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

FORM 10-K



|   |   |                                                                                           |                                            
|-- | - | ----------------------------------------------------------------------------------------- | -------------------------------------------
|   | R | ANNUAL
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |   |                                                                                           | For the
 fiscal year ended October 31, 2009
|OR
|   | o | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

| |  |                                 |   
| |  | ------------------------------- | --
| |  | For the
 transition period from | to

Commission file number: 0-20317

PSI CORPORATION(Exact Name of
Registrant as Specified in Its Charter)

|                          |                                      
|------------------------- | -------------------------------------
|Nevada                    | 88-0270266                           
|(State
 of incorporation) | (I.R.S.
 Employer Identification No.)

|                                         |            
|---------------------------------------- | -----------
|7222 Commerce Center Drive, Suite 230,   | 80919      
|Colorado Springs, Colorado               |            
|(Address
 of principal executive office) | (Zip
 Code)

(719) 359-5533(Registrants
telephone number, including area code)

Securities registered under Section 12(b) of the Act:

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

Common Stock, $.001 Par

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

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

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes o No R

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act. (Check one):

|                          |                     |                         |                            
|------------------------- | ------------------- | ----------------------- | ---------------------------
|Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company R

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

The
aggregate market value of the voting stock held by non-affiliates of the
registrant based upon the closing price of the Companys Common Stock on June
21, 2010 was $5.6 million. Shares of Common Stock held by each executive
officer and director and by each person or group who owns 10% or more of the
outstanding Common Stock at June 21, 2010 have been excluded. Exclusion of such
shares should not be construed to indicate that any such person possesses the
power, direct or indirect, to direct or cause the direction of the management
or policies of the registrant or that such person is controlled by or under
common control with the registrant.

On
June 21, 2010 there were 111,260,622 shares of the registrants common stock
outstanding.

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TABLE OF CONTENTS

|         |            |                                                                                                  |   
|-------- | ---------- | ------------------------------------------------------------------------------------------------ | --
|PART I   |            |                                                                                                  |   
|         |            |                                                                                                  |   
|         | Item 1.    | Description of Business                                                                          | 1 
|         |            |                                                                                                  |   
|         | Item 1A    | Risk Factors                                                                                     | 3 
|         |            |                                                                                                  |   
|         | Item 1B    | Unresolved Staff Comments                                                                        | 7 
|         |            |                                                                                                  |   
|         | Item 2.    | Properties                                                                                       | 7 
|         |            |                                                                                                  |   
|         | Item 3.    | Legal Proceedings                                                                                | 7 
|         |            |                                                                                                  |   
|         | Item 4.    | Submission of Matters to a
 Vote of Security Holders                                             | 7 
|         |            |                                                                                                  |   
|PART II  |            |                                                                                                  |   
|         |            |                                                                                                  |   
|         | Item 5.    | Market for Common Equity,
 Related Stockholder Matters and Issuer Purchases of Equity Securities | 8 
|         |            |                                                                                                  |   
|         | Item 6.    | Selected Financial Data                                                                          | 8 
|         |            |                                                                                                  |   
|         | Item 7.    | Managements Discussion
 and Analysis of Financial Condition and Results of Operations           | 9 
|         |            |                                                                                                  |   
|         | Item 7A    | Quantitative and
 Qualitative Disclosures about Market Risk                                      | 11
|         |            |                                                                                                  |   
|         | Item 8.    | Financial Statements and
 Supplementary Data                                                     | 11
|         |            |                                                                                                  |   
|         | Item 9.    | Changes in and
 Disagreements with Accountants on Accounting and Financial Disclosure            | 26
|         |            |                                                                                                  |   
|         | Item 9A(T) | Controls and Procedures                                                                          | 26
|         |            |                                                                                                  |   
|         | Item 9B    | Other Information                                                                                | 27
|         |            |                                                                                                  |   
|PART III |            |                                                                                                  |   
|         |            |                                                                                                  |   
|         | Item 10.   | Directors, Executive
 Officers and Corporate Governance                                          | 27
|         |            |                                                                                                  |   
|         | Item 11.   | Executive Compensation                                                                           | 28
|         |            |                                                                                                  |   
|         | Item 12.   | Security Ownership of
 Certain Beneficial Owners and Management and Related Stockholder Matters  | 28
|         |            |                                                                                                  |   
|         | Item 13.   | Certain Relationships and
 Related Transactions and Director Independence                        | 29
|         |            |                                                                                                  |   
|         | Item 14.   | Principal Accountant Fees
 and Services                                                          | 29
|         |            |                                                                                                  |   
|PART IV  |            |                                                                                                  |   
|         |            |                                                                                                  |   
|         | Item 15    | Exhibits, Financial
 Statement Schedules                                                         | 29
|         |            |                                                                                                  |   

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PART I

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.Risk Factors. Except as may be required by law, we do not intend to update
any forward-looking statement to reflect events after the date of this report.

