ITEM 1. BUSINESS
This report contains forward-looking statements. These forward-looking statements are based on our current expectations about our business and industry. In some cases, these statements may be identified by terminology such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” or the negative of such terms and other comparable terminology. These statements involve known and unknown risks and uncertainties that may cause our results, levels of activity, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to such differences include, among others, those discussed in this report under Item 1A.
ITEM 1A. RISK FACTORS
This Annual Report on Form 10-K includes forward-looking statements about our business and results of operations that are subject to risks and uncertainties. Factors that could cause or contribute to such differences include those discussed below. In addition to the risk factors discussed below, we are also subject to additional risks and uncertainties not presently known to us or that we currently deem immaterial. If any of these known or unknown risks or uncertainties actually occurs, our business could be harmed substantially.
Our success will depend on our ability to develop new products and to adapt to rapid technological change.
The types of products sold by us are subject to rapid and continual technological change. Products available from us, as well as from our competitors, have increasingly offered a wider range of features and capabilities. We believe that in order to compete effectively in selected vertical markets, we must provide compatible systems incorporating new technologies at competitive prices. To the extent we determine that new software and hardware technologies are required to remain competitive or our customers demand more advanced offerings, the development, acquisition and implementation of these technologies are likely to require significant capital investments by us. To the extent that such expenses precede or are not subsequently followed by increased revenues, our business, results of operations and financial condition may be materially and adversely affected.
We can provide no assurance that we will be able to continue funding research and development at levels sufficient to enhance our current product offerings or be able to develop and introduce on a timely basis new products that keep pace with technological developments and emerging industry standards and address the evolving needs of clients. There can also be no assurance that we will not experience difficulties that will result in delaying or preventing the successful development, introduction and marketing of new products in our existing markets or that our new products and product enhancements will adequately meet the requirements of the marketplace or achieve any significant degree of market acceptance. Likewise, there can be no assurance as to the acceptance of our products in new markets, nor can there be any assurance as to the success of our penetration of these markets, or to the revenue or profit margins with respect to these products. Our inability, for any reason, to develop and introduce new products and product enhancements in a timely manner in response to changing market conditions or client requirements could materially adversely affect our business, financial position, results of operations and cash flow.
In addition, we strive to achieve compatibility between our products and retail systems that we believe are or will become popular and widely adopted. We invest substantial resources in development efforts aimed at achieving such compatibility. Any failure by us to anticipate or respond adequately to technology or market developments could materially adversely affect our business, operating results and financial condition.
We may have difficulty implementing our products, which could damage our reputation and our ability to generate new business.
Implementation of our software products can be a lengthy process, and commitment of resources by our clients is subject to a number of significant risks over which we have little or no control. Delays in the implementations of any of our software products, whether by our business partners or us, may result in client dissatisfaction, disputes with customers, or damage to our reputation. Significant problems implementing our software can cause delays or prevent us from collecting fees for our software and can damage our ability to generate new business.
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 in 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.
We are highly dependent on a limited number of clients, the loss of one or more of which could have a material adverse effect on our business, operating results and financial condition.
We sell systems and services to a limited number of large clients. We can provide no assurance that the loss of one or more of these clients will not have a material adverse effect on our business, financial position, results of operations, and cash flows.
We have traditionally depended on our installed client base for future revenues from services and licenses of other products. If existing clients fail to renew their maintenance agreements, our revenues could decrease. The maintenance agreements are generally renewable annually at the option of the client and there are no mandatory payment obligations or obligations to license additional software. Therefore, current clients may not necessarily generate significant maintenance revenues in future periods. In addition, clients may not purchase additional products or services. Any downturn in software license revenues could result in lower services revenues in future quarters.
Our failure to manage our growth effectively could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The growth in the size and complexity of our business and the expansion of our product lines and client base may place a significant strain on our management and operations. An increase in the demand for our products could strain our resources or result in delivery problems, delayed software releases, slow response time, or insufficient resources for assisting clients with implementation of our products and services, which could have a material adverse effect on our business, operating results and financial condition. We anticipate that continued growth, if any, will require us to recruit, hire and assimilate a substantial number of new employees, including consulting, product development, sales and marketing, and administrative personnel.
Our ability to compete effectively and to manage future growth, if any, will also depend on our ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage our work force, particularly our direct sales force and consulting services organization. We can provide no assurance that we will be able to manage any future growth, and any failure to do so could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The loss of our key personnel could have a material adverse effect on us.
Our future success depends in part on the performance of our executive officers and key employees. We do not have employment agreements with any of our executive officers. The loss of the services of any of our executive officers or other key employees could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition, our failure to recruit and retain qualified accounting and finance personnel may result in excessive third party accounting and auditing costs and expenses in connection with compliance with the Sarbanes-Oxley Act, specifically in connection with Section 404 (internal control over financial reporting).
Our inability to attract, hire or retain the necessary technical and managerial personnel could have a material adverse effect on our business, financial position, results of operations, and cash flows.
