently sell systems and services to a limited market. We can provide no assurance that the loss of one or more of these retailers will not have a material adverse effect on our business, financial position, results of operations, and cash flows. We depend on our installed client base for revenues from services. If existing retailers fail to renew their agreements, our revenues could decrease.

We may have difficulty implementing our products, which could consequently damage our reputation and our ability to generate new business.

Implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. Delays in the implementations of any of our products, whether by our business partners or us, may result in client dissatisfaction, disputes with customers, or damage to our reputation. Significant problems implementing our software can cause delays or can damage our ability to generate new business.

6



Errors or defects in our products could diminish demand for our products, injure our reputation and reduce our operating results.

Our products are complex and may contain errors that could be detected at any point during the life of the product. Errors may be found in new products or releases after shipment. Such errors could result in diminished demand for our products, delays in market acceptance and sales, diversion of development resources, injury to our reputation or increased service and warranty costs. If any of these were to occur, our operating results could be adversely affected.

Because we operate in a highly competitive market, there are no assurances that we will be able to compete successfully against our current or future competitors and/or become profitable.

The market for retail information systems is intensely competitive. We believe that the principal competitive factors are product quality, reliability, performance and price, vendor and product reputation, financial stability, features and functions, ease of use, and quality of support. In addition, we believe that new market entrants may attempt to develop fully integrated systems targeting the retail industry. Many of our existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical and marketing resources than we have. We can provide no assurance that we will be able to compete successfully against our current or future competitors or that competition will not have a material adverse effect on our business, operating results and financial condition.

Additionally, we compete with a variety of hardware and software vendors. Some of our competitors may have advantages over us due to their significant worldwide presence, longer operating and product development history, and substantially greater financial, technical and marketing resources. If competitors offer more favorable payment terms and/or more favorable contractual implementation terms or guarantees, we may need to lower prices or offer other favorable terms in order to compete successfully. Any such changes would likely reduce our margins.

We are currently involved in litigation, which could be time-consuming and costly to defend, and could also have a negative outcome for our business.

The Company is involved in a dispute over a services contract. S.O.S. Resources (“SOS”) and its president claim that SOS fully performed under an agreement with the Company 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 the Company. The Company believes that SOS and its president did not perform under the contract, and intends to vigorously defend itself against such claim as well as file a claim for fraud against SOS and its president. The Company believes that the suit filed by SOS and its president is without merit; however, we will have to pay costs associated with arbitrating this claim.

The Company has settled an action commenced by the law firm Cozen O’Connor seeking payment of approximately $195,000 in legal fees for services allegedly rendered by the firm in 2007. The Company has agreed to remit the sum of $3,000 per month for thirty (30) months, commencing on August 1, 2012 with a final payment of $114,670.66 due on January 1, 2015.

An action has been commenced against the Company seeking legal fees in the sum of approximately $47,700 allegedly incurred in connection with a Settlement Agreement dated April 13, 2009. The Company has settled this matter by agreeing to pay the total sum of $35,000, payable, (i) $15,000 upon the execution of a settlement agreement; (ii) $10,000, on the 120th day following the execution of the settlement agreement; and (iii) $10,000 on the 240th day following the execution of the settlement agreement.

Competitive pressures could seriously harm our business, financial condition and results of operations.

Our product faces competition from a variety of a variety of other in-store systems, including Coinstar, Inc. and its subsidiary, Redbox. Our retailers may choose to replace our coupon kiosks with competitor machines or may decide that floor space could be used for other purposes and not carry coupon kiosks at all. In addition, retailers, some of which have significantly more resources than we do, may decide to create their own in-store coupon kiosk. An expansion of the companies focused on in-store customized couponing services or a reduction in related fees charged by any of these competitors, or retailer decisions to use floor space for other than interactive customer marketing, could materially and adversely affect our business and results of operations.

We may be unable to attract new retailers and penetrate new markets and distribution channels.

In order to increase our coupon kiosk installations, we need to attract new retailers. We may be unable to attract new retailers or drive down costs relating to the manufacture, installation or servicing of the kiosks to levels that would enable us to operate profitably in lower density markets or penetrate new distribution channels. If we are unable to do so, our future operating results could be adversely affected.

7



Events outside of our control, including the current economic environment, has and could continue to negatively affect consumers’ use of our product.

Because our business relies on consumers visiting retailers to purchase products, we are dependent on people visiting retailers frequently. If consumers are not visiting the retailer, then our business would be negatively impacted.

Our ability to obtain additional funding in the future, if and as needed, through equity issuances or loans, or otherwise meet our current obligations to third parties could be adversely affected if the economic environment continues to be difficult. In addition, the ability of third parties to honor their obligations to us could be affected.

The protection of our intellectual property may be uncertain, and we may face possible claims of others.

Although we have filed patent applications with respect to certain aspects of our technology, we generally do not rely on patent production with respect to our products and technologies. Instead, we rely primarily on a combination of trade secrets and copyright law, employee and third-party non-disclosure agreements and other protective measures to protect intellectual property rights pertaining to our products and technologies. Such measures may not provide meaningful protection of our trade secrets, know-how or other intellectual property in the event of any unauthorized use, misappropriation or disclosure. Others may independently develop similar technologies or duplicate our technologies. In addition, to the extent that we apply for any patents, such applications may not result in issued patents or, if issued, such patents may not be valid or of value. Third parties could, in the future, assert infringement or misappropriation claims against us with respect to our current or future products and technologies, or we may need to asset claims of infringement against third parties. Any infringement or misappropriation claim by us or against us could place significant strain on our financial resources, divert management’s attention from our business and harm our reputation. The costs of prosecuting or defending an intellectual property claim could be substantial and could adversely affect our business, even if we are ultimately successful in prosecuting or defending any such claims. If our products or technologies are found to infringe the rights of a third party, we could be required to pay significant damages or license fees or cease production, any of which could have a material adverse effect on our business. If a claim is brought against us, or we ultimately prove unsuccessful on the claims on our merits, this could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

General Market Risks

We may not be able to access credit.

We face the risk that we may not be able to access credit, either from lenders or suppliers, or have facilities reduced or terminated. Failure to access credit from any of these sources could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

Recent global economic trends could adversely affect our business, liquidity and financial results.

Recent global economic conditions, including disruption of financial markets, could adversely affect us, primarily through limiting our access to capital and disrupting our clients’ businesses. In addition, continuation or worsening of general market conditions in economies important to our businesses may adversely affect our clients’ level of spending and ability to obtain financing, leading to us being unable to generate the levels of sales that we require. Current and continued disruption of financial markets could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

We may not be able to maintain effective internal controls.

If we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business, financial condition, results of operations and future prospects.

8



RISKS RELATED TO OUR STOCK

Our stockholders may experience substantial dilution in the value of their investment if we issue additional shares of our capital stock or other securities convertible into common stock.

We have authorized 800,000,000 shares of Common Stock. As of October 31, 2012, there were 272,203,802 shares of Common Stock issued and outstanding. We have also issued securities that are convertible into our Common Stock, including Series A Preferred Stock, convertible notes and warrants. New issues of stock or conversion or exercise of our derivative securities into common stock will dilute the ownership of current investors and the value of your investment may decrease.

Our recent offerings of Convertible Senior Notes and Warrants may limit our ability to raise additional capital and/or take certain corporate action.

In October 2011, May 2012 and July 2012, we completed a private placement of $2,760,500 aggregate principal amount of Cumulative Convertible Senior Notes (“Senior Notes”) and Warrants to certain investors, that included the Company’s existing holders of Series A Preferred Stock (the “Preferred Stock”). In August 2012, the Senior Notes were converted into 110.42 shares of Preferred Stock. In December 2012, we issued an additional 9.58 shares of Preferred Stock and Warrants for proceeds of $239,500.

The shares of Preferred Stock bear a cumulative dividend of 7% per annum. Upon liquidation, and upon an acquisition of the Company, the holders of Preferred Stock are entitled to a liquidation preference equal to the greater of (i) the amount invested plus all accrued and unpaid dividends, or (ii) the amount the holders of Preferred Stock would receive had they converted the Preferred Stock to Common Stock immediately prior to such event. Each share of Preferred Stock is convertible into 1,250,000 shares of the Company’s Common Stock, subject to certain adjustments. The Certificate of Designation of the Preferred Stock provides that without the consent of a majority of the outstanding Series A Preferred Stock, the Company may not:

1.
  amend the Articles of Incorporation, by-laws, Certificate of Designation or any other certificate of designation or file any new certificate of designation;

2.
  issue any Common Stock, Preferred Stock, Common Stock Equivalents or other securities or amend the terms thereof;

3.
  redeem any outstanding Common Stock, Preferred Stock, Common Stock Equivalents or other securities;

4.
  incur or repay indebtedness for borrowed money;

5.
  acquisitions or dispositions of material assets;

6.
  enter into any acquisition, merger, consolidation, reorganization or similar transaction;

7.
  create subsidiaries or other affiliates;

8.
  dissolve, liquidate or wind up or file any petition under insolvency or bankruptcy laws;

9.
  enter into any contract or arrangement with any present or former director, executive officer, shareholder, partner, member, employee or affiliate of the Company or any of its subsidiaries, or any of such Person’s affiliates or immediate family members;

10.
  change senior management of the Company;

11.
  declare or pay dividends or declare or make other distributions other than the Base Dividends;

12.
  adopt or materially deviate from the business plan or budget adopted by the Board of Directors; or

13.
  change or revoke the Operations Committee Charter adopted by the Board of Directors, or in any other way disband, dissolve or impair the authority of the Operations Committee.

NextLevel VIII, LLC (“NextLevel”) is the majority holder of the Preferred Stock and therefore the Company may not enter into the transactions described above without NextLevel’s consent.

The Warrants are exercisable until October 24, 2016 at a price of $.04 per share (subject to certain adjustments) and entitle the holder to purchase 1,250,000 shares of the Company’s Common Stock for each $25,000 of principal amount of Senior Notes. The Preferred Stockholders have entered into an Investors’ Rights Agreement which among other things, provides for Board representation, registration rights, and certain provisions regarding future sales of securities by the Company.