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.

Background

For
the period October 31, 1999 through December 10, 2004, PSI was a public shell
company with no revenue from operations. During this period, the Companys
management had sought to acquire an operating business. On August 24, 2004, the
Company entered into a Share Exchange Agreement with the stockholders of
friendlyway, Inc. (FWI), pursuant to which the Company agreed to acquire all
of the outstanding shares of FWI in exchange for the issuance of 18,000,000
shares of Common Stock of the Company and the assumption of outstanding options
granted to FWI employees. That transaction closed on December 10, 2004, and FWI
became a wholly-owned subsidiary of the Company. This transaction has been
accounted for (effective as of December 10, 2004) as a recapitalization of FWI,
which is the accounting acquirer.

FWI was incorporated in
Delaware in June, 2000, as a self-service solutions provider of customer-facing
public access self-service systems. FWIs products focused on the improvement
of internet-based customer communication at the point of sale in retail stores,
point of service/information in public locations, or the Internet. Through July
31, 2002, FWI had been a wholly-owned subsidiary of Friendlyway AG (FWAG).
Effective August 1, 2002, FWIs President, Alexander von Welczeck, acquired a
70% interest in FWI from FWAG, pursuant to a Management Buyout Agreement
(MBO) with FWAG. Following the MBO, FWAG retained a 30% ownership interest in
FWI.

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The
assumptions motivating the Companys acquisition of FWI were unfulfilled.
Additional capital requirements were unmet, increased sales were not realized,
cost of goods sold was not lowered, and profitability was not achieved. Of
significant damage was the ultimate refusal of FWAG to be acquired by the
Company (despite repeated assurances from FWAG and its adviser that such would
occur). This became evident with the resignations of the four FWAG directors of
the Company in December, 2005.

The
one remaining director of the Company (the CEO of the Company and the chief
executive of FWI), refusing to act upon a proposal that the FWI transaction be
rescinded, then unilaterally determined (with the assistance of the Companys
then principal financial officer), to discontinue the operations of FWI. To
replace the elimination of FWI, the one director executed documents to acquire
Pantel Systems, Inc. (Pantel), in exchange for 20,000,000 shares of the
Companys Common Stock. No consideration was given to the return or
cancellation of any of the 18,000,000 shares issued on December 10, 2004, in
exchange for 100% of FWI. The sole stockholder of Pantel became the sole
director and principal executive of the Company.

In
immediate, successive order the Company proceeded to effect three acquisitions,
to raise substantial additional capital, and to issue substantial additional
shares of Common Stock. The price of the Companys Common Stock declined to
$.06 per share. All of the additional capital raised from the sale(s) of cheap
stock was dissipated.

Inasmuch
as the Pantel acquisition was in violation of Item 9.01 of Form 8-K and of Rule
14f-I promulgated under the 1934 Act, as the Company never received a Pantel
stock certificate, as none of the 20,000,000 shares was ever delivered to an
escrow agent, as no closing documents were ever exchanged, and no Form 13-D was
filed by the Pantel sole stockholder, the acquisition of Pantel was deemed to
have been rescinded.

Effective
January 7, 2007, David Foni became the sole director and principal executive of
PSI. Mr. Foni had previously invested in the Companys private placement. Since
his appointment, Mr. Foni has concentrated upon the development of the
Companys product line, the rescission of all acquisitions except for one
remaining, the raising of additional capital, the elimination of all
litigation, the obtaining of orders for and the installation of the Companys
product lines, and the resolution of the Companys accounting issues.

General

PSI
Corporation, Inc. (PSI), provides innovative interactive customer
communications systems and applications that support targeted marketing
programs with unique point-of-purchase (POP) services and information that
serve shoppers and distributors and build loyalty and revenue for the companys
primary clients.

