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 OConnor 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
managements 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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
Persons 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 NextLevels
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 Companys 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 [Companys]
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 [Companys] 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.
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 OConnor 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 Registrants 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.
|
|
|
|
|
High |
|
|
|
|
|
|
|
$ |
.05 |
|
|
$ |
.02 |
|
|
|
|
|
$ |
.05 |
|
|
$ |
.04 |
|
|
|
|
|
$ |
.04 |
|
|
$ |
.03 |
|
|
|
|
|
$ |
.03 |
|
|
$ |
.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
.042 |
|
|
$ |
.020 |
|
|
|
|
|
$ |
.032 |
|
|
$ |
.0156 |
|
|
|
|
|
$ |
.02 |
|
|
$ |
.015 |
|
|
|
|
|
$ |
.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. |
|
Managements 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
Managements 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 Companys 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 Companys 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 Companys 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 Companys 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 |
Managements 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.
Managements 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 ControlIntegrated 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. Managements 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
|
|
|
|
|
|
|
Chief Executive Officer, Chief Financial Officer and 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 Fonis 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. Kashs leadership as Chief Executive Officer provides him with intimate knowledge of the
Companys 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 Boards 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. Schors 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 NextLevels portfolio investments. NextLevel is an affiliate of NextLevel VIII, LLC, which was the lead investor
in the last round of the Companys 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 Nationals 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 Companys 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 Companys compliance with legal and regulatory
requirements, (iii) the independence and qualifications of the Companys external auditors, and (iv) the performance of the Companys
internal audit function and external auditors. It is the Audit Committees responsibility to retain or terminate the Companys independent
registered public accountants, who audit the Companys financial statements. As part of its activities, the Audit Committee meets with the
Companys 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 Companys 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 members successor is duly elected and qualified or until such members 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) |
|
|
|
|
$99,934 |
|
|
|
$1,079,089 |
(1) |
|
|
|
$ |
1,299,023 |
|
|
|
|
|
|
2011 |
|
|
$120,000 |
(1) |
|
|
|
|
$99,934 |
|
|
|
0 |
|
|
|
|
$ |
219,934 |
|
|
|
|
|
|
2010 |
|
|
$120,000 |
(1) |
|
|
|
|
$99,934 |
|
|
|
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. Kashs 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, CompensationStock 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 Companys 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 Companys 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, CompensationStock 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
Companys 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 Companys common stock at an exercise price of $.001 per share.
In the event of Mr. Kashs 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 |
|
|
|
|
|
|
|
|
|
|
* |
|
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. Kashs
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 Companys 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 stockholders 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 |
|
|
|
|
Chief Executive Officer, Chief Financial Officer and Director |
|
|
672,000 |
|
|
|
46,204,167 |
|
|
|
46,876,167 |
|
|
|
14.4% |
|
|
|
|
|
|
|
|
1,666,000 |
|
|
|
0 |
|
|
|
1,666,000 |
|
|
|
* |
|
|
|
|
|
|
|
|
4,230,944 |
|
|
|
2,857,143 |
|
|
|
7,088,087 |
|
|
|
* |
|
|
|
|
|
|
|
|
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 Issuers 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 Issuers 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 Companys 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 firms 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
|
|
|
|
|
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). |
|
|
|
|
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). |
|
|
|
|
Amended and Restated Bylaws of Registrant (Exhibit 3.2 of Current Report on Form 8-K, filed on June 6, 2012). |
|
|
|
|
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). |
|
|
|
|
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). |
|
|
|
|
Form of Cumulative Convertible Senior Note (Exhibit 10.2, Current Report on Form 8-K filed on November 1,
2011). |
|
|
|
|
Form of 2012 Cumulative Convertible Senior Note (Exhibit 10.2, Current Report on Form 8-K filed on June 6,
2012). |
|
|
|
|
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). |
|
|
|
|
Form of Common Stock Warrant (Exhibit 10.4 to Current Report on Form 8-K filed on November 1, 2011). |
|
|
|
|
Form of 2012 Common Stock Warrant (Exhibit 10.4, Current Report on Form 8-K filed on June 6, 2012). |
|
|
|
|
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). |
|
|
|
|
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). |
|
|
|
|
Form of Subordination Agreement dated as of October 24, 2011 (Exhibit 10.6, Current Report on Form 8-K filed on November 1,
2011). |
|
|
|
|
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). |
|
|
|
|
Form of Amended 2011 Cumulative Convertible Senior Note (Exhibit 10.7, Current Report on Form 8-K filed on June 6,
2012). |
|
|
|
|
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
|
|
|
|
|
Form of Amended 2011 Common Stock Warrant (Exhibit 10.9, Current Report on Form 8-K filed on June 6, 2012). |
|
|
|
|
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). |
|
|
|
|
Common Stock Purchase Warrant dated as of December 28, 2012 (Exhibit 10.2, Current Report on Form 8-K filed on January 3, 2013). |
|
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
|
|
|
|
|
|
|
Taxonomy Extension Scheme |
|
|
|
|
Taxonomy Extension Calculation Linkbase |
|
|
|
|
Taxonomy Extension Definition Linkbase |
|
|
|
|
Taxonomy Extension Label Linkbase |
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
|
|
/s/ Herbert B. Soroca Herbert B. Soroca |
|
|
|
Director and Chairman of the Audit Committee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
COUPON EXPRESS, INC.
