3.
Fixed Assets
Depreciation expense for the three months
ended January 31, 2012 and 2011 was $18,708 and 12,943 respectively.
4.
Stockholders' Equity
5.
Debt
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
COUPON EXPRESS, INC
NOTES TO FINANCIAL STATEMENTS
January
31, 2012
5. Debt (continued)
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 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 $50,000 was repaid to one of the 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. These
notes were not paid by October 31, 2010. 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 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. 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 $50,000 was repaid to one of the outstanding note holders.
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.
13
COUPON EXPRESS, INC
NOTES TO FINANCIAL STATEMENTS
January
31, 2012
5. Debt (continued)
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.
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 $100,000 was repaid to the remaining outstanding note holder.
Round H loan
In March 2011 the Company
issued a convertible note aggregating $100,000. The note is due one year from the date of issuance and incurs interest at the rate
of 10% per annum. The notes are convertible into common shares at a conversion price of $.035 per share. In connection with the
notes, the Company issued five year warrants to purchase 2,857,143 shares of the Company's common stock at an exercise price of
$.05 per share.
In October 2011 the company issued 2,903,810 shares in payment of all accrued interest and principal owed
for Round H.
For all of the debt financing describe above,
the Company has the option to either pay the interest due in cash or in shares of our common stock.
Cumulative Convertible Senior Notes
In October 2011, we completed a private placement of $1,462,500
aggregate principal amount of Cumulative Convertible Senior Notes (“Senior Notes”) and Warrants to certain investors,
that included the Company’s existing Series A Preferred Stockholders. The Senior Notes, which mature on October 24, 2012
(subject to a one-year extension under certain circumstances), are convertible into shares of the Company’s Series A Preferred
Stock (“Preferred Stock”) at a rate of one share of Preferred Stock for each $25,000 of Senior Notes. Upon the conversion
of the Company’s remaining convertible debt, or upon the consent of a majority in principal amount of the Senior Notes, the
Senior Notes will be converted into shares of Preferred Stock. The Senior Notes are secured obligations of Coupon Express and will
bear interest at a rate of 7% per year.
14
COUPON EXPRESS, INC
NOTES TO FINANCIAL STATEMENTS
January
31, 2012
5. Debt (continued)
The shares of Preferred Stock bear a cumulative dividend of 7% per
annum. Upon liquidation, and upon an acquisition of the Company, the holders of Preferred Stock are entitled to a liquidation preference
equal to the greater of (i) the amount invested plus all accrued and unpaid dividends, or the amount the holders of Preferred Stock
would receive had they converted the Preferred Stock to Common Stock immediately prior to such event. Each share of Preferred Stock
is convertible into 1,250,000 shares of the Company’s Common
Stock, subject to certain adjustments. The Certificate of Designation of the Preferred Stock provides that without the consent
of a majority of the outstanding principal net of Notes (or Series A Preferred Stock, if converted), the Company may not:
-
amend the Articles of Incorporation, by-laws, Certificate of Designation or any other certificate
of designation or file any new certificate of designation;
-
issue any Common Stock, Preferred Stock, Common Stock Equivalents or other securities or
amend the terms thereof;
-
redeem any outstanding Common Stock, Preferred Stock, Common Stock Equivalents or other
securities;
-
incur or repay indebtedness for borrowed money;
-
acquisitions or dispositions of material assets;
-
enter into any acquisition, merger, consolidation, reorganization or similar transaction;
-
create subsidiaries or other affiliates;
-
dissolve, liquidate or wind up or file any petition under insolvency or bankruptcy laws;
-
enter into any contract or arrangement with any present or former director, executive officer,
shareholder, partner, member, employee or affiliate of the Company or any of its subsidiaries, or any of such Person's affiliates
or immediate family members;
-
change senior management of the Company;
-
declare or pay dividends or declare or make other distributions other than the Base Dividends;
or
-
adopt or materially deviate from the business plan or budget adopted by the Board of Directors
and (i) the holders of a majority of the Preferred Stock, voting as a separate class, or (ii) if a majority of the outstanding
aggregate principal amount of Senior Notes shall not have been converted into Preferred Stock at such time, the holders of a majority
of the then outstanding aggregate principal balance of the Senior Notes.