Product: The Companys
proprietary multi-functional Pantel kiosks with patents pending are being
installed in leading supermarket chains throughout the East Coast and Midwest,
including the lucrative New York City tri-state region. Coupon Express, PSIs
lead product, combines with multiple POP services such as in-store product
advertising and on-demand coupons, as well as redeeming text-messaged and
loyalty-card coupons, Pantel in-store coupons have a redemption rate of nearly
30%, compared to a rate of 1.4% for traditional coupons.

Markets: Pantel Systems
Multi-Function Kiosks currently address two primary vertical markets: major
national and regional Supermarket Chains and Convenience Stores, and
Deep-Discount Retailers. The Company is targeting the Casino market for Q4 of
2010 and is rapidly expanding geographically beyond its established New York
City tri-state base. PSIs current reach extends from Massachusetts to Florida
and west to Ohio, Kentucky and Tennessee

Coupon Kiosks

The
Companys product and revenue generator will be its Kiosks. The Companys
Kiosks, when rolled out for wider distribution this year will employ features
including printing on-demand coupons issued directly from the Kiosks which
can only be utilized in a specific venue within a specified period of time.
These coupons are bar coded making the processing and data analyzing very
efficient time wise .Secondly the Kiosks will be capable of issuing coupons for
redeeming offers sent to cell phones via text-messaging. The Company filed a
patent on having its Kiosks serve as a printing and distribution point for
text-messaged coupons. The third unique feature of the Kiosks is its ability to
enroll persons into a loyalty-card program managed by the particular retailer.
The Kiosks will

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permit encrypted data to be read from the associated loyalty
card database which can include offers the retailer wishes to give to its
customers.

The
Company anticipates deploying the Kiosks to retailers in exchange for the
retailer receiving a revenue share percentage of the revenues derived from the
Kiosks. The Company hopes to garner significant monthly revenue by charging
fees for standard advertisements and for cell phone text messaging ads.

The
Company anticipates that its Kiosks diverse functions will allow it to compete
as a unique coupon distribution point for many products and services. With a
footprint of sixteen inches wide it will permit many service establishments to
host a Kiosk and potentially integrate their own point of sale (POS) software
to this Kiosk. The integration of the venues POS to the Kiosks will permit the
retailer and advertiser access to extraordinarily valuable data.

The Market and Marketing

To
date, the Company has received a substantial level of interest for its Kiosks.
The Company will make placements of its Kiosks in the first and second quarters
of 2010 which will expand its installed base from 5 units to 40 units. In
addition the Company is currently engaged in discussions with a number of
potential customers who are seeking its Kiosks. The Company has entered several
joint venture relationships with distribution partners in the Southeast and New
York City and its suburbs. Additionally The Company is in advanced negotiations
with potential partners in the Midwest and California for distribution of
Kiosks.

Competition

The
Kiosks have existing competition from many established and well known
competitors. For its Kiosk product the Company will compete with the Diebold,
NCR, Tranex Tio, IBM and NCR. If the Company is unsuccessful in establishing a
market presence or capturing market share, it may be unable to execute its
business plan or to develop such revenue sources such that its operations will
become profitable.

Employees

At
the present time, the Company has 4 full time employees, two of which work out
of the Companys Colorado Springs Headquarters. The Company also employs
consultants to assist management as may be required.

Available Information and Website Address

Our
website address iswww.pantelsystems.com.
We make available free of charge through our website, our Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all
amendments to these reports as soon as reasonably practicable after filing with
the SEC. They also may be obtained directly from the SECs website,www.sec.gov . The contents of our website
are not incorporated by reference into this report.

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.

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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.

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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.

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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

6

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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.
UNRESOLVED STAFF COMMENTS

None.

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.
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. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

7

---



None.

PART II

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.

| |                  |  |      |  |     
| | ---------------- |  | ---- |  | ----
| | Fiscal Year 2009 |  | High |  | Low 
| |                  |  |      |  |     
| | Fourth
 Quarter  |  | 0.12 |  | 0.04
| | Third
 Quarter   |  | 0.12 |  | 0.03
| | Second
 Quarter  |  | 0.18 |  | 0.05
| | First
 Quarter   |  | 0.23 |  | 0.07



| |                  |  |      |  |     
| | ---------------- |  | ---- |  | ----
| | Fiscal Year 2008 |  | High |  | Low 
| |                  |  |      |  |     
| | Fourth
 Quarter  |  | 0.23 |  | 0.10
| | Third
 Quarter   |  | 0.29 |  | 0.15
| | Second
 Quarter  |  | 0.27 |  | 0.14
| | First
 Quarter   |  | 0.21 |  | 0.06

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. SELECTED FINANCIAL DATA

8

---



Not
applicable.