We are heavily dependent upon our ability to attract, retain and motivate skilled technical and managerial personnel, especially highly skilled engineers involved in ongoing product development and consulting personnel who assist in the development and implementation of our total business solutions. The market for such individuals is intensely competitive. Due to the critical role of our product development and consulting staffs, the inability to recruit successfully or the loss of a significant part of our product development or consulting staffs could have a material adverse effect on us. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. We can provide no assurance that we will be able to retain our current personnel, or that we will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract, hire or retain the necessary technical and managerial personnel could have a material adverse effect upon our business, financial position, results of operations, and cash flows.
If we become subject to adverse claims alleging infringement of third-party proprietary rights, we may incur unanticipated costs and our competitive position may suffer.
There has been a substantial amount of litigation in our industry regarding intellectual property rights. It is possible that in the future third parties may claim that our current or potential future solutions infringe on their intellectual property. We anticipate that product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows. Although we are not aware of any infringement by our technology on the proprietary rights of others and are not currently subject to any legal proceedings involving claimed infringements, we can provide no assurance that we will not be subject to such third-party claims, litigation or indemnity demands or that these claims will not be successful. If a claim or indemnity demand were to be brought against us, it could result in costly litigation or product shipment delays, or force us to stop selling or providing services or enter into costly royalty or license agreements.
We operate in a highly competitive market and can give no assurance that we will be able to compete successfully against our current or future competitors.
The market for retail information systems is intensely competitive. We believe the principal competitive factors are product quality, reliability, performance and price, vendor and product reputation, financial stability, features and functions, ease of use, quality of support, and degree of integration effort required with other systems. A number of companies offer competitive products addressing certain of our target markets. In addition, we believe that new market entrants may attempt to develop fully integrated systems targeting the retail industry. In the market for consulting services, we compete with various systems integrators. 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.
An increase in customer bankruptcies, due to weak economic conditions, could harm our business.
During weak economic times, there is an increased risk that certain of our customers will file bankruptcy. If a customer files bankruptcy, we may be required to forego collection of pre-petition amounts owed and to repay amounts remitted to us during the 90-day preference period preceding the filing. Accounts receivable balances related to pre-petition amounts may in certain of these instances be large due to extended payment terms for software license fees, and significant billings for consulting and implementation services on large projects. The bankruptcy laws, as well as specific circumstances of each bankruptcy, may limit our ability to collect pre-petition amounts. We also face risk from international customers that file for bankruptcy protection in foreign jurisdictions, in that the application of foreign bankruptcy laws may be more difficult to predict. Although we believe that we have sufficient reserves to cover anticipated customer bankruptcies, we can provide no assurance that such reserves will be adequate, and if they are not adequate, our business, operating results and financial condition would be adversely affected.
Our products and services could be vulnerable to unauthorized access and hacking.
Credit card issuers have promulgated credit card security guidelines as part of their ongoing effort to battle identity theft and credit card fraud. We continue to work with credit card issuers to assure that our products and services comply with the credit card associations’ security regulations and best practices applicable to our products and services. There can be no assurances, however, that our products and services are invulnerable to unauthorized access or hacking. Additionally, there can be no guarantee that our customers will implement all of the credit card security features that we introduce or all of the
protections and procedures required by the credit card issuers, or that our customers will establish and maintain appropriate levels of firewall protection and other security measures. When there is unauthorized access to credit card data that results in financial loss, there is a potential that parties could seek damages from us. Additionally, changes in the security guidelines could require significant and unanticipated development efforts.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
ITEM 2. PROPERTIES
Our principal executive offices are located Colorado Springs, Colorado that is occupied under an operating lease expiring in 2011. We believe that our existing facilities are adequate to meet our needs for the foreseeable future and that suitable alternative space is readily available should we choose to or be unable to renew our leases at the conclusion of their terms.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
This Note embraces all litigation items commenced, disposed of or otherwise resolved during the period November 1, 2004, through October 31, 2009.
On April 27, 2007, FWAG, a German corporation that had received 6,000,000 of the aggregate of 18,000,000 shares issued by the Company effective December 10, 2004, in exchange for 100% of the capital stock of friendlyway, Inc. (“FWI”), sued the Company in California Superior Court in response to the Company’s attempted cancellation of the shares received by FWAG. The Company then instituted a separate action in California Federal District Court (No. C 07 02869 SBA) on June 1, 2007, against FWAG in which the Company alleged that it was fraudulently induced to acquire FWI and to issue 18,000,000 shares of its Common Stock in exchange therefore. The Company sought rescission of the FWI transaction and, to prevent irreparable harm, moved on June 5, 2007, for a temporary restraining order to attempt to preserve the status quo. (The named defendants in the Federal action were believed to own an aggregate of 15,576,000 of the 18,000,000 shares.)