In prior rounds of financing, described in Note 4 Debt, the Company issued certain warrants, rights convertible into or exercisable or exchangeable for common stock (collectively the “Derivative Securities”). The Derivative Securities contain certain anti-dilution provisions, which provide for adjustment of the conversion price, exercise price or number of shares issuable, upon the occurrence of certain events. The Company, obtained from most of the holders of the unexpired Derivative Securities, a waiver, except in the case of any capital reorganization, split, combination or subdivision or reclassification, of any anti-dilution adjustments, it may have with respect to the Derivative Securities.

NextLevel, the majority holder of our Series A Preferred Stock, objected to the offering of $239,500 of Series A Preferred Stock by the Company under the Cumulative Convertible Senior Note and Warranted Purchase Agreement dated May 31, 2012 (the “Purchase Agreement”) in December 2012.

9



NextLevel, the majority holder of our Series A Preferred Stock, objected to the offering of $239,500 of Series A Preferred Stock by us in December 2012 and as such, NextLevel has informed us that it reserves all rights in connection with its objection. Notwithstanding its objection, NextLevel exercised their right of first refusal to purchase an additional 4.1 shares of Series A Preferred Stock.

NextLevel, also filed an amended Schedule 13D on November 21, 2012. The amended Schedule 13D, states, amongst other items, the following:

“[NextLevel] [is] concerned with the [Company’s] strategic direction and poor operating results. In particular [NextLevel] [is] concerned that management is unable to lead the [Company] responsibly and to properly manage its operations and administer its financial resources. As a result, [NextLevel] may utilize [its] voting and other rights to change or influence control of, and to influence the corporate affairs of, the [Company]. NextLevel has advised the [Company] that consent by NextLevel to further financing would be dependent on a strategic review of the [Company’s] business and agreement on a business plan, strategy and use of proceeds going forward. NextLevel has advised the [Company] that it breached its obligations under the Certificate of Designations by materially deviating from its agreed to budget; specifically, making certain non-budgeted capital expenditures without its consent. Next Level has also advised the [Company] that it has breached certain provisions with respect to the Operations Committee Charter. NextLevel may bring legal claims against the [Company], certain members of the Board and officers in connection with actions or admissions by such persons. NextLevel may also take steps intended to replace senior management, and/or certain or all of the members of the Board not appointed by NextLevel. NextLevel intends to continue to evaluate the business and business prospects of the [Company] and its present and future interest in, and intentions with respect to, the [Company], and in connection therewith may from time to time consult with other stockholders of the [Company], NextLevel also intends to discuss the business and policies of the [Company] with management and the Board on an ongoing basis, and [NextLevel] [reserves] the right to change their intentions with respect to any of the matters described in this filing.”

The market for our common stock is volatile, and there is no assurance a strong market will develop.

Our common stock (CPXP.PK) is thinly traded and has experienced volatility in its daily stock price. We believe this volatility will continue until we have consistent business operations and are properly funded.

The equity markets may experience periods of volatility, which could result in highly variable and unpredictable pricing of equity securities. The market price of our common stock could change in ways that may or may not be related to our business, our industry or our operating performance and financial condition and could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock. We cannot predict the potential impact of these periods of volatility on the price of our common stock. The Company cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future.

ITEM 1B.  
  Unresolved Staff Comments

Not applicable.

ITEM 2.  
  Properties

Our headquarters are located at 303 5th Avenue, Room 206, New York, NY 10016. We currently lease approximately 400 square feet of office space in a month to month arrangement for $1,100 per month.

Until November 30, 2011, we leased 2,061 square feet of office space located at 7222 Commerce Center Drive, Suite 210, Colorado Springs, CO 80919 for $3,200 per month. In December 2011 we moved into shared office space and are subletting for $250 per month in a month to month arrangement. In December 2011, this shared office was closed and the activities were moved and consolidated to the South Carolina office.

In November 2011 we leased additional space in South Carolina at 612 Johnnie Todds Blvd., Suite A5. The lease provides for 1500 square feet of office space for $1,000 per month. In November 2011 the company renewed the lease for an additional 3 years with the first year monthly rent amounting to $1,130 per month plus common area charges.

We believe that our properties will be adequate to meet our needs for the next twelve months however if we need additional space we believe we can locate such space on commercially reasonable terms.

10



ITEM 3.  
  Legal Proceedings

The Company is involved in a dispute over a services contract. S.O.S. Resources (“SOS”) and its president claim that SOS fully performed under an agreement with the Company 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 the Company. The Company believes that SOS and its president did not perform under the contract, and intends to vigorously defend itself against such claim as well as file a claim for fraud against SOS and its president. The Company believes that the suit filed by SOS and its president is without merit; however, we will have to pay costs associated with arbitrating this claim.

The Company has settled an action commenced by the law firm Cozen O’Connor seeking payment of approximately $195,000 in legal fees for services allegedly rendered by the firm in 2007. The Company has agreed to remit the sum of $3,000 per month for thirty (30) months, commencing on August 1, 2012 with a final payment of $114,670.66 due on January 1, 2015.

An action has been commenced against the Company seeking legal fees in the sum of approximately $47,700 allegedly incurred in connection with a Settlement Agreement dated April 13, 2009. The Company has settled this matter by agreeing to pay the total sum of $35,000, payable, (i) $15,000 upon the execution of a settlement agreement; (ii) $10,000 on the 120th day following the execution of the settlement agreement, and (iii) $10,000 following the 240th day of the settlement agreement.

ITEM 4.  
  Mine Safety Disclosures

None.

11



PART II

ITEM 5.  
  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is traded in the over-the-counter market under the symbol CPXP.PK. In the past year, the trading price has ranged from $.02 to $.05. These market quotations reflect the high and low closing prices or by prices, without retail mark-up, markdown or commissions and represent actual transactions.

Fiscal Year 2012
                 High        
Low
Fourth Quarter
              $ .05           $ .02    
Third Quarter
              $ .05           $ .04    
Second Quarter
              $ .04           $ .03    
First Quarter
              $ .03           $ .02    
 
Fiscal Year 2011
           
High
   
Low
Fourth Quarter
              $ .042           $ .020    
Third Quarter
              $ .032           $ .0156    
Second Quarter
              $ .02           $ .015    
First Quarter
              $ .05           $ .020    
 

Holders

As of January 18, 2013, we have approximately 727 record holders of our Common Stock.

We are authorized to issue 800,000,000 shares of $0.001 par value common stock, of which 272,039,702 shares have been issued and are outstanding as of January 22, 2013. We are also authorized to issue 5,000,000 shares of Preferred Stock, 120 of which have been designated as Series A Convertible Preferred Stock, all of which have been issued.

Dividends

We have not paid dividends on our common stock and do not anticipate doing so in the near future. See “Risk Factors” for a description of our Series A Preferred Stock, which bears a cumulative dividend of 7% per annum.

ITEM 6.  
  Selected Financial Data

As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

ITEM 7.  
  Management’s Discussion and Analysis of Financial Condition and Results of Operations

There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discussed in this report under the caption “Risk Factors.” You should read these factors and the other cautionary statements made in this report as being applicable to all related forward-looking statements wherever they appear in this report. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

12



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: A summary of our business, financial performance and opportunities.

•  
  Results of Operations: A discussion of operating results.

•  
  Liquidity and Capital Resources: An analysis of cash flows, sources and uses of cash, contractual obligations and financial position.

•  
  Critical Accounting Policies and Procedures: A discussion of critical accounting policies that require the exercise of judgments and estimates.

•  
  Recent Accounting Pronouncements: A summary of recent accounting pronouncements and the effects on our business.

Business Overview

We are a business services corporation headquartered in New York, New York. We aim to provide 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 our primary clients. Through our proprietary Coupon Express kiosks and services, we provide in-store customized couponing, in multiple languages, for immediate impact in regional, independent retailers in the grocery and convenience store industries by enabling retailers to quickly determine ideal price-points for new products and mitigate losses from hard-to-sell items. 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. Through a joint marketing agreement with Midax, Inc., a systems integrator for the independent grocery and convenience store industries, we provide 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 kiosks are primarily placed in supermarkets. The kiosks display promoted products on the digital screen as well as providing the ability to redeem coupons in order to purchase the products at a discounted rate. The system tracks the number of dispensed coupons and 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.

Results of Operations

For the years ended October 31, 2012 and 2011, we reported revenues of $28,682 and $18,733, respectively, an increase of $9,949, or 53%. Our revenues for the years ended October 31, 2012 and 2011 were derived exclusively from advertising revenues.

Our net loss to common shareholders from operations for the years ended October 31, 2012 and 2011 was $3,838,773 and $2,123,500, respectively, an increase of $1,715,273, or 81%. The details of the increase in net loss are discussed below.

Selling and administrative expenses increased for the years ended October 31, 2012 and 2011, $1,791,338 and $392,866 respectively. The increase in selling expenses is attributable to the installation and deployment of 115 kiosks in the year ended October 31, 2012.

The increase in administrative expenses is primarily attributable to the recognition of the non-cash cost of granting options and warrants to its Chief Executive and Chief Financial Officer of $1,117,023 in the year ended October 31, 2012.

Interest expense decreased $115,498 as a result of the conversion of the convertible notes to common and preferred stock.

Our losses from operations for the years ended October 31, 2012 and 2011 were derived from our inability to derive significant revenues while incurring material working capital costs, including costs of development and deploying our kiosks.

The Company’s current revenue models include a fixed fee plus click charge and a fixed price per store model. Management believes that future deployments may incorporate one or both of these models. We anticipate that as more kiosks are installed throughout the United States, advertisers/manufacturers will be able to reach a critical mass of consumers that should result in generating additional advertising revenue from the kiosks. As of October 31, 2012, we had 119 kiosks installed, compared to 4 kiosks as of October 31, 2011, which have generated limited revenue to

13




date. The cost to have each kiosk manufactured is approximately $5,000, which will either be financed from cash on hand or a sale leaseback program. Our monthly cash requirements are approximately $85,000 at the current rate of kiosk installments. Our cash on hand is expected to sustain operations for the next 30 days, at which time the Company will require additional capital to support its operations. We anticipate that the Company will need to raise additional capital of up to $1,500,000 in order to fund operations, including the purchase of additional kiosks, in the next 12 months.