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

9

---



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.

10

---



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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not
applicable.

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.

11

---



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

12

---



PSI
CORPORATION 
BALANCE SHEETS

|                                   |  |                  |         |                  |   |         | 
|---------------------------------- |  | ---------------- | ------- | ---------------- | - | ------- | 
|                                   |  | OCTOBER 31, 2009 |         | OCTOBER 31, 2008 |  
|ASSETS                             |  |                  |         |                  |   |         | 
|                                   |  |                  |         |                  |   |         | 
|CURRENT
 ASSETS                    |  |                  |         |                  |   |         | 
|                                   |  |                  |         |                  |   |         | 
|Cash                               |  | $                | 29,607  |                  | $ | 130,913 | 
|Notes
 receivable                  |  |                  | 73,125  |                  |   |        | 
|Accounts
 receivable               |  |                  | 5,626   |                  |   |        | 
|Inventory                          |  |                  |        |                  |   | 45,614  | 
|Other
 current assets              |  |                  | 163,511 |                  |   | 18,461  | 
|                                   |  |                  |         |                  |   |         | 
|Total
 current assets              |  |                  | 271,869 |                  |   | 194,988 | 
|                                   |  |                  |         |                  |   |         | 
|Furniture
 and equipment, net      |  |                  | 55,651  |                  |   | 333,074 | 
|                                   |  |                  |         |                  |   |         | 
|Other Assets
 Financing costs, net |  |                  | 154,625 |                  |   | 281,583 | 
|                                   |  |                  |         |                  |   |         | 
|Total Assets                       |  | $                | 482,145 |                  | $ | 809,645 | 

The accompanying notes are an integral part
of these financial statement

13

---



PSI
CORPORATION 
BALANCE SHEETS

LIABILITIES
AND STOCKHOLDERS DEFICIENCY

|                                                                                                                                      |  |                  |             |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | ---------------- | - | ----------- | -
|                                                                                                                                      |  | OCTOBER 31, 2009 |             | OCTOBER 31, 2008 |  
|CURRENT
 LIABILITIES                                                                                                                  |  |                  |             |                  |   |             |  
|Notes
 payable                                                                                                                        |  | $                | 775,355     |                  | $ | 585,450     |  
|Accounts
 payable                                                                                                                     |  |                  | 1,092,081   |                  |   | 1,044,056   |  
|Accrued
 expenses                                                                                                                     |  |                  | 767,663     |                  |   | 241,875     |  
|Accrued
 interest                                                                                                                     |  |                  | 761,438     |                  |   | 396,016     |  
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Total
 current liabilities                                                                                                            |  |                  | 3,396,537   |                  |   | 2,267,397   |  
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Long- term
 debt                                                                                                                      |  |                  | 2,541,763   |                  |   | 2,274,241   |  
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Total
 liabilities                                                                                                                    |  |                  | 5,938,300   |                  |   | 4,541,638   |  
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Stockholders Deficiency:
Preferred stock,
 $.001 par value; 5,000,000 shares authorized,none issued and outstanding                  |  |                  |            |                  |   |            |  
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Common stock, $.001 par value; 300,000,000
 shares authorized, 88,074,744 and 76,832,609 shares issued and outstanding,
 respectively |  |                  | 88,074      |                  |   | 76,832      |  
|Additional paid-in capital                                                                                                            |  |                  | 11,060,532  |                  |   | 9,732,369   |  
|Accumulated deficit                                                                                                                   |  |                  | (16,603,774 | )                |   | (13,540,207 | )
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Less:
 Treasury stock                                                                                                                 |  |                  | (987        | )                |   | (987        | )
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Total Stockholders
 Deficiency                                                                                                       |  |                  | (5,456,155  | )                |   | (3,731,993  | )
|                                                                                                                                      |  |                  |             |                  |   |             |  
|Total
 Liabilities and Stockholders Deficiency                                                                                       |  | $                | 482,145     |                  | $ | 809,645     |  