The Warrants are exercisable until October
24, 2016 at a price of $.04 per share (subject to certain adjustments) and entitle the holder to purchase 1,250,000 shares of the
Company’s Common Stock for each $25,000 of principal amount of Senior Notes. The investors have entered into an Investors’
Rights Agreement which among other things, provides for Board representation, registration rights, and certain provisions regarding
future sales of securities by the Company.
In prior rounds of financing, 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 Purchase Agreement required the Company, within
90 days of the closing date, to obtain from the holders of the 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. In the event the Company is unable to obtain waivers from all of the holders of the
Derivative Securities, the investors under the terms of the Purchase Agreement will be entitled to an adjustment of the conversion
price, exercise price and the number of shares of common stock issuable to them under the Purchase Agreement
.
15
COUPON EXPRESS, INC
NOTES TO FINANCIAL STATEMENTS
January 31, 2012
6.
Commitments
Operating Leases
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 for each 25 Kiosks ordered. In September 2011 the Company received 25
new Kiosks with a value of $ 125,000. Terms of this sub-lease provide for payments of $140/month for each Kiosk over 3 years.
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.
7. Income Taxes
We have not filed federal or state tax returns
for the years ended October 31, 2004 - 2011. We did not believe that we owed material federal or state taxes for these fiscal years
as a result of our operating losses. At January 31, 2012, we had approximately $24 million of net operating losses (“NOL”)
carryforwards for federal and state income purposes. These losses are available for future years and expire through 2031. Utilization
of these losses may be severely or completely limited if we undergo an ownership change pursuant to Internal Revenue Code Section
382.
The deferred tax asset is summarized as follows:
Generally
accepted accounting principles requires that the tax benefit of net operating losses, temporary differences and credit carryforwards
be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization
of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward
period. Because of our history of operating losses, management has provided a valuation allowance equal to its net deferred tax
assets.
16
ITEM 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
The discussion of the financial condition and result of operations
of the Company set forth below should be read in conjunction with the consolidated financial statements and related notes thereto
included elsewhere in this Form 10-Q. This Form 10-Q contains forward-looking statements that involve risks and uncertainties.
The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of
Section 27a of the Securities Act and Section 21e of the Exchange Act. When used in this Form 10-Q, or in the documents incorporated
by reference into this Form 10-Q, the words “anticipate,” “believe,” “estimate,” “intend”
and “expect” and similar expressions are intended to identify such forward-looking statements. Such forward-looking
statements include, without limitation, the statements regarding the Company’s strategy, future sales, future expenses, future
liquidity and capital resources. All forward-looking statements in this From 10-Q including those relating to the Company’s
(i) ability to obtain licenses to any necessary third-party intellectual property; (ii) ability to retain and hire necessary employees
and appropriately staff our development programs; (iii) cash requirements; and (iv) financial performance are based upon information
available to the Company on the date of this Form 10-Q, and the Company assumes no obligation to update any such forward-looking
statements. The Company’s actual results could differ materially from those discussed in this Form 10-Q. Factors that could
cause or contribute to such differences (“Cautionary Statements”) include, but are not limited to, those discussed
in Item 1. Business – “Risk Factors” and elsewhere in the Company’s Annual Report on Form 10-K, which are
incorporated by reference herein and in this report. All subsequent written and oral forward-looking statements attributable to
the Company, or persons acting on the Company’s behalf, are expressly qualified in their entirety by the Cautionary Statements.
Introduction
Management’s Discussion and Analysis (“MD&A”)
is intended to facilitate an understanding of our business and results of operations. This MD&A should be read in conjunction
with our financial statements and the accompanying notes to the financial statements included elsewhere in this report. MD&A
consists of the following sections:
Overview
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.
17
Results of Operations
For the three months ended January 31, 2012 and 2011, the Company
reported revenues of $5,640 and $14,379 respectively, a decrease of $8,739 (60.8 %), respectively.
The Company’s net loss from operations for the three ended
January 31, 2012 and 2011 was $501,170 and $562,837 respectively, a decrease of $61,667 (10.9 %).