Liquidity and Capital Resources

Cash Flows

Cash used in operations was $1,723,861 for the year ended October 31, 2012 compared to $532,405 of cash used in operations for the year ended October 31, 2011. Cash flows used for investing activities for the years ended October 31, 2012 and 2011 was $301,949 and $116,763, respectively, an increase of $185,186. This increase in cash used for investing activities is attributable to the purchase of kiosks. Cash flows from financing activities for the years ended October 31, 2012 and 2011 were $1,048,000 and $1,562,500, respectively, a decrease of $250,000, or 16%. This decrease in cash flows from financing activities is attributable to the retirement of certain convertible notes of $250,000.

In the event we do not generate sufficient funds from revenues or financing through the issuance of our common stock or from debt financing, we may unable to fully implement our business plan and pay our obligations as they became due, any of which circumstances would have a material adverse effect on our business prospects.

In October 2011, May 2012 and July 2012 we completed a private placement of $2,760,500 aggregate principal amount of Cumulative Convertible Senior Notes (“Senior Notes”) and Warrants to certain investors, that included the Company’s existing Series A Preferred Stockholders (the “Preferred Stock”). In August 2012, the Senior Notes were converted into 110.42 shares of Preferred Stock. In December 2012, we issued an additional 9.58 shares of Preferred Stock and Warrants for proceeds of $239,500.

The shares of Preferred Stock bear a cumulative dividend of 7% per annum. Upon liquidation, and upon an acquisition of the Company, the holders of Preferred Stock are entitled to a liquidation preference equal to the greater of (i) the amount invested plus all accrued and unpaid dividends, or (ii) the amount the holders of Preferred Stock would receive had they converted the Preferred Stock to Common Stock immediately prior to such event. Each share of Preferred Stock is convertible into 1,250,000 shares of the Company’s Common Stock, subject to certain adjustments. The Certificate of Designation of the Preferred Stock, provides that without the consent of the holders of a majority of the outstanding Series A Preferred Stock, the Company may not, among other things, amend its Articles of Incorporation, issue securities, make acquisitions or change senior management.

The Warrants are exercisable until October 24, 2016 at a price of $.04 per share (subject to certain adjustments) and entitle the holder to purchase 1,250,000 shares of the Company’s Common Stock for each $25,000 of principal amount of Senior Notes. The investors have entered into an Investors’ Rights Agreement which among other things, provides for Board representation, registration rights, and certain provisions regarding future sales of securities by the Company.

Cash and cash equivalents

We had cash and cash equivalents of $32,393 and $1,010,203 as of October 31, 2012 and 2011, respectively. Management believes that the current level of working capital will be sufficient to allow the Company to maintain its operations for the next 30 days and is aware that additional capital must be raised to meet its financial obligations and expand the business.

Due to the substantial doubt of our ability to meet our working capital needs, history of losses and current shareholders’ deficit, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern in its report on our annual financial statements for the year ended October 31, 2012. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Our estimates are based on assumptions we believe are reasonable under the circumstances. We will evaluate our estimates on an ongoing basis and make changes as experience develops or as we become aware of new information. Actual results may differ from these estimates.

Off-Balance Sheet Transactions

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

14



ITEM 7A.  
  Quantitative and Qualitative Disclosures About Market Risk

As a Smaller Reporting Company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

ITEM 8.  
  Financial Statements and Supplementary Data

See Financial Statements attached hereto.

ITEM 9.  
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

None

ITEM 9A.  
  Controls and Procedures

Management’s Report on Disclosure Controls and Procedures

We seek to improve and strengthen our control processes to ensure that all of our controls and procedures are adequate and effective. We believe that a control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the controls system are met. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company will be detected.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. Based upon that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective at the reasonable assurance level discussed above.

There were no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d that occurred during the last quarter that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Management’s Annual Report on Internal Control Over Financial Reporting

Our Chief Executive Officer/Chief Financial Officer is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for our Company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of October 31, 2011 based on criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management concluded that, as of October 31, 2011, our internal control over financial reporting was effective.

This annual report does not include an attestation report of our registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered independent public accounting firm.

ITEM 9B.  
  Other Information.

None.

15



PART III

ITEM 10.  
  Directors, Executive Officers and Corporate Governance

Identification of Directors and Executive Officers

The current directors and executive officers of Coupon Express, Inc. who will serve until the next annual meeting of shareholders or until their successors are elected or appointed and qualified, are set forth below:

Name

        Age
    Position

Eric L. Kash
           
55
   
Chief Executive Officer, Chief Financial Officer and Director
Herbert B. Soroca
           
70
   
Director and Secretary
Alan Schor
           
62
   
Director
Joseph Heller
           
49
   
Director
 

Business Experience:

The principal occupation and business experience of each of the directors, nominees for directors and executive officers are as follows:

Eric L. Kash

Effective June 30, 2010, Mr. Eric L. Kash was appointed as the Chief Executive Officer of the Company after Mr. David Foni’s resignation. Mr. Kash also serves as both a director and Chief Financial Officer of the Company. Mr. Kash has served as the Chief Financial Officer of CE since November 10, 2008. Prior to that, Mr. Kash worked as an investment banker with Basic Investors from 2006 through 2007. Mr. Kash’s leadership as Chief Executive Officer provides him with intimate knowledge of the Company’s operation that is vital to the Board of Directors.

Herbert B. Soroca

Effective July 1, 2010, Mr. Herbert B. Soroca was appointed as a member of the Board of Directors for CE. Mr. Soroca is the Chairman and sole member of the Audit Committee. Since 1983, Mr. Soroca has been Chief Executive Officer of North Cove Capital Advisors in Stamford, Connecticut, which provides advice to emerging growth companies in the areas of finance, management and strategy. A Wall Street veteran, he has overseen public offerings, PIPEs, and private debt and equity placement. Mr. Soroca is the former Managing Director and head of Corporate Finance for Palicapital, Inc. He earned his AB from Columbia College and his JD from Columbia University School of Law. Mr. Soroca’ s extensive experience in the financial industry and raising capital through both public and private means enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy.

Alan Schor

Alan Schor, a Director since October 2012, has been President of CJ Consulting, an accounts payable auditing firm servicing supermarkets throughout the United States for more than the past 25 years. Mr. Schor is a supermarket industry professional specializing in the accounting, procurement, sales and marketing for the development of products to the supermarket trade and the development of new products and accounts payable procedures for the retail industry. Mr. Schor’s extensive experience in the retail industry allows him to offer valuable perspectives on our corporate planning, budgeting and financial reporting.

Joseph Heller

Mr. Heller, a director since October 2011, specializes in structuring and negotiation of private investments, sales, mergers and acquisitions, public offerings, strategic planning and operations of small businesses. Mr. Heller has been a Manager of NextLevel Venture Partners (“NextLevel”), a New York based venture capital firm, since 2001. In this capacity, Mr. Heller manages NextLevel’s portfolio investments. NextLevel is an affiliate of NextLevel VIII, LLC, which was the lead investor in the last round of the Company’s financing. From 2005 to 2011 Mr. Heller was also President and CEO of Ameracash Solutions, Inc., an alternative financial services company serving the underbanked consumer that was sold to Softgate Systems (formerly IPP of America) in 2011. From 1995 to 2000, Mr. Heller was Vice President at Arbor Management, LLC, an investment management company, where he was responsible for an investment portfolio consisting of 31 direct investments in small businesses, most of which were early stage technology companies. His responsibilities included identifying investment opportunities, conducting due diligence, negotiating and administering investments in private equity, public securities, and managed funds. Mr. Heller was also a VP of Finance and a member of the board of directors of Extended Family Care, a publicly held home healthcare company, of which Arbor was an investor. Mr.

16




Heller structured the sale of this company to Star Multicare Services, Inc. From 1991 to 1995, Mr. Heller served as Vice President of Investor Relations and Financial Analysis for Arbor National Mortgage Corp., a publicly traded mortgage banking company. In this capacity, he coordinated activities with investment bankers and financial analysts in conducting Arbor National’s public offering. He also helped structure the sale of Arbor National to Bank of America. Prior to his tenure at Arbor, Mr. Heller was an Associate at Winstar Services, Inc., a boutique merchant bank, where he was responsible for analyzing small business investment opportunities and assisting in mergers and acquisitions of portfolio companies. Mr. Heller was also an analyst for Morgan Stanley & Company and a Senior Accountant at Ernst & Young. Mr. Heller currently serves as a Director on several Boards of high tech start-ups. Mr. Heller is a Certified Public Accountant and has an MBA in Finance from Fordham University and a BS in Accounting from Purdue University.

Other Involvement in Certain Legal Proceedings

Our directors or executive officers have not been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against any of our directors or executive officers during the last ten years that we consider material to the evaluation of the ability and integrity of any director or executive officer.

Committees of the Board of Directors

Audit Committee. We have a standing Audit Committee. Mr. Herbert B. Soroca serves as the Chairman and sole member of the Audit Committee. He qualifies as an audit committee financial expert as defined in Item 407(d)(5) of Regulation S-k promulgated under the Exchange Act. The Audit Committee currently does not operate in accordance with a written charter, but intends to adopt one prior to the Company’s next annual stockholders’ meeting.

The Audit Committee is appointed by the Board to assist the Board with oversight of (i) the integrity of the financial statements of the Company, (ii) the Company’s compliance with legal and regulatory requirements, (iii) the independence and qualifications of the Company’s external auditors, and (iv) the performance of the Company’s internal audit function and external auditors. It is the Audit Committee’s responsibility to retain or terminate the Company’s independent registered public accountants, who audit the Company’s financial statements. As part of its activities, the Audit Committee meets with the Company’s independent registered public accountants at least annually to review the scope and results of the annual audit and quarterly to discuss the review of the quarterly financial results. In addition, the Audit Committee receives and considers the independent registered public accountants’ comments and recommendations as to internal controls, accounting staff, management performance and auditing procedures.

