form_10q-2q2008.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended March 31, 2008
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission
File Number: 000-51577
ESPRE
SOLUTIONS INC.
(Exact
name of registrant as specified in its charter)
NEVADA
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68-0576847
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(State
or other jurisdiction of
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(I.R.S.
Employer
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incorporation
or organization)
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Identification
No.)
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5700
W. Plano Parkway, Suite 2600, Plano, Texas
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75093
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(Address
of principal executive offices)
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(Zip
Code)
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(214)
254-3708
(Registrant’s
telephone number, including area code)
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. x Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
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o
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Accelerated
filer
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o
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Non-accelerated
filer
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x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. 341,462,075 shares of Common Stock as
of April 30, 2008.
The
consolidated financial statements of Espre Solutions, Inc. (the “Company”)
contained in this Report on Form 10-Q have not been reviewed by the Company’s
independent public accountant in accordance with Securities and Exchange
Commission Rules 10-01(d) and 8-03. The Company will file an amended
Report when the review by its independent public accountant using professional
standards and procedures for conducting such review has been
completed.
¶
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FORM
10-Q
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CONTENTS
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PART
I — FINANCIAL INFORMATION (Unaudited)
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PAGE
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Item
1
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—
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Financial
Statements
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Item
2
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—
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Item
3
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—
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Item
4
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—
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PART
II — OTHER INFORMATION
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Item
1
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—
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Item
1A
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—
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Item
2
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—
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Item
3
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—
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Item
4
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—
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Item
5
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—
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Item
6
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—
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Signature
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15
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EX-31.1
Section 302 Certification
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EX-31.2
Section 302 Certification
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EX-32.1
Section 906 Certification
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EX-32.2
Section 906 Certification
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PART
I — FINANCIAL INFORMATION
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The
consolidated financial statements of Espre Solutions,c Inc. (the
"Company") contained in this Report on Form 10-Q have not been reviewed by
the Company's independent public accountant in accordance with Securities
and Exchange Commission Rules 10-01(d) and 8-03. The Company will
file an amended Report when the review by its independent public
accountant using professional standards and procedures for conducting such
review has been completed.
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Item
1 — Financial Statements
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Consolidated
Balance Sheets
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March
31,
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September
30,
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2008
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2007
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(unaudited)
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ASSETS
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Current
assets:
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Cash
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$ |
1,374,728 |
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$ |
3,850,666 |
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Accounts
receivable
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247,348 |
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251,050 |
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Prepaid
expenses and advances
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93,065 |
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34,564 |
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Total
current assets
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1,715,141 |
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4,136,280 |
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Equipment,
net
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341,992 |
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296,758 |
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Intangible
assets, net
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79,037 |
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73,191 |
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Loans
to related parties
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69,432 |
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69,432 |
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Other
assets
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124,124 |
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97,292 |
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Total
assets
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$ |
2,329,726 |
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$ |
4,672,953 |
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LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
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Current
liabilities:
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Notes
payable to related parties
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$ |
25,000 |
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$ |
1,667,944 |
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Accounts
payable and accrued expenses
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1,229,812 |
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1,449,399 |
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Total
current liabilities
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1,254,812 |
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3,117,343 |
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Deferred
revenue — related party
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- |
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1,000,000 |
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Minority
interest
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1,186,414 |
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348,093 |
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Stockholders’
(deficit) equity
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Common
shares — $0.001 par value; authorized 500,000,000 shares; and 340,690,490
and
318,522,499 shares issued and outstanding , respectively
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340,690 |
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318,522 |
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Additional
paid-in capital
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78,782,089 |
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71,110,086 |
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Stock
subscription receivable
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(28,500 |
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$ |
(190,000 |
) |
Retained
(deficit)
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(79,205,779 |
) |
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$ |
(71,031,091 |
) |
Total
stockholders’ equity
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(111,500 |
) |
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207,517 |
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Total
liabilities and stockholders’ (deficit) equity
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$ |
2,329,726 |
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$ |
4,672,953 |
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The
accompanying notes are an integral part of these consolidated financial
statements
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Consolidated
Statements of Operations
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(Unaudited)
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Three
Months Ended
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Six
Months Ended
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March
31,
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March
31,
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2008
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2007
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2008
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2007