The decrease in net loss for the three month
period ended January 31, 2012 is primarily attributable to a decrease in interest expense of approximately $66,000 (25%).
Our revenues for the three months ended January 31, 2012 were derived
exclusively from advertising revenue. Our losses from operations for the three month ended January 31, 2012 were attributable to
our inability to achieve significant revenues while incurring material working capital costs, including costs of development and
deploying our kiosks.
Liquidity and Capital Resources
Cash Flows
Cash used in operations for the three months ended January 31, 2012and
2011 was approximately $383,000 and $146,000, respectively, an increase of approximately $237,000 (27.1%). This increase in use
of funds for operations is primarily attributable to decreases in accounts payable and accrued expenses, increases in other current
assets and partially offset by decreases in shares issued for consulting fees and interest.
Cash flows used in investing activities for the three months ended
January 31, 2012 and January 31, 2011 were approximately $155,000 and $112,000, respectively, an increase of $43,000; this increase
is primarily attributable to the purchase of additional Kiosks during the three months ended January 31, 2012.
Cash flows provided by or (used in) financing activities for the
three months ended January 31, 2012 and 2011 were approximately $(223,000), and $320,000, respectively, an increase in cash flows
used of approximately $540,000 (168.7%). This decrease is primarily attributable to a decrease of approximately $320,000 in proceeds
from the sale of common stock and an increase of approximately $ 223,000 in repayment of debt.
Other Debt Transactions
None
Cash and cash equivalents
We had cash and cash equivalents of $249,111 as of January
31, 2012.
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, 2011 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.
18
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
None
Item 3.
Quantitative and Qualitative Disclosures
about Market Risk
Not applicable.
Item 4.
Controls and Procedures
EVALUATION OF DISCLOSURE
CONTROLS AND PROCEDURES
The Company maintains
a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the
reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified
by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information
is accumulated and communicated to the Company’s management, including the Company’s chief executive officer and chief
financial officer, as appropriate, to allow timely decisions regarding required disclosure.
The Chief Executive Officer and Chief Financial Officer of the Company have evaluated the effectiveness of our disclosure
controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based
on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls
and procedures are effective. There were no changes in our internal control over financial reporting during the Company's
last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
CHANGES IN INTERNAL CONTROL
OVER FINANCIAL REPORTING
No changes in the Company's
internal control over financial reporting have come to management's attention during the Company's last fiscal quarter that have
materially affected, or are likely to materially affect, the Company's internal control over financial reporting.
19
PART II
OTHER INFORMATION
Item 1.
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.
From time to time the Company may become
party to litigation or other legal proceedings that we consider to be a part of the ordinary course of business.
Item 1A.
Risk Factors
There have been no material changes
to our Risk Factors disclosed in Item 1A of our Annual Report on Form 10-K for the year ended October 31, 2011.
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
NONE
Item 3.
Defaults Upon Senior Securities
NONE
Item 4.
(Removed and Reserved)
Item 5.
Other Information
This quarterly report does not include
an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subjected to attestation by the Company’s registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in
this quarterly report.
20
Item 6.
Exhibits
|
|
|
|
|
|
|
EXHIBIT
|
|
|
|
NUMBER
|
|
DESCRIPTION
|
|
31.1
|
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Section 302
|
32.1
|
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Section 906
|
101.INS
SBRL
|
|
Instance Document
|
101.SCH
XBRL
|
|
Taxonomy Extension Scheme
|
101.CAL
XBAL
|
|
Taxonomy Extension Calculation Linkbase
|
101.DEF
XBRL
|
|
Taxonomy Extension Definition Linkbase
|
101.LA
XBRL
|
|
Taxonomy Extension Label Linkbase
|
101.PRE
XBRL
|
|
Taxonomy Presentation Linkbase
|
21
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Coupon Express, Inc.
|
|
|
|
|
|
|
By:
|
/s/ Eric Kash
|
|
|
Name:
|
Eric Kash
|
|
|
Title:
|
Chief Executive Officer, Chief Financial Officer (Principal Executive and Financial Officer)
|
|
|
Date:
|
March 15, 2012
|
|
22