Compensation Committee. The Compensation Committee has responsibility for overseeing all matters of our executive compensation policy, including reviewing, evaluating and approving our agreements, plans, policies and programs to compensate our corporate officers and directors. Mr. Schor serves as the Chairman of the Compensation Committee. The agenda for meetings of the Compensation Committee are determined by the chairman of the Compensation Committee, in consultation with our Chief Executive Officer. In determining compensation of our executive officers, the Compensation Committee reviews data which it believes is representative of other companies in our industry, primarily by reviewing public disclosure of other public companies, as filed with the SEC. The Compensation Committee considers, among other factors, our performance and relative stockholder return, the value of similar incentive awards to executive officers at comparable companies, the awards given to our Chief Executive Officer in past years, and other factors considered relevant by the Compensation Committee.

Operations Committee. The Operations Committee shall assist the Board of Directors in selecting, hiring and managing a Chief Operating Officer of the Company, who when and if hired, shall report directly to the Committee. The Operations Committee shall also review and provide strategic advice and counsel to the Company regarding the business operations; and presenting to the Board an independent assessment of the Company’s business operations as it relates to strategic initiatives. The Committee shall be comprised of three members of the Board of Directors, one of which shall be the Board representative of NextLevel VIII, LLC (“NextLevel Representative”). Except for the NextLevel Representative, the members of the Committee (i) shall be appointed by the Board of Directors and shall serve until such member’s successor is duly elected and qualified or until such member’s earlier resignation or removal, and (ii) may be removed, with or without cause, by a majority vote of the Board of Directors. The NextLevel Representative may be removed and replaced solely by NextLevel VIII, LLC. The NextLevel Representative shall be designated as the Chairman of the Committee at all times who is currently Mr. Heller. The Chairman shall be the only voting member of the Committee. The Chairman will chair all regular sessions of the Committee and set the agendas for Committee meetings. Any action of the Committee shall require the vote of the sole voting member and no other member.

17



Nominating Committee. The board of directors has determined that, due to its current size, formation of a separate nominating committee would not be an efficient use of resources. The board intends to form a Nominating Committee in the future. All directors, currently participate in consideration of director nominees. The board will consider suggestions from stockholders for names of possible future nominees delivered in writing and received one hundred and twenty (120) days in advance of our Annual Meeting of Stockholders. Such recommendation should provide all information relating to such person that the stockholder desires to nominate that is required to be disclosed in solicitation of proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

Communications with Board Members

We have not adopted a formal process by which stockholders may communicate with the board of directors. Stockholders may contact our Chief Executive Officer at eric@psicoupons.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors and executive officers and persons who beneficially own more than 10% of our common stock (referred to herein as the “reporting persons”) file with the SEC various reports as to their ownership of and activities relating to our common stock. Such reporting persons are required by SEC regulations to furnish us with copies of all Section 16(a) reports they file. Mr. Schor has not filed his form 3 reporting his appointment as a Director of the Company and issuances of equity securities made by the Company to him as compensation for services, which he intends to file in the second quarter of fiscal 2013.

Code of Ethics

Due to size and limited resources of the Company, we have not adopted a formal Code of Ethics, however the Board closely reviews all transactions that the Company is involved in.

18



ITEM 11. Executive Compensation

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth information concerning annual and long-term compensation provided to our Chief Executive Officer and each of our other most highly compensated executive officers who were serving as executive officers at October 31, 2012. The compensation described in this table does not include medical, group life insurance, or other benefits which are available generally to all of our salaried employees.

Summary Compensation Table for the Fiscal Years Ended October 31, 2012, 2010 and 2011

Name and Principal Position (a)         Year
ended
October 31,
Salary($)     Bonus
($) (4)
    Options
($) (2)
    Warrants ($)     All other
compensation
($) (3)
    Total ($)
Eric L. Kash, Chief Executive Officer
and Chief Financial Officer (1)(3)
                 2012         
$120,000
(1)      
0
        
$99,934
           
$1,079,089
(1)      
0
        $
1,299,023
  
 
                 2011         
$120,000
(1)      
0
        
$99,934
           
0
      
0
        $
219,934
  
 
                 2010         
$120,000
(1)      
0
        
$99,934
           
0
      
0
        $
219,934
  
 
(1)
  Mr. Kash has served as Chief Financial Officer since November 10, 2008 and he was appointed to serve as our Chief Executive Officer on June 30, 2010. Mr. Kash’s salary of under his Employment Agreement dated November 10, 2008 (the “Employment Agreement”) of $10,000 per month was deferred for the thirty six months ended October 31, 2011. On October 24, 2011, the Company issued Mr. Kash a warrant to purchase 36,000,000 shares of its common stock at an exercise price of $0.001 per share (the “Warrants”). The Warrants were issued in lieu of payment of deferred salary of $360,000. The Warrants were exercisable on the sixty-first day after the warrant issuance date through October 24, 2016. The Company accounts for its stock based compensation under FASB ASC Topic 718, “Compensation—Stock Compensation”. The fair value of these warrants on date of grant was approximately $1,079,289; the fair value was estimated using the Black-Sholes option pricing model with the following assumptions at the grant date of October 24, 2011; risk free interest rate of 0.96%, no dividend yield, expected lives of 5 years, and volatility of 248%. The expected term of the Warrants granted is based on the “simplified” method for “plain vanilla” options discussed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as amended by SAB No. 110. The expected volatility is derived from historic volatility of the Company’s stock on the OTCBB for a period that matches the expected term of the option. The risk free interest rate is the yield from a Treasury note corresponding to the expected term of the warrants. No additional compensation expense was recorded in connection with the issuance of these Warrants during the fiscal year ended October 31, 2012 and 2011 under FASB ASC 718.

(2)
  As part of the Employment Agreement, Mr. Kash was granted an option to purchase 10,000,000 shares of the Company’s common stock that vest over a five (5) year period. The option is exercisable of $0.001 per share and expire ten (10) years from date of grant. Amounts shown do not reflect compensation actually received by Mr. Kash. Instead, the amounts shown are the compensation costs that should have been recognized by the Company for option awards as determined pursuant to ASC 718. This column represents the grant date fair value of the awards as calculated in accordance with FASB ASC 718 (Stock Compensation). Pursuant to SEC rule changes effective February 28, 2010, we are required to reflect the total grant date fair values of the option grants in the year of grant, rather than the portion of this amount that was recognized for financial statement reporting purposes in a given fiscal year which was required under the prior SEC rules. The Company accounts for its stock based compensation under FASB ASC Topic 718, “Compensation—Stock Compensation”. The fair value of these warrants on date of grant was approximately $499,672; the fair value was estimated using the Black-Sholes option pricing model with the following assumptions at the grant date of November 8, 2008; risk free interest rate of 2.25%, no dividend yield, expected lives of 5 years, and volatility of 172%. The expected term of the options granted is based on the “simplified” method for “plain vanilla” options discussed in SEC Staff Accounting Bulletin (“SAB”) No. 107, as amended by SAB No. 110. The expected volatility is derived from historic volatility of the Company’s stock on the OTCBB for a period that matches the expected term of the option. The risk free interest rate is the yield from a Treasury note corresponding to the expected term of the options. The Company has recorded as a prior period adjustment for the value of the options not recorded as additional compensation for the years ending October 2008 to October 2011 of $299,802. For the year ended October 31, 2012 the Company recorded additional compensation expense of $99,934 in connection with the issuance of options earned under the employment contract in accordance with FASB ASC 718.

19



(3)
  Our named executive officers did not receive any perquisites or other personal benefits or property during the fiscal years ended October 31, 2012, 2011 and 2010.

Employment Agreements with Our Named Executive Officers

Since November 10, 2008, we have had an employment contract in place with Eric L. Kash, Chief Executive Officer and Chief Financial Officer. In consideration of his furnished services, Mr. Kash is entitled to receive $10,000 per month as base salary compensation and additional equity compensation as described below, which was deferred for fiscal 2009, 2010 and 2011. However, in October 2011, Mr. Kash received in lieu of deferred salary for the three year period ended a warrant, to purchase 36,000,000 shares of the Company’s common stock at an exercise price of $.001 per share.

In the event of Mr. Kash’s resignation or termination for cause, we owe no further financial liability to Mr. Kash, other than with respect to accrued, unpaid salary and other compensation earned prior to termination. In the event of a termination without cause,
Mr. Kash is entitled to receive the base salary he is owed through the five-year contract term, a maximum of $600,000.

Option Grants to our named Executive Officers for the year ended October 31, 2012

Name of the Executive Officer (a)         Number of
Securities
Underlying
Option
Granted
    Percentage that the
Grant Represents of
Total Options
granted to Employees
During the
Fiscal Year
    Per-Share Exercise
of Base Price of the
Options granted
    Expiration Date
of the Option
Eric Kash, Chief Executive Officer and Chief Financial Officer
           
2,000,000
   
100%
   
$0.001
   
November 10, 2018
 
*  
  As part of his Employment Agreement, Mr. Kash, was granted an option to purchase 10,000,000 shares of our common stock, which vest in equal monthly installments (2,000,000 yearly) during the five-year term of the agreement. The options shall continue to vest until the end of the term, unless Mr. Kash’s employment is terminated for cause. There options expire ten (10) years from the date of grant.

Long-Term Incentive Plan Awards in Last Fiscal Year

We made no awards under any long-term incentive plan in the fiscal year ended October 31, 2012.

Director Compensation

We do not separately compensate employee directors for their position as director. We compensate our non-employee directors with annual stock grants, which we believe aligns director compensation directly with our long-term performance. Stock grants are awarded to non-employee directors upon election or appointment, as the case may be, and for chairing a Committee of the Board of Directors.

Each director receives annually, a grant of 500,000 shares of the Company’s Common Stock for his services provided as a director and an additional 333,000 shares of Common Stock as chair of a committee of the Board of Directors, if any.