Index to Financial
Statements
|
|
|
|
Page
|
Report of Independent Registered Public Accounting Firm |
|
|
|
|
Balance Sheets as of October 31, 2012 and 2011 |
|
|
|
|
Statements of Operations and Comprehensive Loss for the years ended October 31, 2012 and 2011 |
|
|
|
|
Statements of Changes in Stockholders Equity for the years ended October 31, 2012 and 2011 |
|
|
|
|
Statements of Cash Flows for the years ended October 31, 2012 and 2011 |
|
|
|
|
Notes to Financial Statements |
|
|
|
|
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 Companys 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
Companys 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 Companys 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
32,393 |
|
|
$ |
1,010,203 |
|
Accounts receivable (net of allowance for doubtful accounts) |
|
|
|
|
11,121 |
|
|
|
1,376 |
|
|
|
|
|
|
|
43,514 |
|
|
|
1,011,579 |
|
|
Furniture and equipment, net |
|
|
|
|
320,036 |
|
|
|
252,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
7,650 |
|
|
|
4,300 |
|
|
|
|
|
|
67,650 |
|
|
|
4,300 |
|
|
|
|
|
$ |
431,200 |
|
|
$ |
1,268,386 |
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
56,383 |
|
|
|
1,689,051 |
|
Total current liabilities |
|
|
|
|
537,166 |
|
|
|
2,177,174 |
|
|
Accounts payable net of current |
|
|
|
|
159,670 |
|
|
|
|
|
|
|
|
|
|
696,836 |
|
|
|
2,177,174 |
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
(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
|
|
|
|
|
$ |
28,682 |
|
|
$ |
18,733 |
|
|
|
|
|
|
|
557,834 |
|
|
|
164,968 |
|
|
|
|
|
|
2,589,924 |
|
|
|
1,191,452 |
|
|
|
|
|
|
3,147,758 |
|
|
|
1,356,420 |
|
|
|
|
|
|
|
(3,119,076 |
) |
|
|
(1,337,687 |
) |
Interest expense, net of interest income |
|
|
|
|
670,315 |
|
|
|
785,813 |
|
|
|
|
|
$ |
(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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(3,789,391 |
) |
|
$ |
(2,123,500 |
) |
|
Adjustment to reconcile net loss to net cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
1,179,023 |
|
|
|
120,000 |
|
|
|
|
|
|
446,319 |
|
|
|
420,517 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,235 |
|
|
|
8,334 |
|
|
|
|
|
|
|
|
|
|
8,125 |
|
|
|
|
|
|
(63,350 |
) |
|
|
(4,300 |
) |
Accounts payable and accrued expenses |
|
|
|
|
66,070 |
|
|
|
834,939 |
|
|
|
|
|
|
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 |
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
$ |
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: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,022 |
|
|
$ |
14,496 |
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
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 Companys 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 stockholders 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, managements 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 entitys 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
ValueDefinition 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
ValueDefinition 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
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 |
|
|
|
|
|
|
|
|
82,397,054 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
102,360,795 |
|
|
|
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 Companys 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 Companys 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
Persons 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 NextLevels
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 Companys 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:
|
|
|
|
$ |
85,560 |
|
|
|
|
|
|
73,968 |
|
|
|
|
|
|
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 OConnor 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, 20042011. 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
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
(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 Companys
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. Kashs 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 Companys 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