The law is settled that a party seeking a temporary restraining order must demonstrate either (a) the combination of probable success on the merits or (b) serious issues being raised and the balance of hardships being in favor of the movant. The Court ruled that the Company failed to show a likelihood of success on the Merits, that the securities fraud and breach of contract claims were time-barred, and that its allegations of fraud were precatory and, therefore, unsupported.
Subsequently, the Company was constrained to execute settlement agreements with each of the four named defendants. Such settlements resolved the litigation instituted both by AG and by the Company. Each such settlement agreement differed in content and result and in the disposition of the shares of Common Stock in issue. In sum, the settlements resulted in the net cancellation of 4,401,906 shares of Common Stock and the release of AG claims to an additional 18 million shares thereof. The Company believes it to be significant that its then counsel did not raise the issues of (a) failure to deliver consideration by the shareholders of FWI and (b) damages sustained by the Company as the proximate cause of all AG-appointed Company directors resigning in December, 2006, resulting in only one director of the Company remaining and that such one director initiated the transaction that resulted in the dissipation of Company assets, the decline in the Company’s stock price, and the necessity that present management (from January, 2007) be compelled to effect a reorganization of the Company.
Additional litigation matters are discussed in Note 6 (Acquisitions) of the financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the Pink Sheets under the symbol “PSCP.” The following table sets forth the high and low reported intraday sale prices of our common stock during the past two fiscal years as reported by the Pink Sheets. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commissions, and may not represent actual transactions. Although we are listed on the Pink Sheets, there can be no assurance that an active trading market for our stock will develop. Price quotations on the exchange will reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Should a market develop for our shares, the trading price of the common stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in quarterly operating results, announcements of technological innovations, new sales formats, or new services by us or our competitors, changes in financial estimates by securities analysts, conditions or trends in Internet or traditional retail markets, changes in the market valuations of other equipment and furniture leasing service providers or accounting related business services, announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments, additions or departures of key personnel, sales of common stock and other events or factors, many of which are beyond our control. In addition, the stock market in general, and the market for instant messaging business services in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. These broad market and industry factors may materially adversely affect the market price of the common stock, regardless of our operating performance.
Consequently, future announcements concerning us or our competitors, litigation, or public concerns as to the commercial value of one or more of our services may cause the market price of our common stock to fluctuate substantially for reasons which may be unrelated to operating results. These fluctuations, as well as general economic, political and market conditions, may have a material adverse effect on the market price of our common stock.
As of June 21, 2010, there were approximately 562 holders of record of our common stock and a total of 111,260,622 shares of common stock outstanding. No dividends have been paid on our common stock to date, and we do not anticipate paying any dividends in the foreseeable future.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will,” or “may,” or other words that convey uncertainty of future events or outcomes to identify these forward-looking statements. Forward-looking statements in this report may include statements about:
our ability to obtain licenses to any necessary third-party intellectual property;
our ability to retain and hire necessary employees and appropriately staff our development programs;
our cash requirements; and
our financial performance.
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 discuss 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.
Introduction
Management’s Discussion and Analysis (“MD&A”) is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction with our financial statements and the accompanying notes to the financial statements included elsewhere in this report. MD&A consists of the following sections:
Overview: A summary of our business, financial performance and opportunities
Results of Operations: A discussion of operating results
Liquidity and Capital Resources: An analysis of cash flows, sources and uses of cash, contractual obligations and financial position
Critical Accounting Policies and Procedures: A discussion of critical accounting policies that require the exercise of judgments and estimates
Recent Accounting Pronouncements: A summary of recent accounting pronouncements and the effects on the Company
Overview
PSI Corporation, doing business as Pantel Systems, Inc. (“PSI” or “the Company”) is a full service kiosk and digital signage company that specializes in the placement and management of coupon kiosks throughout the country. These kiosks come standard with the ability to process Coupons and provide loyalty enrolment cards for a loyalty program designed for specific stores.
Our kiosks provide consumers with information and functionality needed to redeem coupons for obtaining immediate discounts in store. Digital signage screens attached to the kiosks provide advertising opportunities for both national and local advertisers
The kiosks are placed in supermarkets and display promoted products on the Digital screen as well providing the ability to redeem coupons in order to purchase at a discounted rate.The system tracks the number of dispensed coupons and as well calculates the rebates that the store is due.The upper screen can be used as a tool to advertise store promotions and it has an interface allowing the local store to display and show special promotions.It receives its information from central servers that distributes the data to specific locations as require. The loyalty enrolment 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
The Company earned revenue of $36,066 in the fiscal year ended October 31, 2009, compared to revenue of $5,723 in the 2008 fiscal year. The Company’s net loss from operations for the 2009 fiscal year was $2,015,174, compared to a net loss of $1,274,475 in the prior fiscal year.
Our revenue for the 2009 fiscal year primarily derived from the ATM function of our kiosks.
Our significant net losses from operations for both the 2009 and 2008 fiscal years derived from our inability to derive significant revenues while incurring material working capital costs, including costs of development and deploying our kiosks. Additionally, as discussed below in Liquidity and Capital Resources, we have and continue to incur material and significant penalties and expenses as a result of our defaults on a number of promissory notes.