Compensation Committee Interlocks and Insider Participation

The Board of Directors has determined that, due to its current size, formation of a separate compensation committee would not be an efficient use of resources.

20



ITEM 12.  
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Equity Compensation Plans

In October 2011, we adopted, subject to stockholder approval, the 2011 Non-Qualified Stock Option Plan (the “Plan”). Under the terms of the Plan, the purchase price of the shares subject to each option grant will not be less than the fair market value at the date of grant. The date of exercise may be determined at the time of grant by our Board, but may not exceed five years. No options have been granted under the Plan. As of October 31, 2011, 20,000,000 shares remain available for issuance under the Plan.

The Plan is intended to serve as an additional incentive to all employees and key individuals to devote themselves to our future success by providing them with an opportunity to increase their proprietary interest through the receipt of options to purchase our common stock.

The Board determines and designates those individuals who are to be granted stock options under the Plan and the number of shares to be subject to such options and, as hereinafter described, the nature and terms of the options to be granted. The Board shall also, subject to the express provisions of the Plan, have authority to interpret the Plan and to prescribe, amend, and rescind the rules and regulations relating to the Plan.

Unless otherwise noted in an individual option agreement or other agreement governing an award under the Plan, any unvested stock options held by an employee at the time of his termination of service from us for any reason will be forfeited.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of the date hereof with respect to the beneficial ownership of the outstanding shares of Common Stock by (i) each of the directors and director nominee; (ii) each of our named executive officers listed in the summary compensation table; and (iii) our current officers and directors (and nominee) as a group.

As used in the table below, the term “beneficial ownership” means the sole or shared power to vote or direct the voting, or to dispose or direct the disposition, of any security. A person is deemed as of any date to have beneficial ownership of any security that such person has a right to acquire within 60 days after such date. Except as otherwise indicated, the stockholders listed below have sole voting and investment powers with respect to the shares indicated. Accordingly, the number of shares and percentage set forth opposite each stockholder’s name in the table include the shares of Common Stock issuable upon exercise, conversion or exchange of certain derivative securities beneficially owned by such person, both with respect to the number of shares of Common Stock deemed to be beneficially owned and the adjusted percentage of outstanding Common Stock resulting from such rights.

                Amount of beneficial ownership        
Name and address of
beneficial owner1
        Nature of
Beneficial Owner
    Shares
Owned
    Shares — Rights
to Acquire
    Total Number     Percent of
Shares
Beneficially
Owned
Eric L. Kash
           
Chief Executive Officer, Chief Financial Officer and Director
         672,000             46,204,167             46,876,167            14.4%    
Herbert B. Soroca
           
Director
         1,666,000             0              1,666,000             *    
Alan Schor
           
Director
         4,230,944             2,857,143             7,088,087             *    
Joseph Heller2
           
Director
         833,000             150,250,000             151,083,000            35.2%    
All directors and executive officers as a group (4 persons)
           
 
         7,401,944             199,311,310             206,713,254             43.2%    
 
*
  Percentage of shares beneficially owned does not exceed one percent of issued and outstanding shares of stock.

1
  Unless otherwise stated, the address of each beneficial owner listed on the table is c/o Coupon Express, Inc., 303 5th Avenue, Room 206, New York, NY 10016.

2
  The reported securities are owned by NextLevel VIII, LLC (“NextLevel”), Mr. Heller and Anita Kaufman serve as the managers of NextLevel and may be deemed to beneficially own the securities held by NextLevel (see “Stock Ownership by Certain Stockholders”

21




  table below). Mr. Heller and Anita Kaufman disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein. On October 24, 2011 the Company entered into a Cumulative Convertible Senior Note and Warrant Purchase Agreement (the “2011 Purchase Agreement”) governing the issuance of up to $1,900,000 aggregate principal amount of Cumulative Convertible Senior Notes (the “2011 Senior Notes”) and Warrants (the “2011 Warrants”). Pursuant to the terms of the 2011 Purchase Agreement, NextLevel purchased $1,000,000 of 2011 Senior Notes and 2011 Warrants to purchase 50,000,000 shares of Common Stock. The 2011 Warrants are exercisable until October 24, 2016 at a price of $.04 per share (subject to certain adjustments). On May 31, 2012, the Issuer entered into second Cumulative Convertible Senior Note and Warrant Purchase Agreement (the “2012 Purchase Agreement”) governing the issuance of up to $1,537,500 aggregate principal amount of Cumulative Convertible Senior Notes (the “2012 Senior Notes,” and together with the 2011 Senior Note, the “Senior Note”) and Warrants (the “2012 Warrants”, and together with the 2011 Warrants, the “Warrants”). The terms and conditions of the 2012 Senior Notes and 2012 Warrants are substantially similar to the 2011 Senior Notes and 2011 Warrants, respectively. Pursuant to the terms of the 2012 Purchase Agreement, NextLevel purchase $400,000 of 2012 Senior Notes and 2012 Warrants to purchase 20,000,000 shares of Common Stock. The 2012 Warrants are exercisable until May 31, 2017 at a price of $.04 per share (subject to certain adjustments). On August 7, 2012, as a result of the conversation of the Issuer’s 14% Convertible Subordinated Notes due June 23, 2011 in the aggregate principal amount of $646,000,000 into 7,177,777 shares of Common Stock, all of the Issuer’s outstanding Senior Notes, in the aggregate principal amount of $2,760,500, converted automatically into shares of Preferred Stock. The Senior Notes converted at a rate of one share of Preferred Stock for each $25,000 of Senior Notes. Together with the purchase of 4.1 shares of Preferred Stock in December 2012, the Company has 120 shares of Preferred stock issued and outstanding, of which 60.1 shares are held by NextLevel.

Stock Ownership by Certain Stockholders

The following table shows each person or group, based upon their most recent filings with the Securities and Exchange Commission that beneficially own more than 5% of the Company’s Common Stock.

Name and address of beneficial owner
  Amount and nature of
beneficial ownership
       Percent of Shares
Beneficially Owned*
   
Lazarus Investment Partners LLP (1)
c/o Lazarus Management Company LLC
2401 E. 2nd Avenue, Suite 600
Denver, CO 80206
         43,507,572                15.1%        
NextLevel VIII, LLC (2)
c/o NextLevel Group, LLC
6800 Jericho Turnpike, Suite 120W
Syosset, NY 11791
         151,083,000                  35.2%        
 
*
  On January 22, 2013, we had 279,039,702 shares of common stock outstanding.

(1)
  The information reported is based on a Form 4 filed with the SEC on November 1, 2012 jointly by Lazarus Investment Partners LLP, Lazarus Management, and Justin B. Borus. Lazarus Partners reported that it was the beneficial owner of an aggregate of 43,507,572 shares of common stock, including 5,000,000 shares underlying common stock warrants, 5,000,000 shares of common stock issuable upon Series A Preferred Stock and 33,507,572 shares held directly. Lazarus Management reported that it is the investment adviser and general partner of Lazarus Partners, and consequently may be deemed to have voting control and investment discretion over securities owned by Lazarus Partners. Mr. Borus is the managing member of Lazarus Management. Lazarus Management and Mr. Borus disclaim beneficial ownership of the securities set forth in the published Schedule 13D, except to the extent of its or his pecuniary interests therein.

(2)
  See footnote 2 to the “Security Ownership of Certain Beneficial Owners and Management” table above, for a description of the reported securities.

As of February 1, 2013, there are no arrangements known to management which may result in a change in control of our Company.

ITEM 13.  
  Certain Relationships, Related Transactions, and Director Independence

Certain Relationships and Related-Party Transactions

None.

22



Director Independence

During the fiscal year ended October 31, 2011, Eric L. Kash, Herbert Soroca, Alan Schor, and Joseph Heller served as members of our Board of Directors. Each of the directors, except for Mr. Kash, are “independent” as defined in Rule 4200(a)(15) of the NASDAQ Marketplace Rules.

ITEM 14.  
  Principal Accounting Fees and Services

Audit Fees

The aggregate fees billed for the fiscal year that ended on October 31, 2012 for professional services rendered by the independent auditor for the audit of our annual financial statements and review of financial statements included in our Form 10-Q, or services that are normally provided by the accountant in connection with the statutory and regulatory filings or engagements for such fiscal year, amount to approximately $16,600.

The aggregate fees billed for the fiscal year that ended on October 31, 2011 for professional services rendered by the independent auditor for the audit of our annual financial statements and review of financial statements included in our Form 10-Q, or services that are normally provided by the accountant in connection with the statutory and regulatory filings or engagements for such fiscal year, amount to approximately $16,600.

For the fiscal years ended on October 31, 2012 and 2011, there were no fees billed for assurance and related services by the independent auditor that are reasonably related to the performance of the audit or review of our financial statements and are not reported under Item 9(e) (1) of Schedule 14A.

Services Provided
        2012 2011
Audit Fees
           
$16,600
$16,600
Audit-Related Fees
           
Total
           
$16,600
$16,600
 

Tax Fees

For the fiscal years ended on October 31, 2012 and 2011, there were no fees billed in the last year for professional services rendered by the independent auditor for tax compliance, tax advice and tax planning.

All Other Fees

For the fiscal years ended on October 31, 2012 and 2011, there were no fees billed in the last fiscal year for products or services provided by the independent auditor other than the services reported in the three preceding paragraphs.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has established a policy to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. All of the services provided during fiscal year 2012 were pre-approved.

During the approval process, the Audit Committee considered the impact of the types of services and the related fees on the independence of the independent registered public accounting firm. The services and fees were deemed compatible with the maintenance of that firm’s independence, including compliance with rules and regulations of the SEC. Throughout the year, the Audit Committee will review any revisions to the estimates of audit fees initially estimated for the engagement.