The accompanying notes are an integral part
of these financial statements

14

---



PSI CORPORATION 
STATEMENTS OF OPERATIONS

|                                           |  |                         |            |      |   |            |  
|------------------------------------------ |  | ----------------------- | ---------- | ---- | - | ---------- | -
|                                           |  | YEAR ENDED 
OCTOBER 31, |           
|                                           |  | 2009                    |            | 2008 |  
|REVENUE                                    |  | $                       | 36,066     |      | $ | 5,723      |  
|Cost of
 Goods Sold                        |  |                         | 19,750     |      |   | 30,624     |  
|Gross Profit
 (loss)                       |  |                         | 16,316     |      |   | (24,901    | )
|                                           |  |                         |            |      |   |            |  
|ADMINISTRATIVE
 EXPENSES                   |  |                         | 2,031,490  |      |   | 1,249,574  |  
|                                           |  |                         |            |      |   |            |  
|Loss from
 operations                      |  |                         | (2,015,174 | )    |   | (1,274,475 | )
|                                           |  |                         |            |      |   |            |  
|OTHER INCOME
 (EXPENSES)                   |  |                         |            |      |   |            |  
|                                           |  |                         |            |      |   |            |  
|Interest,
 net                             |  |                         | (857,041   | )    |   | (592,038   | )
|Loss on
 settlements                       |  |                         | (55,280    | )    |   | (14,581    | )
|Loss on sale
 of assets                    |  |                         | (136,072   | )    |   |           |  
|Loss on
 investments                       |  |                         |           |      |   | (100,000   | )
|Impairment
 of fixed assets                |  |                         |           |      |   | (245,317   | )
|Valuation
 allowance on inventory          |  |                         |           |      |   | (240,662   | )
|Other income                               |  |                         |           |      |   | 23,200     |  
|                                           |  |                         |            |      |   |            |  
|NET LOSS                                   |  | $                       | (3,063,567 | )    | $ | (2,443,873 | )
|                                           |  |                         |            |      |   |            |  
|Basic and
 diluted weighted average shares |  |                         | 83,331,690 |      |   | 76,068,016 |  
|                                           |  |                         |            |      |   |            |  
|Basic and
 diluted loss per share          |  | $                       | (.04       | )    | $ | (.03       | )

The accompanying notes are an integral part
of these financial statements

15

---



PSI CORPORATION 
STATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIT 
YEARS ENDED OCTOBER 31, 2009 AND 2008

|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|-------------------------------------------------- |  | ---------------------- | ---------- | ------------ | - | -------------------------- |  | ------------------- | ---------- | -------------- | - | --------------------------- | - | - | ---- | - | - | ---------- | -
|                                                   |  | Shares Of Common Stock |            | Common Stock |   | Additional Paid-In Capital |  | Accumulated Deficit |            | Treasury Stock |   | Total Stockholders Deficit |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |  
|Balance, November 1, 2007                          |  |                        | 76,832,609 |              | $ | 76,832                     |  | $                   | 9,062,475  |                | $ | (11,096,334                 | ) | $ | (987 | ) | $ | (1,958,014 | )
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Issuance of warrants in connection with
 financing |  |                        |            |              |   |                            |  |                     | 669,894    |                |   |                             |   |   |      |   |   | 669,894    |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Net loss                                           |  |                        |            |              |   |                            |  |                     |            |                |   | (2,443,873                  | ) |   |      |   |   | (2,443,873 | )
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Balance, October 31, 2008                          |  |                        | 76,832,609 |              |   | 76,832                     |  |                     | 9,732,369  |                |   | (13,540,207                 | ) |   | (987 | ) |   | (3,731,993 | )
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Issuance of warrants in connection with
 financing |  |                        |            |              |   |                            |  |                     | 127,926    |                |   |                             |   |   |      |   |   | 127,926    |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Exercise of warrants                               |  |                        | 2,500,000  |              |   | 2,500                      |  |                     | (2,500     | )              |   |                             |   |   |      |   |   |           |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Conversion of notes payable                        |  |                        | 208,333    |              |   | 208                        |  |                     | 24,792     |                |   |                             |   |   |      |   |   | 25,000     |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Issuance of shares for consulting services         |  |                        | 5,972,000  |              |   | 5,972                      |  |                     | 810,542    |                |   |                             |   |   |      |   |   | 816,514    |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Issuance of shares for interest                    |  |                        | 1,561,802  |              |   | 1,562                      |  |                     | 108,403    |                |   |                             |   |   |      |   |   | 109,965    |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Sale of common stock                               |  |                        | 1,000,000  |              |   | 1,000                      |  |                     | 259,000    |                |   |                             |   |   |      |   |   | 260,000    |  
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Net loss                                           |  |                        |            |              |   |                            |  |                     |            |                |   | (3,063,567                  | ) |   |      |   |   | (3,063,567 | )
|                                                   |  |                        |            |              |   |                            |  |                     |            |                |   |                             |   |   |      |   |   |            |  
|Balance, October 31, 2009                          |  |                        | 88,074,744 |              | $ | 88,074                     |  | $                   | 11,060,532 |                | $ | (16,603,774                 | ) | $ | (987 | ) | $ | (5,456,155 | )