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Revenue:
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Software
licensing fees
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$ |
- |
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$ |
- |
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$ |
1,000,000 |
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$ |
1,990,000 |
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Custom
engineering fees
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418,284 |
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244,500 |
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475,626 |
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477,750 |
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Other
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13,380 |
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116,534 |
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63,130 |
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124,160 |
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Total
revenue
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431,664 |
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361,034 |
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1,538,756 |
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2,591,910 |
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Expenses:
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General,
administrative and selling expenses
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2,441,707 |
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1,218,772 |
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5,211,890 |
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2,383,800 |
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General,
administrative and selling expenses stock based
compensation
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1,801,577 |
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1,726,334 |
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3,798,318 |
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2,810,408 |
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Research
and development
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1.003,810 |
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366,900 |
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1,590,697 |
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451,500 |
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Amortization
and depreciation
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25,886 |
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23,399 |
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57,673 |
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46,746 |
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Total
operating expenses
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5,272,980 |
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3,335,405 |
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10,658,578 |
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5,692,454 |
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Loss
from operations
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(4,841,316 |
) |
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(2,974,371 |
) |
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(9,119,822 |
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(3,100,544 |
) |
Interest
income
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36,030 |
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- |
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36,030 |
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- |
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Interest
expense
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(1,575 |
) |
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(1,836 |
) |
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(1,575 |
) |
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(9,684 |
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Net
loss before minority interest
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(4,806,861 |
) |
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(2,976,207 |
) |
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(9,085,367 |
) |
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(3,110,228 |
) |
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Minority
interest
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529,319 |
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- |
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910,678 |
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- |
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Net
(loss)
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$ |
(4,277,542 |
) |
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$ |
(2,973,207 |
) |
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$ |
(8,174,689 |
) |
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$ |
(3,110,228 |
) |
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Basic
and diluted net loss per share
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$ |
(0.01 |
) |
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$ |
(0.01 |
) |
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$ |
(0.03 |
) |
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$ |
(0.01 |
) |
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Weighted
average shares outstanding, basic and diluted
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333,383,737 |
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220,393,640 |
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324,883,439 |
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220,393,640 |
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The
accompanying notes are an integral part of these consolidated financial
statements
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ESPRE
SOLUTIONS INC. AND SUBSIDIARY
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Consolidated
Statements of Cash Flows
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Six
Months Ended March 31
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(Unaudited)
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2008 |
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2007
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Cash
flows from operating activities:
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Net
(loss) for period
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$ |
(8,174,689 |
) |
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$ |
(3,110,228 |
) |
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Adjustments
to reconcile net loss to cash used in operating
activities:
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Stock
and options issued for services
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732,477 |
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200,000 |
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Stock
based compensation
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|
3,798,318 |
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2,810,408 |
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Amortization
and depreciation
|
|
|
57,673 |
|
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|
46,746 |
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Minority
interest
|
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(910,678 |
) |
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|
- |
|
Changes
in assets and liabilities:
|
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|
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Deferred
revenue
|
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(1,000,000 |
) |
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|
150,000 |
|
Accounts
receivable
|
|
|
3,702 |
|
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(1,195,486 |
) |
Prepaid
expenses
|
|
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(58,501 |
) |
|
|
27,811 |
|
Other
assets
|
|
|
(26,832 |
) |
|
|
(7,600 |
) |
Accounts
payable and accrued expenses
|
|
|
(219,587 |
) |
|
|
254,809 |
|
Total
cash used in operating activities
|
|
|
(5,798,117 |
) |
|
|
(823,540 |
) |
|
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Net
cash used in investing activities:
|
|
|
|
|
|
|
|
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Purchase
of equipment
|
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|
(87,032 |
) |
|
|
(19,348 |
) |
Purchase
of intangible assets
|
|
|
(21,721 |
) |
|
|
(127,580 |
) |
Loan
to affiliate
|
|
|
- |
|
|
|
(250,000 |
) |
Net
cash used in investing activities
|
|
|
(108,753 |
) |
|
|
(396,928 |
) |
|
|
|
|
|
|
|
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|
Cash
flows provided by financing activities:
|
|
|
|
|
|
Payments
on notes payable to related parties
|
|
|
(100,000 |
) |
|
|
102,957 |
|
Proceeds
from sale of stock
|
|
|
1,781,932 |
|
|
|
1,140,000 |
|
Minority
capital raised
|
|
|
1,749,000 |
|
|
|
- |
|
Net
cash provided by financing activities
|
|
|
3,430,932 |
|
|
|
1,242,957 |
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(2,475,938 |
) |
|
|
22,489 |
|
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
3,850,666 |
|
|
|
291,426 |
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$ |
1,374,728 |
|
|
$ |
313,915 |
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
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Cash
paid for interest
|
|
|
- |
|
|
|
- |
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Issuance
of common stock to retire debt
|
|
$ |
1,542,943 |
|
|
$ |
619,000 |
|
|
|
|
|
|
|
|
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|
The
accompanying notes are an integral part of these consolidated financial
statements
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ESPRE
SOLUTIONS, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION AND CONTROLLED SUBSIDIARY
The
consolidated financial statements included herein have been prepared by the
Company, without audit, in accordance with accounting principles generally
accepted in the United States of America and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes such disclosures are adequate to make the information presented
not to be misleading. In the opinion of management, the amounts shown reflect
all adjustments necessary to present fairly the financial position and results
of operations for the periods presented. All such adjustments are of a normal
recurring nature.