23



PART IV

ITEM 15.  
  Exhibits, Financial Statement Schedules

Exhibit Index

Exhibit
Number

        Description
2.1
           
Share Exchange Agreement dated as of April 27, 2006 among Friendlyway Corporation, Pantel Systems, Inc. and Kenneth J. Updraft (Exhibit 2.1, Current Report on Form 8-K filed on May 5, 2006).
3.1
           
Certificate of Amendment to Articles of Incorporation — Series A Preferred Stock Rights, Designation and Privileges (Exhibit 3.1, Current Report on Form 8-K filed on June 6, 2012).
3.2
           
Amended and Restated Bylaws of Registrant (Exhibit 3.2 of Current Report on Form 8-K, filed on June 6, 2012).
10.1
           
Cumulative Convertible Senior Note and Warrant Purchase Agreement dated as of October 24, 2011 between the Company and certain investors listed thereto (Exhibit 10.1, Current Report on Form 8-K filed on November 1, 2011).
10.2
           
Cumulative Convertible Senior Note and Warrant Purchase Agreement dated as of May 31, 2012 between the Company and certain investors listed thereto (Exhibit 10.1, Current Report on Form 8-K filed on June 6, 2012).
10.3
           
Form of Cumulative Convertible Senior Note (Exhibit 10.2, Current Report on Form 8-K filed on November 1, 2011).
10.4
           
Form of 2012 Cumulative Convertible Senior Note (Exhibit 10.2, Current Report on Form 8-K filed on June 6, 2012).
10.5
           
Investors’ Rights Agreement dated as of May 31, 2012 between the Company and certain investors listed thereon (Exhibit 10.3, Current Report on Form 8-K filed on June 6, 2012).
10.6
           
Form of Common Stock Warrant (Exhibit 10.4 to Current Report on Form 8-K filed on November 1, 2011).
10.7
           
Form of 2012 Common Stock Warrant (Exhibit 10.4, Current Report on Form 8-K filed on June 6, 2012).
10.8
           
Form of Security Agreement dated as of October 24, 2011 between the Company and the Collateral Agent (Exhibit 10.5, Current Report on Form 8-K filed on November 1, 2011).
10.9
           
Form of Amended and Restated Security Agreement dated as of May 31, 2012 between the Company and the Collateral Agent (Exhibit 10.5, Current Report on Form 8-K filed on June 6, 2012).
10.10
           
Form of Subordination Agreement dated as of October 24, 2011 (Exhibit 10.6, Current Report on Form 8-K filed on November 1, 2011).
10.11
           
Amended Cumulative Convertible Senior Note and Warrant Purchase Agreement dated as of October 24, 2011, and as amended on May 31, 2012, between the Company and certain investors listed thereto (Exhibit 10.6, Current Report on Form 8-K filed on June 6, 2012).
10.12
           
Form of Amended 2011 Cumulative Convertible Senior Note (Exhibit 10.7, Current Report on Form 8-K filed on June 6, 2012).
10.13
           
Investors’ Rights Agreement dated as of October 24, 2011, as amended on May 31, 2012 between the Company and certain investors listed thereto (Exhibit 10.8, Current Report on Form 8-K filed on June 6, 2012).

24



Exhibit
Number

        Description
10.14
           
Form of Amended 2011 Common Stock Warrant (Exhibit 10.9, Current Report on Form 8-K filed on June 6, 2012).
10.15
           
Common Stock and Warrant Purchase Agreement dated as of December 28, 2012 between the Company and Future Farm Trust (Exhibit 10.1, Current Report on Form 8-K filed on January 3, 2013).
10.16
           
Common Stock Purchase Warrant dated as of December 28, 2012 (Exhibit 10.2, Current Report on Form 8-K filed on January 3, 2013).
31.1
           
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
           
Certification of Officers 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 Scheme
101.CAL XBAL
           
Taxonomy Extension Calculation Linkbase
101.DEF XBRL
           
Taxonomy Extension Definition Linkbase
101.LAB XBRL
           
Taxonomy Extension Label Linkbase
101.PRE XBRL
           
Taxonomy Presentation Linkbase
 

25



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 
           
Coupon Express, Inc.
 
           
By:  /s/ Eric L. Kash
 
           
Eric L. Kash
Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer and
Principal Accounting Officer)
 

Date: February 12, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
        Title
    Date
/s/ Eric L. Kash
Eric L. Kash
           
Chief Executive Officer and Chief Financial Officer
(Principal Executive Officer and
Principal Accounting Officer)
   
February 12, 2013
 
/s/ Herbert B. Soroca
Herbert B. Soroca
           
Director and Chairman of the Audit Committee
   
February 12, 2013
 
/s/ Alan Schor
Alan Schor
           
Director
   
February 12, 2013
 
 
Joseph Heller
           
Director
   
February 12, 2013
 

26



COUPON EXPRESS, INC.
Index to Financial Statements

        Page
Report of Independent Registered Public Accounting Firm
           
2
Balance Sheets as of October 31, 2012 and 2011
           
3
Statements of Operations and Comprehensive Loss for the years ended October 31, 2012 and 2011
           
4
Statements of Changes in Stockholders’ Equity for the years ended October 31, 2012 and 2011
           
5
Statements of Cash Flows for the years ended October 31, 2012 and 2011
           
6
Notes to Financial Statements
           
7-19
 

F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Coupon Express, Inc.:

I have audited the accompanying balance sheets of Coupon Express, Inc. (the “Company”) as of October 31, 2012 and 2011 and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits.

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

In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coupon Express, Inc. as of October 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant recurring losses. The realization of a major portion of its assets is dependent upon its ability to meet future financing needs and success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Patrick Rodgers, CPA, PA
Orlando, Florida
February 4, 2013

F-2



COUPON EXPRESS, INC.
BALANCE SHEETS

        October 31,
   
        2012
    2011
ASSETS
Current assets
                                       
Cash
              $ 32,393          $ 1,010,203   
Accounts receivable (net of allowance for doubtful accounts)
                 11,121             1,376   
 
Total current assets
                 43,514             1,011,579   
 
Furniture and equipment, net
                 320,036             252,507   
Other Assets
                                       
Deposit — Kiosks
                 60,000                
Security deposits
                 7,650             4,300   
Total other assets
                 67,650             4,300   
Total assets
              $ 431,200          $ 1,268,386   
 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current liabilities
                                       
Accounts payable and accrued expenses — net of long-term
              $ 328,854          $ 422,454   
Accrued Interest payable (PIK)
                 102,547             65,669   
Preferred dividends payable
                 49,382                
Notes payable
                 56,383             1,689,051   
Total current liabilities
                 537,166             2,177,174   
 
Accounts payable — net of current
                 159,670                
Total liabilities
                 696,836             2,177,174   
 
Commitments and Contingencies
                                       
                     
Stockholders’ deficiency
                                       
Preferred stock $.001 par value; 5,000,000 shares authorized, 110 shares issued and outstanding
                               
Common stock, $.001 par value; 800,000,000 shares authorized, 272,203,802 and 260,953,819 shares issued and outstanding at October 31, 2012 and October 31, 2011, respectively
                 272,203             260,953   
Additional paid-in capital
                 23,418,435             18,647,958   
Deficit
                 (23,955,287 )            (19,816,712 )  
Less: common stock in Treasury
                 (987 )            (987 )  
 
Total stockholders’ deficiency
                 (265,636 )            (908,788 )  
 
Total liabilities and stockholders’ deficiency
              $ 431,200          $ 1,268,386   
 

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

F-3



COUPON EXPRESS, INC.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

        For the Year Ended
October 31,
   
        2012
    2011
Revenue
              $ 28,682          $ 18,733   
 
Selling expenses
                 557,834             164,968   
Administrative expenses
                 2,589,924             1,191,452   
Total expenses
                 3,147,758             1,356,420   
 
Loss from operations
                 (3,119,076 )            (1,337,687 )  
Interest expense, net of interest income
                 670,315             785,813   
Net Loss
              $ (3,789,391 )         $ (2,123,500 )  
Preferred dividends declared
                 49,382                
Net Loss applicable to common stock
              $ (3,838,773 )         $ (2,123,500 )  
 
Weighted average number of common shares outstanding, basic and diluted
                 263,234,466             242,447,405   
 
Basic and diluted loss per share
              $ (0.015 )         $ (0.009 )  
 

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

F-4



COUPON EXPRESS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

        Common Stock
    Preferred Stock
   
        Shares
    Amount
    Shares
    Amount
    Additional
Paid-in
Capital
    Accumulated
Deficit
    Treasury
Stock
    Total
Stockholders’
Deficit
Balance, October 31, 2010
                 120,900,693          $ 120,900                                           12,103,748          $ (17,693,212 )         $ (987 )         $ (5,469,551 )  
Issuance of warrants in connection with financing and reduction of deferred salary
                                                                             1,045,421                                           1,045,421   
Issuance of replacement shares
                 888,000             888                                            (888 )                                             
Conversion of notes payable
                 110,215,741             110,216                                           3,880,020                                           3,990,236   
Issuance of shares for consulting and equipment rental services
                 3,014,928             3,015                                           79,973                                           82,988   
Issuance of shares for interest
                 24,798,567             24,799                                           1,540,819                                           1,565,618   
Issuance of penalty and anti-dilution shares
                 1,135,890             1,136                                           (1,136 )                                             
Net loss
                                                                                            (2,12,500 )                           (2,123,500 )  
Balance, October 31, 2011
                 260,953,819          $ 260,953                                        $ 18,647,958          $ (19,816,712 )         $ (987 )         $ (908,788 )  
Conversion of notes payable
                 7,177,777             7,178             110           $              3,399,322                                           3,406,500   
Issuance of shares for consulting and equipment rental services
                 2,993,775             2,994                                           79,478                                           82,472   
Issuance of shares for interest
                 1,078,431             1,078                                           92,365                                           93,443   
Issuance of warrants and options for officer
                                                                             1,478,825                                           1,478,825   
Issuance of warrants in connection with financing — net
                                                                             (279,513 )                                          (279,513 )  
Retained earnings adjustment
                                                                                            (299,802 )                           (299,802 )  
Net loss
                                                                                            (3,838,773 )                           (3,838,773 )  
Balance, October 31, 2012
                 272,203,802          $ 272,203             110           $           $ 23,418,435          $ (23,955,287 )         $ (987 )         $ (265,636 )  
 