Liquidity and Capital Resources
Cash Flows
Cash used in operations was $888,828 for the year ended October 31, 2009 compared to $1,327,251 of cash used in operations for the year ended October 31, 2008.
Cash flows from financing activities were $652,522 for the year ended October 31, 2009 due primarily to proceeds from the issuance of long-term debt.
In May and June of 2008, we entered into a new series of convertible bridge notes with several unrelated parties totaling $470,000. The convertible bridge notes are due six months from the date of issuance and incur interest at the rate of 10% per annum. The notes are convertible by the holder at any time at a conversion price equal to the per share price of a new issuance. We are currently in default of the convertible bridge notes. In connection with the convertible bridge notes, we also issued warrants to purchase 470,000 shares of our common stock at an exercise price of $.15, and warrants to purchase 470,000 shares of our common stock at an exercise price of $.25.
As discussed in Note 8 to the financial statements, we are in default of a number of our promissory notes, including, but not limited to, the Shelter Island Opportunity Fund and Miller Financial Network Notes (as such terms are defined in Note 8). We have and continue to accrue material and significant penalties and interest expense as a result of these defaults. There is no guaranty we will ever be able to cure these defaults and repay the notes including interest and penalties. These defaults raise a substantial concern regarding our ability to continue as a going concern.
From November 2009 through January 2010, we entered into a series of convertible notes aggregating $419,000. The notes are due one year from the date of issuance and incur interest at the rate of 10% per annum. In connection with the notes, we issued five year warrants to purchase 9,114,286 shares of our common stock at an exercise price of $.05 per share.
In March 2009, we obtained interest free advances from two of its officers totaling $40,000.
In April 2009, we entered into additional bridge note agreements aggregating $30,000. The convertible bridge note is due six months from the date of issuance and incurs interest at the rate of 10% per annum. The note is convertible by the holder at any time at a conversion price equal to the per share price of a new issuance. We also issued warrants to purchase 30,000 shares of our commons stock at an exercise price of $.15 per share and warrants to purchase 30,000 shares of our common stock at an exercise price of $.25 per share.
Cash and cash equivalents
We had cash and cash equivalents of $29,607 as of October 31, 2009.
Due to the substantial doubt of our ability to meet our working capital needs, history of losses and current shareholders’ deficit, in their report on the annual financial statements for the year ended October 31, 2009, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Critical Accounting Policies and Procedures and Recent Accounting Pronouncements
The Company’s critical accounting policies and procedures and recent accounting pronouncements are set forth in the Notes to our Consolidated Financial Statements set forth in Item 8 hereof.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed with this Report:
Report of Independent Registered Public Accounting Firm
Balance Sheets at October 31, 2009 and 2008
Statements of Operations for the years ended October 31, 2009 and 2008
Statements of Shareholders’ Equity for the years ended October 31, 2009 and 2008
Statements of Cash Flows for the years ended October 31, 2009 and 2008
Notes to Financial Statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of PSI Corp.
We have audited the accompanying balance sheets of PSI Corp. as of October 31, 2009 and 2008 and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended. PSI Corp.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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.
We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PSI Corp. as of October 31, 2009 and 2008, 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 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 its future financing needs and the success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from this uncertainty.
Seligson & Giannattasio, LLP
White Plains, NY
June 14, 2010
PSI CORPORATION
BALANCE SHEETS
The accompanying notes are an integral part of these financial statement
PSI CORPORATION
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
The accompanying notes are an integral part of these financial statements
PSI CORPORATION
STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these financial statements
PSI CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
YEARS ENDED OCTOBER 31, 2009 AND 2008
These accompanying notes are an integral part of these financial statements.
PSI CORPORATION
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31,
The accompanying notes are an integral part of these financial statements
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
1. ORGANIZATION AND GOING CONCERN
Organization
PSI Corporation (the “Company” was organized under the laws of Nevada in June, 1991. As of December, 2004, the Company was a non-operating public shell corporation
PSI provides interactive customer communications systems and applications that support targeted marketing programs with point-of-purchase (POP) services and information that serve shoppers and distributors.
The Company’s multi-functional Pantel kiosks are being installed in supermarket chains throughout the East Coast and Midwest and combine multiple POP services such as in-store product advertising and on-demand coupons, as well as redeeming text-messaged and loyalty-card coupons.
Going Concern
The Company’s consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, which contemplates the continuation of operations, the realization of assets and the liquidation of liabilities in the ordinary course of business, and do not reflect any adjustments that might result from the Company being unable to continue as a going concern. At October 31, 2009, the Company had total assets of $482,145 and liabilities of $5,938,300. Management has indicated that it is cognizant of the need to raise additional capital not only to meet its financial obligations but also to expand the business. These factors cumulatively indicate that there is substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles. The financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States.