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

16

---



PSI CORPORATION
STATEMENTS OF CASH FLOWS 
YEARS ENDED OCTOBER 31,

|                                                                       |  |      |            |      |   |            |  
|---------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                       |  | 2009 |            | 2008 |  
|OPERATING
 ACTIVITIES                                                  |  |      |            |      |   |            |  
|Net Loss                                                               |  | $    | (3,063,567 | )    | $ | (2,443,873 | )
|Adjustments
 to reconcile net loss :                                   |  |      |            |      |   |            |  
|Depreciation                                                           |  |      | 51,965     |      |   | 34,141     |  
|Write down
 of inventory                                               |  |      |           |      |   | 240,662    |  
|Issuance of
 warrants in connection with financing                     |  |      |            |      |   | 71,271     |  
|Amortization
 of debt financing costs                                  |  |      | 126,958    |      |   | 87,729     |  
|Amortization
 of discount                                              |  |      | 217,831    |      |   | 60,393     |  
|Shares
 issued for consulting services                                 |  |      | 815,750    |      |   |           |  
|Loss on sale
 of assets                                                |  |      | 136,072    |      |   |           |  
|                                                                       |  |      |            |      |   |            |  
|Changes in
 operating assets and liabilities: 
    Accounts receivable |  |      | (78,751    | )    |   |           |  
|Inventories                                                            |  |      |           |      |   | (2,599     | )
|Prepaid expenses                                                       |  |      | (145,050   | )    |   | 126,743    |  
|Accounts payable                                                       |  |      | 48,789     |      |   | 10,235     |  
|Accrued liabilities                                                    |  |      | 1,001,175  |      |   | 488,047    |  
|Net cash
 flows from operating activities                              |  |      | (888,828   | )    |   | (1,327,251 | )
|                                                                       |  |      |            |      |   |            |  
|INVESTING
 ACTIVITIES                                                  |  |      |            |      |   |            |  
|Proceeds
 from sale of fixed assets                                    |  |      | 135,000    |      |   |           |  
|Debt
 financing costs                                                  |  |      |           |      |   | (219,221   | )
|Purchase of
 fixed assets                                              |  |      |           |      |   | (367,215   | )
|Net cash
 flows from investing activities                              |  |      | 135,000    |      |   | (586,436   | )
|                                                                       |  |      |            |      |   |            |  
|FINANCING
 ACTIVITIES                                                  |  |      |            |      |   |            |  
|Proceeds from long term debt                                           |  |      | 453,389    |      |   | 1,716,000  |  
|Repayment of long term debt                                            |  |      | (60,867    | )    |   | (54,957    | )
|Proceeds from sale of common stock                                     |  |      | 260,000    |      |   |           |  
|                                                                       |  |      |            |      |   |            |  
|Net cash
 flows from financing activities                              |  |      | 652,522    |      |   | 1,661,043  |  
|                                                                       |  |      |            |      |   |            |  
|DECREASE IN
 CASH                                                      |  |      | (101,306   | )    |   | (252,644   | )
|Cash,
 beginning of year                                               |  |      | 130,913    |      |   | 383,557    |  
|                                                                       |  |      |            |      |   |            |  
|Cash, end of
 year                                                     |  | $    | 29,607     |      | $ | 130,913    |  
|                                                                       |  |      |            |      |   |            |  
|SUPPLEMENTAL
 DISCLOSURES:                                             |  |      |            |      |   |            |  
|Cash paid during the year for interest                                 |  | $    | 10,581     |      | $ | 28,750     |  
|                                                                       |  |      |            |      |   |            |  

The accompanying notes are an integral part
of these financial statements

17

---



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.