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

F-5



COUPON EXPRESS, INC.
STATEMENTS OF CASH FLOWS

        2012
    2011
Cash flows from operations
                                      
 
Net income (loss)
              $ (3,789,391 )         $ (2,123,500 )  
 
Adjustment to reconcile net loss to net cash:
                                       
Depreciation
                 234,420             97,221   
Allowance for doubtful accounts
                 (68,980 )            23,271   
Shares issued for consulting fees, directors fees and equipment rental services
                 82,472             82,988   
Non-cash compensation
                 1,179,023             120,000   
Non-cash interest cost
                 446,319             420,517   
Changes in operating assets and liabilities:
                                       
 
Accounts receivable
                 59,235             8,334   
Notes receivable
                              8,125   
Other assets
                 (63,350 )            (4,300 )  
Accounts payable and accrued expenses
                 66,070             834,939   
Accrued interest
                 130,321                  
 
Net cash provided by (used for) operating activities
                 (1,723,861 )            (532,405 )  
 
Cash flows from investing activities
                                      
Purchase of property and equipment
                 (301,949 )            (116,763 )  
Net cash provided by (used for) investing activities
                 (301,949 )            (116,763 )  
 
Cash flows from financing activities
                                      
Proceeds from issuance of debt
                 1,298,000             1,562,500   
Repayment of debt
                 (250,000 )               
 
Net cash provided by (used for) financing activities
                 1,048,000             1,562,500   
 
Net increase (decrease) in cash
                 (977,810 )            913,332   
 
Cash, beginning of period
              $ 1,010,203          $ 96,871   
 
Cash, end of period
              $ 32,393          $ 1,010,203   
 
Supplemental disclosure of cash flow information and noncash investing and financing activities:
                                      
 
Non-cash financing activities:
                                       
Common and preferred stock issued in payment of notes and accrued interest
              $ 3,499,943          $ 3,990,236   
 
Preferred dividends declared
              $ 49,382                
 
Cash paid during the year for:
                                       
 
Interest
              $ 48,022          $ 14,496   
 
Taxes
              $           $    
 

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

F-6



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

1. Organization and Going Concern

Organization

Coupon Express, Inc. (“CE” or the “Company”) was organized under the laws of Nevada in June, 1991. CE 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 our proprietary kiosks, we provide 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 systems integrator for the independent grocery and convenience store industries and its software applications, marketing services and existing customer base, we provide a seamless transaction for issuing, redeeming and reporting coupons, as well as creating a state-of-the-art loyalty program and shopping list service.

Going Concern

Our financial statements have been prepared on the assumption that we 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 our ability to being unable to continue as a going concern. At October 31, 2012, we had total assets of $431,200 and liabilities of $696,836. Our management is aware that we need to raise additional capital not only to meet our financial obligations, but also to expand our business. These factors cumulatively indicate that there is substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

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

We consider all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents.

Financial Statement Presentation

We have reclassified certain prior-year amounts to conform to the current year presentation.

F-7



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

Summary of Significant Accounting Policies (continued)

Loss per Common Share

The Company complies with the accounting and disclosure requirements of FASB ASC 260, “Earnings Per Share.” Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. The calculation of diluted net loss per share excludes 233,239,691 and 142,107,075 warrants and options outstanding as of October 31, 2012 and 2011 respectively, since their effect is anti-dilutive.

Income Taxes

In accordance with GAAP, we are required to determine whether our tax position 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. We file 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 us 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, 2011.

Based on our analysis, we have determined that the adoption of this policy did not have a material impact on our 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

We recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No interest expense or penalties have been recognized for the year ended October 31, 2012.

F-8



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

Summary of Significant Accounting Policies (continued)

Stock-Based Compensation

We comply 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 years ended October 31, 2012 and October, 31, 2011, we issued 2,993,775 and 3,014,928 shares respectively of our $.001 par value common stock to consultants for consulting services, and in connection with issuance of these shares for the years ended October 31, 2012 and October 31, 2011, we recorded additional compensation expense of $82,472 and $82,988 respectively, 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, we use 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 our 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 we have 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. 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.

F-9



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

Summary of Significant Accounting Policies (continued)

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

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 we exercise 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, our own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. We use 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

We value 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.

F-10



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

Summary of Significant Accounting Policies (continued)

Property and Equipment

Property and equipment is stated at cost less depreciation. Depreciation is computed using the straight-line method over the estimated life of the asset of 5 years. Repairs and maintenance are expensed as incurred, while betterments and improvements are capitalized.

Long-Lived Assets

In accordance with FASB ASC Topic 360 “Property, Plant, and Equipment,” we record 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 our 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 October 31, 2011 and 2010.

Revenue Recognition

Online advertising revenue derived from the kiosks and signage will be recognized as revenue as they are displayed. Our current revenue model provides for an advertiser to pay $10 per kiosk, per week, per store. Approximately half of such revenues will be shared with the supermarkets and other agents, to encourage them to obtain additional advertising revenue for the Company.

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.

Recently Adopted Accounting Pronouncements

There are no recent pronouncements that have a material effect on the Company.

F-11



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

2. Fixed Assets

Furniture and equipment consist of the following:

        October 31,
   
        2012
    2011
Description
                                     
Kiosks
              $ 677,562          $ 375,612   
Less: accumulated depreciation
                 357,526             123,105   
 
              $ 320,036          $ 252,507   
 

Depreciation expense for the year ended October 31, 2012 and 2011 totaled $234,420 and $97,221, respectively.

F-12



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

3. Stockholders’ Equity

Warrants and Options

For the years ended October 31, 2012 and 2011, warrant and option activity was as follow:

            Number of
Warrants

    Weighted
Average
Exercise Price

 
Outstanding, October 31, 2010
           
 
         59,710,021          $ 0.13   
 
           
Granted
         82,397,054             0.04   
 
           
Exercised
                         
 
           
Expired
                         
 
Outstanding, October 31, 2011
           
 
         142,107,075          $ 0.13   
 
Exercisable warrants and options , October 31, 2011
           
 
         142,107,075          $ 0.13   
 
Outstanding, October 31, 2011
           
 
         142,107,075          $ 0.13   
 
           
Granted
         102,360,795             0.04   
 
           
Exercised
                         
 
           
Expired
         11,198,179             0.10   
 
Outstanding, October 31, 2012
           
 
         233,269,691          $ 0.035   
 
Exercisable warrants and options, October 31, 2012
           
 
         233,269,691          $ 0.035   
 

The fair value of the warrant and options 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% to 248%, risk free interest rate of 0.96% to 4.86% ; and expected lives of 5 to 10 years.

4. Debt

Bridge Loans

In February and March 2007, we entered into notes (“Bridge Notes”) with several unrelated parties totaling approximately $325,000. The Bridge Notes were originally due on November 11, 2009 and incurred an interest rate of 12% per annum.

In August 2007, we 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 our common stock. We originally expected these notes to be converted into common stock shares during the first or second quarter of the fiscal year ending October 31, 2011. One of the note holders converted his $25,000 note into 208,333 shares of common stock in December 2008.

In May and June of 2008, we 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 July 2, 2010, the Bridge Note was amended to extend the due date to December 1, 2010. 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, we also issued warrants to purchase 470,000 shares of our common stock at an exercise price $.15 and warrants to purchase 470,000 shares of our 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, we reflected a value for the

F-13



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

4. Debt (continued)

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, we amended these notes to change the warrant exercise price to $.05. During the fiscal year ended October 31, 2010, we issued 3,047,800 common stock shares in connection with the Bridge Note amendments. During the year ended October 31, 2011, the company issued 43,097,752 shares of common stock in payment of accrued interest and principal. In November 2011 and February 2012 $75,000 was repaid to the remaining outstanding note holders.

Round D Loans

Commencing May through October 2007, we 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. In connection with the Round D Notes, we also issued warrants to purchase 9,445,744 shares of our 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, we have reflected a value for the warrants totalling $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. For the years ending October 31, 2011 and 2010 the company issued 48,372,496 and 13,606,592 shares of common stock respectively in payment of accrued interest and principal. In addition, note holders of $646,000 of the remaining $711,000 outstanding convertible notes, have agreed to extend the due dates of their notes until October 2012 and also to subordinate their notes to the new Senior Convertible Notes. In November 2011 and February 2012 $55,000 was repaid to two of the outstanding note holders. On August 7, 2012 the company issued 8,353.497 shares in payment of outstanding principal of $646,000 and interest of $117,572.

Round E Loans

In April, July and August 2009, we 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, we issued five year warrants to purchase 1,602,857 shares of our 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. In October 2011 the company issued 4,230,240 shares in payment of all outstanding accrued interest and principal owed the note holders for this Round.

In March 2009, we obtained interest free advances from two of its officers totaling $40,000. In November 2011 one of these loans totaling $20,000 was repaid.

Round F Loans

In November 2009, January 2010 and March 2010, we entered into a series of convertible notes aggregating $419,000. The notes were originally due one year from the date of issuance at an interest rate of 10% per annum. In connection with the notes, we issued five year warrants to purchase 11,971,429 shares of our common stock at an exercise price of $.05 per share. The warrants may be exercisable at any time over 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. In October 2011 the company issued 12,641,938 shares in payment of all accrued interest and principal owed for this Round.

F-14



COUPON EXPRESS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

4. Debt (continued)

Round G Loans

In May through October 2010, we entered into a series of convertible notes aggregating $485,000. The notes were originally due one year from the date of issuance at an interest rate of 10% per annum. The interest is payable in cash or common shares at our discretion. The notes are convertible into common shares at a conversion price of $.035 per share. In connection with the notes, we issued five year warrants to purchase 13,857,143 shares of our common stock at an exercise price of $.05/share. Through October 31, 2010, we 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, we have reflected a value totaling $118,067. 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 October 2011 the company issued 23,568,072 shares in payment of accrued interest and principal due all but one note holder. In December 2011 the company repaid $100,000 to the remaining outstanding note holders.