Cash and Cash Equivalents. PSI considers all highly liquid interest-earning investments with a maturity of three months or less at the date of purchase to be cash equivalents. The fair value of these investments will approximate their carrying value. In general, investments with original maturities of greater than three months and remaining maturities of less than one year will be classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash equivalents and short-term investments are classified as available for current operations. All cash equivalents and short-term investments are classified as available for sale and are recorded at market value using the specific identification method.
Equity and other investments may include both debt and equity instruments. Debt securities and publicly traded equity securities will be classified as available for sale and will be recorded at market using the specific identification method. All other investments, excluding those accounted for using the equity method, will be recorded at cost.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
Fair Value. The carrying amounts of cash and cash equivalents, trade receivables, accounts payable, notes payable and accrued liabilities approximate fair value because of the short maturity of these instruments.
Income Taxes. Income taxes are calculated using the liability method specified by Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” The Company had deferred tax assets of approximately $5,116,480 as of October 31, 2009, primarily related to net operating loss carryforwards (“NOL”), which have yet to be utilized. The utilization of these losses, if available, to reduce the future income taxes, will depend upon the generation of sufficient taxable income prior to the expiration of the NOL. Therefore, at October 31, 2009, the Company established a 100% valuation allowance against the deferred tax assets as the likelihood of recognizing this benefit cannot be certain. The net operating losses will expire in various years through 2029.
Inventories. Inventories are stated at the lower of cost or market, using the average cost method. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. PSI will regularly review inventory quantities on hand, future purchase commitments with its suppliers, and the estimated utility of its inventory. During the year ended October 31, 2008, the Company reduced its inventories by $240,662.
Loss per Common Share. Basic EPS includes no dilution and is computed by dividing the loss available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the loss of the Company. Total potentially dilutive shares outstanding at October 31, 2009 and 2008 totaled 33,409,514 and 32,372,014.
Product Warranty. PSI provides for the estimated costs of hardware and software warranties at the time the related revenue is recognized. For hardware warranty, PSI estimates the costs based on historical and projected project failure rates, historical and projected repair costs, and knowledge of specific product failures (if any). The specific hardware warranty terms and conditions vary depending upon the product sold and country in which PSI will do business, but generally include technical support, parts, and labor over a period generally ranging from 90 days to three years. For software, PSI estimates the costs to provide bug fixes, such as security patches, over the estimated life of the software. PSI will regularly reevaluate its estimates to assess the adequacy of the recorded warranty liabilities and adjust the amounts as necessary. Product warranty costs have not been material to date.
Property and Equipment. Property and equipment are stated at cost and depreciated using the straight-line method over the estimated life of the asset of 5 years.
Revenue Recognition. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. In the event PSI should enter into contracts where it is obligated to deliver multiple products and/or services, total revenue will be generally allocated among the products based upon the sale price of each product when sold separately.
The Company may also license or lease its products (rather than effect outright sales of the same). Revenues derived from licenses or leases will be treated as subscriptions, with billings recorded as unearned revenue and recognized as revenue ratably over the billing coverage period. PSI’s potential multiple year licensing/lease transactions may include the right to receive future updated improvements to its product line. Some multi-year licensing/lease arrangements may include a perpetual license for current products combined with rights to receive future improved/updated versions of such products. Online advertising revenue derived from the kiosks and signage products are and will be recognized as advertisements are displayed. Costs related to PSI’s product line are recognized when the related revenue is recognized.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
Advertising. The Company expenses all advertising expenditures as incurred. The Company’s advertising expenses were $54,091 and $26,345 for the years ended October 31, 2009 and 2008, respectively.
Debt financing costs. Debt financing costs are the costs incurred relating to the notes payable. The costs are amortized over the term of the related indebtedness.
Use of Estimates and Assumptions. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Standards
In June 2009, the FASB issued guidance under ASC Topic 105 Generally Accepted Accounting Principles as it relates to the FASB’s accounting standards codification. This standard replaces previously established guidance, and establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and non-authoritative. The FASB Accounting Standards Codification (the “Codification”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (“SEC”), which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company began to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of 2009. As the Codification was not intended to change or alter existing GAAP, it will not have any impact on the Company’s consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) - Multiple Deliverable Revenue Arrangements.” ASU No. 2009-13 eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and expands the disclosures related to multiple deliverable revenue arrangements. ASU No. 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. The adoption of ASU No. 2009-13 is not expected to have a material impact on the Company’s results of operations or financial position.
In September 2009, the FASB also ratified authoritative accounting guidance requiring the sales of all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality to be excluded from the scope of the software revenue guidance. The Company adopted the guidance on a prospective basis during the three months ended September 27, 2009 effective for all periods in 2009. Prior to the adoption of this guidance, the Company assessed all software items included in the Company’s product offerings to be incidental to the product itself and, therefore, excluded all sales from the scope of the related software revenue guidance. As a result, the adoption of this guidance had no impact on the Company’s consolidated financial statements.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
Depreciation expense for the year ended October 31, 2008 and 2007 totaled $51,965 and $34,141, respectively.