18

---



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.

19

---



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.

20

---



PSI CORPORATION 
NOTES TO FINANCIAL STATEMENTS 
YEARS ENDED OCTOBER 31, 2009 AND 2008

3.
FURNITURE AND EQUIPMENT

Furniture and
equipment consists of the following:

|                                |  |             |        |      |   |         | 
|------------------------------- |  | ----------- | ------ | ---- | - | ------- | 
|                                |  | October 31, |       
|                                |  | 2009        |        | 2008 |  
|                                |  |             |        |      |  
|Digital
 displays               |  | $           | 70,597 |      | $ | 367,215 | 
|Less:
 accumulated amortization |  |             | 14,946 |      |   | 34,141  | 
|                                |  |             |        |      |   |         | 
|                                |  |             |        |      |   |         | 
|                                |  | $           | 55,651 |      | $ | 333,074 | 
|                                |  |             |        |      |   |         | 

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:

|                |  |             |   |      |   |        | 
|--------------- |  | ----------- | - | ---- | - | ------ | 
|                |  | October 31, |  
|                |  | 2009        |   | 2008 |  
|                |  |             |   |      |   |        | 
|Raw
 materials  |  | $           |  |      | $ |       | 
|Finished
 goods |  |             |  |      |   | 45,614 | 
|                |  |             |   |      |   |        | 
|                |  |             |   |      |   |        | 
|                |  | $           |  |      | $ | 45,614 | 
|                |  |             |   |      |   |        | 
|                |  |             |   |      |   |        | 

5.
STOCKHOLDERS EQUITY

WarrantsWarrant
transactions for the years ended October 31, 2009 and 2008 are as follows:

|                               |  |                      |            |                                     |   |      | 
|------------------------------ |  | -------------------- | ---------- | ----------------------------------- | - | ---- | 
|                               |  | Number of 
 Warrants |            | Weighted 
 Average 
 Exercise Price |  
|                               |  |                      |            |                                     |   |      | 
|Outstanding,
 November 1, 2007 |  |                      | 27,205,039 |                                     | $ | 0.12 | 
|Granted                        |  |                      | 5,166,927  |                                     |   | 0.12 | 
|Exercised                      |  |                      |           |                                     |   |     | 
|Expired                        |  |                      |           |                                     |   |     | 
|                               |  |                      |            |                                     |   |      | 
|Outstanding,
 October 31, 2008 |  |                      | 32,372,014 |                                     | $ | 0.12 | 
|Granted                        |  |                      | 1,037,500  |                                     |   | 0.13 | 
|Exercised                      |  |                      |           |                                     |   |     | 
|Expired                        |  |                      |           |                                     |   |     | 
|                               |  |                      |            |                                     |   |      | 
|Outstanding,
 October 31, 2009 |  |                      | 33,409,514 |                                     |   | 0.12 | 
|                               |  |                      |            |                                     |   |      | 
|                               |  |                      |            |                                     |   |      | 
|Exercisable
     warrants:     |  |                      | 32,372,014 |                                     | $ | 0.12 | 
|October 31, 2009               |  |                      |            |                                     |   |      | 

21

---



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.

22

---



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.

23

---



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:

|                         |  |                                     |        | 
|------------------------ |  | ----------------------------------- | ------ | 
|Years
 Ending October 31 |  | Future 
 Minimum 
 Lease 
 Payments |       
|                         |  |                                     |       
|2010                     |  | $                                   | 24,732 | 
|2011                     |  |                                     | 24,732 | 
|2012                     |  |                                     | 2,061  | 
|                         |  |                                     |        | 
|Total                    |  | $                                   | 51,525 | 
|                         |  |                                     |        | 

Total
rent expense for these operating leases was approximately $61,927 and $98,713
for the years ended October 31, 2009 and 2008, respectively.