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. In October 2011 the company issued 2,903,810 shares in payment of all accrued interest and principal owed for Round H.

For all of the debt financing describe above, the Company has the option to either pay the interest due in cash or in shares of our common stock. During the year ended October 30, 2012 the company offered its outstanding warrants holders (for all rounds prior to 2011) to extend the due date of their warrants in exchange for a lower exercise price.

Cumulative Convertible Senior Notes

In October 2011, May 2012 and July 2012, we completed a private placement of $2,760,500 aggregate principal amount of Cumulative Convertible Senior Notes (“Senior Notes”) and Warrants to certain investors, that included the Company’s existing holders of Series A Preferred Stock (the “Preferred Stock”). In August 2012, the Senior Notes were converted into 110.42 shares of Preferred Stock. In December 2012, we issued an additional 9.58 shares of Preferred Stock and Warrants for proceeds of $239,500.

The shares of Preferred Stock bear a cumulative dividend of 7% per annum. Upon liquidation, and upon an acquisition of the Company, the holders of Preferred Stock are entitled to a liquidation preference equal to the greater of (i) the amount invested plus all accrued and unpaid dividends, or the amount the holders of Preferred Stock would receive had they converted the Preferred Stock to Common Stock immediately prior to such event. Each share of Preferred Stock is convertible into 1,250,000 shares of the Company’s Common Stock, subject to certain adjustments. The Certificate of Designation of the Preferred Stock provides that without the consent of a majority of the outstanding Series A Preferred Stock, the Company may not:

1.
  amend the Articles of Incorporation, by-laws, Certificate of Designation or any other certificate of designation or file any new certificate of designation;

2.
  issue any Common Stock, Preferred Stock, Common Stock Equivalents or other securities or amend the terms thereof;

3.
  redeem any outstanding Common Stock, Preferred Stock, Common Stock Equivalents or other securities;

4.
  incur or repay indebtedness for borrowed money;

5.
  acquisitions or dispositions of material assets;

F-15



COUPON EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

4. Debt (continued)

6.
  enter into any acquisition, merger, consolidation, reorganization or similar transaction;

7.
  create subsidiaries or other affiliates;

8.
  dissolve, liquidate or wind up or file any petition under insolvency or bankruptcy laws;

9.
  enter into any contract or arrangement with any present or former director, executive officer, shareholder, partner, member, employee or affiliate of the Company or any of its subsidiaries, or any of such Person’s affiliates or immediate family members;

10.
  change senior management of the Company;

11.
  declare or pay dividends or declare or make other distributions other than the Base Dividends; or

12.  
  adopt or materially deviate from the business plan or budget adopted by the Board of Directors.

NextLevel VIII, LLC (“NextLevel”) is the majority holder of the Preferred Stock and therefore the Company may not enter into the transactions described above without NextLevel’s consent.

The Warrants are exercisable until October 24, 2016 at a price of $.04 per share (subject to certain adjustments) and entitle the holder to purchase 1,250,000 shares of the Company’s Common Stock for each $25,000 of principal amount of Senior Notes. As of October 31, 2012 the Company is authorized to issue 800,000,000 shares of common stock. The Preferred Stockholders have entered into an Investors’ Rights Agreement which among other things, provides for Board representation, registration rights, and certain provisions regarding future sales of securities by the Company.

In prior rounds of financing, described in Note 4 Debt, the Company issued certain warrants, rights convertible into or exercisable or exchangeable for common stock (collectively the “Derivative Securities”). The Derivative Securities contain certain anti-dilution provisions, which provide for adjustment of the conversion price, exercise price or number of shares issuable, upon the occurrence of certain events. The Company, obtained from most of the holders of the unexpired Derivative Securities, a waiver, except in the case of any capital reorganization, split, combination or subdivision or reclassification, of any anti-dilution adjustments, it may have with respect to the Derivative Securities.

5. Commitments

Operating Leases

Real Estate

Until November 30, 2011 we leased 2,061 square feet of office space in Colorado for $3,200 per month. In December 2011 we moved into shared office space and are subletting for $250 per month in a month to month arrangement. In December 2011, this shared office was closed and the activities were moved and consolidated to the South Carolina office. In November 2011 we leased additional space in South Carolina for our IT and Customer Service department. The lease provides for rent of $1,000 per month plus common area charges until November 2012. In November 2012 the company renewed the lease for an additional 3 years with the first year monthly rent amounting to $1,130 plus common area charges. Our New York headquarters lease is month to month. The total rent expense for these operating leases were approximately $29,414 and $30,918 for the years ended October 31, 2012 and 2011, respectively.

Equipment

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

F-16



COUPON EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

5. Commitments (continued)

for each order of 25 Kiosks ordered. In September 2011 and in March 2012 the Company received 50 new Kiosks with a value of $250,000. Terms of this sub-lease provide for payments of $140/month for each Kiosk over 3 years. However, Yellow Box has recently advised the Company that they are presently unable to finance the purchase of additional kiosks.

Minimum rental commitments at October 31, 2012 under all leases having a non-cancelable term of more than one year are shown below:

2012
              $ 85,560   
2013
                 73,968   
2014
                 29,328   
Total minimum lease payments
              $ 188,856   
 

Legal

The Company is involved in a dispute over a services contract. S.O.S. Resources (“SOS”) and its president claim that SOS fully performed under an agreement with the Company 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 the Company. The Company believes that SOS and its president did not perform under the contract, and intends to vigorously defend itself against such claim as well as file a claim for fraud against SOS and its president. The Company believes that the suit filed by SOS and its president is without merit; however, we will have to pay costs associated with arbitrating this claim.

The Company has settled an action commenced by the law firm Cozen O’Connor seeking payment of approximately $195,000 in legal fees for services allegedly rendered by the firm in 2007. The Company has agreed to remit the sum of $3,000 per month for thirty (30) months, commencing on August 1, 2012 with a final payment of $114,670.66 due on January 1, 2015.

An action has been commenced against the Company seeking legal fees in the sum of approximately $47,700 allegedly incurred in connection with a Settlement Agreement dated April 13, 2009. The Company has settled this matter by agreeing to pay the total sum of $35,000, payable, (i) $15,000 upon the execution of a settlement agreement; (ii) $10,000 on the 120th day following the execution of the settlement agreement, and (iii) $10,000 following the 240th day of the settlement agreement.

6. Income Taxes

We have not filed federal or state tax returns for the years ended October 31, 2004–2011. We did not believe that we owed material federal or state taxes for these fiscal years as a result of our operating losses. As of October 31, 2012, we had approximately $23.8 million of net operating losses (“NOL”) carryforwards for federal and state income purposes. These losses are available for future years and expire through 2032. Utilization of these losses may be severely or completely limited if we undergo an ownership change pursuant to Internal Revenue Code Section 382.

F-17



COUPON EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

6. Income Taxes (continued)

The deferred tax asset is summarized as follows:

        October 31,
   
        2011
    2010
Deferred tax assets:
                                       
 
Net operating loss carry forwards
              $ 8,024,000          $ 6,622,000   
 
Accounts payable and accrued expenses not currently deductible
                 68,000             116,000   
 
              $ 8,092,000          $ 6,738,000   
 
Valuation allowance
                 (8,092,000 )            (6,738,000 )  
 
Net deferred income tax asset
              $           $    
 

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 our history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets.

7. Prior Period Adjustment

For the year ended October 31, 2012, we identified $299,802 of errors relating to the understatement of the value of Mr. Kash’s 10,000,000 options granted to him in 2008; consequently compensation expense was understated for the years 2009, 2010 and 2011. Shown below is a summarized version of the statements of income for the years ended October 31, 2009, 2010 2011, which reflect the effect of the prior period adjustment of $299,802 on the net loss previously reported for those years.

 

Year ended
  10/31/2009

 

10/31/2010

 

10/31/2011
Revenue $ 16,316     $ 106,924     $ 18,733  
                       
Total expenses   2,031,490       1,280,522       1,356,420  
                       
Loss from operations   (2,015,174 )     (1,173,598 )     (1,337,687 )
                       
Other Income (expenses)   (1,048,393 )     (1,540,347 )     (785,813 )
                       
Net loss as originally reported $ (3,063,567 )   $ (2,713,945 )   $ (2,123,500 )
                       
Additional compensation expense in connection with options granted on 11/10/08   99,934       99,934       99,934  
                       
Net loss as adjusted $ (3,163,501 )   $ (2,813,879 )   $ (2,223,434 )
               
Weighted average number of common shares outstanding, basic and diluted  83,331,690    98,908,386    242,447,405 
                
Basic and diluted loss per share $(0.04)  $(0.03)  $(0.009)

8. Subsequent Events

On December 3, 2012, the Company issued 9.58 additional Series A Preferred Stock (the “Preferred Stock”) and Warrants (the “2012 Warrants”) to purchase 11,975,000 shares of Common Stock, pursuant to a Cumulative Convertible Senior Note and Warrant Purchase Agreement dated as of May 31, 2012 (the “2012 Purchase Agreement”) for proceeds of $239,500. The shares of Preferred Stock bear a cumulative dividend of 7% per annum. Upon liquidation, and upon an acquisition of the Company, the holders of Preferred Stock are entitled to a liquidation preference equal to the greater of (i) the amount invested plus all accrued and unpaid dividends, and (ii) the amount the holders of Preferred Stock, would receive had they converted the Preferred Stock to Common Stock immediately prior to such event. Each share of Preferred Stock is convertible into 1,250,000 shares of the Company’s Common Stock, subject to certain adjustments. As of October 31, 2012 the Company is authorized to issue 800,000,000 shares of common stock.

F-18



COUPON EXPRESS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2012 AND 2011

8. Subsequent Events (continued)

On December 28, 2012, the Company issued 6,835,900 shares of common stock (the “Common Stock”) and warrants (the “Warrants”) to purchase 5,649,500 shares of Common Stock to a certain investor, pursuant to a Common Stock and Warrant Purchase Agreement dated as of December 28, 2012 (the “Purchase Agreement”) for proceeds of $112,990.

F-19