4. INVENTORIES
Inventories consist of the following:
5. STOCKHOLDERS’ EQUITY
Warrants
Warrant transactions for the years ended October 31, 2009 and 2008 are as follows:
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
6. ACQUISITIONS
Failed Acquisition of Big Fish Marketing. As previously disclosed, on August 7, 2006, the Company acquired substantially all of the assets of Big Fish Marketing Group, Inc, a Colorado corporation (“Big Fish”) pursuant to an Agreement and Plan of Reorganization (the “Purchase Agreement”) effective July 26, 2006. In consideration for the Purchase Agreement, among other provisions, the Company paid Big Fish $150,000 (the “Cash Consideration”) in cash and delivered 4,952,380 shares of the Company’s common stock (having an agreed-upon aggregate value of $1,350,000). The purchased assets consisted of substantially all of the assets used by Big Fish. During the year ended October 31, 2008, the Company determined that there was a material failure to satisfy the closing conditions, in addition to the Purchase Agreement having been executed by a party not having the power to do so. As a result, the transaction has been rescinded, removing all transactions and operations of Big Fish Marketing from the Company’s books and records.
7. LITIGATION
On April 27, 2007, FWAG, a German corporation that had received 6,000,000 of the aggregate of 18,000,000 shares issued by the Company effective December 10, 2004, in exchange for 100% of the capital stock of Friendlyway, Inc. (“FWI”), sued the Company in California Superior Court in response to the Company’s attempted cancellation of the shares received by FWAG. The Company then instituted a separate action in California Federal District Court (No. C 07 02869 SBA) on June 1, 2007, against FWAG in which the Company alleged that it was fraudulently induced to acquire FWI and to issue 18,000,000 shares of its Common Stock in exchange therefore. The Company sought rescission of the FWI transaction and, to prevent irreparable harm, moved on June 5, 2007, for a temporary restraining order to attempt to preserve the status quo.
The Court ruled that the Company failed to show a likelihood of success on the Merits, that the securities fraud and breach of contract claims were time-barred, and that its allegations of fraud were precatory and, therefore, unsupported.
Subsequently, the Company was constrained to execute settlement agreements with each of the four named defendants. Such settlements resolved the litigation instituted both by AG and by the Company. Each such settlement agreement differed in content and result and in the disposition of the shares of Common Stock in issue. In sum, the settlements resulted in the net cancellation of 4,401,906 shares of Common Stock and the release of AG claims to an additional 18 million shares thereof.
8. DEBT
Bridge Loans
In February and March 2007, the Company entered into notes (“Bridge Notes”) with several unrelated parties totaling approximately $325,000. The Bridge Notes were due on November 11, 2009 and incurred an interest rate of 12% per annum.
In August 2007, the Company entered into exchange agreements with the holders of 300,000 of the Bridge Notes whereby the notes were converted into 3,000,000 shares of the Company’s common stock. The remaining $25,000 was converted into 208,333 shares of common stock in December 2008.
In May and June of 2008, the Company entered into a new series of Bridge Notes with several unrelated parties totaling $470,000. The Bridge Notes are due six months from the date of issuance and incur interest at the rate of 10% per annum. The notes are convertible by the holder at any time at a conversion price equal to the per share price of a new issuance. These notes were not paid by the due date of the agreements and are currently in default.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
In connection with the Bridge Notes, the Company also issued warrants to purchase 470,000 shares of the Company’s common stock at an exercise price of $.15, and warrants to purchase 470,000 shares of the Company’s common stock at an exercise price of $.25. The warrants may be exercisable at any time for a period of 5 years. In connection with the issuance of the warrants, the Company has reflected a value for the warrants totaling $47,112. 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.
In April 2009, the Company entered into additional bridge note agreements aggregating $30,000. The terms and conditions of the notes are substantially identical with the Bridge Notes issued in May and June 2008. The Company also issued warrants to purchase 90,000 shares of the Company’s commons stock at an exercise price of $.05 per share. No expense was recorded for these warrants as the additional cost was not material.
In July and August 2009, the Company entered into additional bridge note agreements aggregating $140,000. The terms and conditions of the notes are substantially identical with the Bridge Notes issued in May and June 2008. The Company also issued warrants to purchase 150,000 shares of the Company’s commons stock at an exercise price of $.05 per share. No expense was recorded for these warrants as the additional cost was not material.
In March 2009, the Company obtained interest free advances from two of its officers totaling $40,000.
Round D Loans
Commencing May through October 2007, the Company entered into notes (“Round D Notes”) with several unrelated parties totaling approximately $2,766,000. 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, the Company also issued warrants to purchase 7,221,500 shares of the Company’s common stock at an exercise price of $.15. The warrants may be exercisable at any time for a period of 5 years. In connection with the issuance of the warrants, the Company has reflected a value for the warrants totaling $549,011. The fair value of the warrant grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions: expected volatility of 15%, risk free interest rate of 3.57%; and expected lives of 5 years.