24

---



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:

|                                          |  |             |            |      |   |            |  
|----------------------------------------- |  | ----------- | ---------- | ---- | - | ---------- | -
|                                          |  | October 31, |           
|Deferred tax
 assets:                     |  | 2009        |            | 2008 |  
|Net operating loss carryforward           |  | $           | 4,258,140  |      | $ | 3,494,790  |  
|Accrued expenses not currently deductible |  |             | 762,220    |      |   | 344,183    |  
|Inventory reserve                         |  |             | 96,120     |      |   | 96,120     |  
|                                          |  |             |            |      |   |            |  
|Deferred tax
 assets before valuation     |  |             | 5,116,480  |      |   | 3,935,093  |  
|Valuation
 allowance                      |  |             | (5,116,480 | )    |   | (3,935,093 | )
|                                          |  |             |            |      |   |            |  
|Net deferred
 income tax assets           |  | $           |           |      | $ |           |  
|                                          |  |             |            |      |   |            |  

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.

25

---



ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

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 inInternal Controls  Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission,
and the related guidance provided inInternal
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:

26

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|  |                                                                             
|- | ----------------------------------------------------------------------------
| | 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. OTHER INFORMATION

None.

PART III

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

27

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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. 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. 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

28

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have sole
voting and investment power with respect to all the shares beneficially owned
by them.

|                                              |  |                                                      |           |                                 |  |      | 
|--------------------------------------------- |  | ---------------------------------------------------- | --------- | ------------------------------- |  | ---- | 
|Name and Address Of Beneficial Owner          |  | Number of
 Shares of Common Stock Beneficially Owned |           | Percentage
 (%) of Common Stock | 
|                                              |  |                                                      |           |                                 |  |      | 
|David Foni (1)                                |  |                                                      | 2,000,000 |                                 |  | 2.45 | 
|Eric Kash (2)                                 |  |                                                      | 1,700,000 |                                 |  | 2.08 | 
|                                              |  |                                                      |           |                                 |  |      | 
|Directors and Officers as a group (2 persons) |  |                                                      | 3,700,000 |                                 |  | 4.52 | 

(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. 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. 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. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

29

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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.

|            |  |                                                                                    |  |                           |  |                   |  |               
|----------- |  | ---------------------------------------------------------------------------------- |  | ------------------------- |  | ----------------- |  | --------------
|            |  |                                                                                    |  | Incorporated by Reference | 
|            |  |                                                                                    |  |                           |  |                  
|Exhibit No. |  | Description                                                                        |  | Form                      |  | Date of Filing    |  | Filed Herewith
|            |  |                                                                                    |  |                           |  |                   |  |               
|3.1         |  | Certificate
 of Incorporation                                                      |  | 10-K                      |  | March 9,
 2006    |  |               
|3.2         |  | Bylaws                                                                             |  | 10-K                      |  | March 9,
 2006    |  |               
|4.1         |  | Form of
 Common Stock Certificate                                                  |  | 10-K                      |  | March 9,
 2006    |  |               
|10.1        |  | Office Lease
 Agreement                                                            |  | 10-K                      |  | October 27,
 2008 |  |               
|21.1        |  | Subsidiaries
 of the Company                                                       |  |                           |  |                   |  | X             
|23.1        |  | Consent of
 Seligson & Giannattasio, Independent Registered Public Accounting Firm |  |                           |  |                   |  | X             
|31.1        |  | Certification
 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           |  |                           |  |                   |  | X             
|31.2        |  | Certification
 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002           |  |                           |  |                   |  | X             
|32.1        |  | Certification
 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002           |  |                           |  |                   |  | X             
|32.2        |  | Certification
 pursuant to Section the Sarbanes-906 of Oxley Act of 2002           |  |                           |  |                   |  | X             

30

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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.

|                     |                 
|-------------------- | ----------------
|                     | PSI
 Corporation
|                     |                 
|                     |                 
|                     |                 
|                     |                 
|Dated: June 24, 2010 |                 
|                     |                 

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,
|               |  |                                                                 |  | 2010    
|David Foni     |  | (Principal
 Executive Officer)                                  |  |         
|               |  |                                                                 |  |         
|/s/ Eric Kash  |  | Chief
 Financial Officer                                        |  | June 24,
|               |  |                                                                 |  | 2010    
|Eric Kash      |  | (Principal
 Financial Officer and Principal Accounting Officer) |  |         

31

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