The Company issued Round D notes aggregating $150,000 in November 2008. In connection with the notes, a warrant to purchase 412,500 shares of stock were granted to the holder. The terms and conditions of the note and warrant are identical to those described above. No expense was recorded for these warrants as the additional cost was not material.
During the fiscal year ended October 31, 2009, the Company issued 1,461,802 shares of common stock in payment of accrued interest.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
Shelter Island Opportunity Fund Notes
In August 2006, the Company entered into a note agreement for the payment of consulting fees to an unrelated party totaling $98,770. The note is due on October 31, 2008 with 11 monthly payments commencing on January 31, 2007 and incurs interest at the rate of 12.25% per annum. Interest on the notes were payable on a monthly basis commencing November 30, 2007. The Company did not make principle payments on the loan and is in default on the note. Accrued interest had been paid through October 31, 2008. During the fiscal year ended October 31, 2009, the Company issued 100,000 shares of common stock in payment of accrued interest.
Miller Financial Network Note
In June 2006, the Company entered into a note agreement with an unrelated party totaling $100,000. The note incurred interest at the rate of 10% per annum. In January 2007, the Company was notified that the note was in default and the holder had elected to accelerate the note. The Company has been making payments payments towards the interest, legal costs and principal on the note. At October 31, 2009, there was $15,429 in principal remaining on the note.
9. COMMITMENTS
Operating Leases
The Company leases office space and equipment under a non-cancelable operating lease agreement expiring in November 2012.
The minimum rental commitments under noncancelable operating leases that have remaining noncancelable lease terms in excess of one year at October 31, 2008 are as follows:
Total rent expense for these operating leases was approximately $61,927 and $98,713 for the years ended October 31, 2009 and 2008, respectively.
PSI CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 2009 AND 2008
10. INCOME TAXES
The Company has not filed federal or state tax returns for the years ended October 31, 2006, 2007, 2008 and 2009. The Company did not believe it owes material federal or state taxes for these fiscal years as a result of its operating losses. At October 31, 2009, the Company had an operating loss carry forward of approximately $10,661,300 for federal tax purposes state tax purposes, which expire through 2029.
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating losses and tax credit carryforwards. The significant components of net deferred income tax assets for the Company are:
Generally accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of operating losses, management has provided a valuation allowance equal to its net deferred tax assets.
11. SUBSEQUENT EVENTS
Round F loans
In November 2009, the Company entered into a series of convertible notes aggregating $319,000. The notes are due one year from the date of issuance and incur interest at the rate of 10% per annum. In connection with the notes, the Company issued five year warrants to purchase 9,114,286 shares of the Company’s common stock at an exercise price of $.05 per share. In January 2010, the Company issued an additional note totaling $100,000. The terms and conditions of the note are identical to the notes issued in November 2009.
Short Term Financings
Subsequent to October 31, 2009, the Company repurchased approximately 1.5 million shares in exchange for approximately 3 million restricted shares. These shares were subsequently resold.
Subsequent to October 31, 2009, the Company issued approximately 5.6 million shares of the Company’s common stock in exchange for services.
Subsequent to October 31, 2009, the Company issued approximately 3 million shares of common stock for the payment of interest accrued on its notes payable.
In January 2010, the Company issued 5 million shares to an investor pursuant to anti-dilution provisions in the investor’s agreement.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal accounting officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of October 31, 2009 (the “Evaluation Date”). Based on this evaluation, our principal executive officer and principal accounting officer concluded as of the Evaluation Date that our disclosure controls and procedures were not effective such that the material information required to be included in our Securities and Exchange Commission (SEC) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to us, and was made known to them by others within those entities, particularly during the period when this report was being prepared as our periodic filings under the Exchange Act were not made in a timely manner .
There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act). Under the supervision and with the participation of our management, including our principal executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Controls - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and the related guidance provided in Internal Control Over Financial Reporting - Guidance for Smaller Public Companies also issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Based on this evaluation, management concluded that, as of the Evaluation Date, our internal control over financial reporting was not effective in order to provide reasonable assurance regarding the reliability of financial reporting disclosures and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles due to significant deficiencies in our internal controls.
The following significant deficiencies were identified:
•
Lack of adequate and properly trained internal accounting staff
•
Lack of effective controls over the financial closing and reporting process
A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the company’s ability to initiate, authorize, record, process or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company’s annual or interim financial statement that is more than inconsequential will not be prevented or detected.
Due to our limited resources, we have limitations surrounding staffing resources to ensure transactions are adequately captured and tracked along with the proper supervision of the accounting department. We have begun to formulate additional controls and policies relating to internal control over financial reporting and disclosures, including preparation of accounting policies and procedures manual, containing among other things, detailed , expanded closing checklists, to guide our accounting personnel in addressing significant accounting issues in compliance with U.S. GAAP and SEC requirements.
Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, effectiveness of internal controls over financial reporting may vary over time.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The executive officers, directors and key personnel of the Company as of October 31, 2009 were as follows:
Name
Positions held with the Company
David Foni
Chief Executive Officer and Chairman of the Board
Eric Kash
Chief Financial Officer
Biographies of the directors and executive officers of the Company are set forth below. All directors hold office until the next annual stockholders meeting and until their successors have been elected and qualified or until their death, resignation, retirement, removal or disqualification. Vacancies in the existing Board are filled by majority vote of the remaining directors. Officers of the Company serve at the will of the Board of Directors.
On January 7, 2007, coincident with the resignations of the two Pantel designees as directors of the Company (and of the resignation of one as the principal executive officer), David Foni became the sole
director and chief executive officer of the Company. Mr. Foni’s appointment was not subject to the requirements of Rule 14f-1 (1934 Act) because there was no “arrangement or understanding” pursuant to which Mr. Foni would receive Common Stock of the Company in a transaction subject to Section 13 (d) or 14 (d) of the 1934 Act. Mr. Foni was appointed because of his technical expertise in areas related to the Company’s product line and because he was then a shareholder of the Company. It is the intention of the Company to disseminate a proxy statement incident to the calling of a Special Meeting of its shareholders in which the shareholders will be asked to vote upon a proposal to ratify, confirm and approve the actions of Mr. Foni from January 7, 2007, to date.
David Foni. For the five years prior to joining PSI, Mr. Foni was employed by MavriQ Technologies, LLC.
Eric Kash. For the five years prior to joining PSI, Mr. Kash was an investment banker with Basic Investors and Sloan Securities.
No director, officer or affiliate of the Company is an adverse party to the Company or any of its subsidiaries in any material proceeding.
The Company’s Board of Directors does not have an audit committee and no determination has been made as to whether any member of the Board of Directors qualifies as an audit committee financial expert as defined in Item 401 of Regulation S-B.
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 the SEC regulations to furnish us with copies of all Section 16(a) reports they file. Based solely upon a review of copies of Section 16(a) reports and representations received by us from reporting persons, and without conducting any independent investigation of our own, in 2009, 2008 and 2007, certain Forms 3, 4 and 5 were not timely filed with the SEC by such reporting persons. We are currently working to remedy that deficiency.
Code of Ethics
The Company does not currently have a code of ethics applicable to its principal executive and financial officers. Prior to the FWI transaction and after the rescission of the Pantel transaction, the Company did not believe such a code was necessary as the Company had limited operations. The Board of Directors intends to consider adopting such a code.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
None of the directors and officers of the Company has received any renumeration of any kind (including reimbursement of expenses or equity compensation) during the period November 1, 2008, through October 31, 2009.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with regard to the beneficial ownership of outstanding shares of Common Stock by (i) each person known by PSI to own beneficially five (5%) percent or more of the outstanding shares of the Company’s Common Stock; (ii) each director and named executive officer individually; and (iii) all executive officers and directors of the Company as a group. As of June 21, 2010 there were 111,260,622 shares of our common stock issued and outstanding. The numbers of shares beneficially owned include shares of common stock which the listed beneficial owners have the right to acquire within 60 days of June 21, 2010 upon the exercise of all options and other rights beneficially owned on that date. Unless otherwise noted, we believe that all persons named in the table
have sole voting and investment power with respect to all the shares beneficially owned by them.
(1) Includes 1,500,000 shares of common stock owned directly by Mr. Foni, and warrants to purchase an additional 500,000 shares of common stock, which warrants are exercisable within 60 days of June 21, 2010.
(2) Includes 700,000 shares of common stock owned directly by Mr. Kash, and warrants to purchase an additional 1,000,000 shares of common stock, which warrants are exercisable within 60 days of June 21, 2010.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related-Party Transactions
None.
Director Independence.
Mr. Foni and Eric Kash comprise our Board of Directors, is not independent.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees. The aggregate fees billed for the last fiscal year for professional services rendered by the independent auditor for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s 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, amounted to approximately $50,000.
Audit Related Fees. There were no fees billed in the last fiscal year for assurance and related services by the independent auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under Item 9(e) (1) of Schedule 14A.
Tax Fees. There were no fees billed in the last fiscal year for professional services rendered by the independent auditor for tax compliance, tax advice and tax planning.
All Other Fees. There were no fees billed in the last fiscal year for products and services provided by the independent auditor other than the services reported in the three preceding paragraphs.
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Financial Statements and Schedules:
Financial statements as of October 31, 2009 and 2008, and for the two years ended October 31, 2009, are included in Item 8. All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Exhibits:
The following exhibits are incorporated by reference or filed as part of this report.
This exhibit is a management contract or compensatory plan or arrangement.
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.
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/ David Foni
Chief Executive Officer and Chairman of the Board
June 24,
David Foni
(Principal Executive Officer)
/s/ Eric Kash
Chief Financial Officer
June 24,
Eric Kash
(Principal Financial Officer and Principal Accounting Officer)