It is
suggested that the financial statements be read in conjunction with the
financial statements and notes thereto included in the Company’s Form 10/A for
the year ended September 30, 2007.
On April
27, 2007 the Company and Peter Leighton, its President (“Leighton”), founded
Blideo each with a 40% interest. The Company and Leighton control Blideo and it
has therefore been consolidated in these condensed consolidated financial
statements.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
majority owned and controlled subsidiary. All intercompany transactions have
been eliminated in consolidation.
Reclassifications
Prior
year’s information is reclassified whenever necessary to conform to current
year’s presentation.
Stock
Based Compensation
The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
“Share-Based Payment” effective July 1, 2005, which requires companies to record
compensaton expense for stock options issued to employees or non-employee
directors at the fair value of the options. SFAS NO. 123R is
effective for annual periods beginning after June 15, 2005.
The
Company has adopted SFAS No. 123R using the “modified prospective application”
and therefore, financial statements from periods ending prior to October 1,
2005 have not been restated. The Company’s net loss for the
three months ended March 31, 2008 and 2007 was $1,801,577 and $1,726,334,
respectively higher than if it had continued to account for share-based
compensation under APB No. 25. The Company’s net loss for the six
months ended March 31, 2008 and 2007 was $3,798,318 and $2,810,408, respectively
higher than if it had continued to account for share-based compensation under
APB No. 25.
Recent
pronouncements
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159
permits entities to choose to measure many financial assets and financial
liabilities at fair value. Unrealized gains and losses on items for which the
fair value option has been elected are reported in earnings. SFAS No. 159 is
effective for fiscal years beginning after November 15, 2007. The Company will
adopt SFAS No. 159 on October 1, 2009, and is currently evaluating the impact of
such adoption on its financial statements.
In
December 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007),
Business Combinations , which replaces SFAS No 141. The statement retains the
purchase method of accounting for acquisitions, but requires a number of
changes, including changes in the way assets and liabilities are recognized in
the purchase accounting. It also changes the recognition of assets acquired and
liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. SFAS No. 141R is effective for us
beginning July 1, 2009 and will apply prospectively to business combinations
completed on or after that date.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51 , which changes the
accounting and reporting for minority interests. Minority interests will be
recharacterized as noncontrolling interests and will be reported as a component
of equity separate from the parent’s equity, and purchases or sales of equity
interests that do not result in a change in control will be accounted for as
equity transactions. In addition, net income attributable to the noncontrolling
interest will be included in consolidated net income on the face of the income
statement and, upon a loss of control, the interest sold, as well as any
interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for us beginning July 1, 2009
and will apply prospectively, except for the presentation and disclosure
requirements, which will apply retrospectively. We are currently assessing the
potential impact that adoption of SFAS No. 160 would have on our financial
statements.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133." SFAS No. 161 requires enhanced disclosure related to
derivatives and hedging activities and thereby seeks to improve the
transparency of financial reporting. Under SFAS No. 161, entities are
required to provide enhanced disclosures relating to: (a) how and why an
entity uses derivative instruments; (b) how derivative instruments and
related hedge items are accounted for under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and its related
interpretations; and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance,
and cash flows. SFAS No. 161 must be applied prospectively to all
derivative instruments and non-derivative instruments that are designated
and qualify as hedging instruments and related hedged items accounted for
under SFAS No. 133 for all financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently assessing the impact that SFAS No. 161
will have on its financial position and results of operations.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162”). SFAS 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board’s amendments to
AU section 411, The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles. The Company is in the process of evaluating the
potential effect of adoption of SFAS 162.
3.
GOING CONCERN AND MANAGEMENT’S PLAN
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
and recurring losses and negative cash flow from operations which raises
substantial doubt about its ability to continue as a going concern. The
Company’s continued existence is dependent upon its ability to achieve
profitability and to generate cash either from operations or
financing.
Management’s plan is as follows:
●
|
|
Market
its principal product, ESPRE Live, to customers wishing to build
applications using video and provide custom engineering services to those
customers as requested.
|
|
|
|
●
|
|
Engage
in partnerships with firms in key vertical markets. These partners will be
market experts and have well defined application strategies that require
ESPRE Live to develop them.
|
|
|
|
●
|
|
Launch
Blideo as an application service provider
|
|
|
|
●
|
|
Obtain
additional debt and equity financing.
|
|
|
|
●
|
|
Establish
independent sales agreements with representatives to sell its products and
services. The Company will actively pursue the engagement of additional
independent sales representatives who can distribute the Company’s
existing video products and services both domestically and
internationally.
|
In the
period from inception to March 31, 2008 the Company has transacted a substantial
amount of its business with related parties. The Company continues to be
dependent on revenues from these related parties. The achievement of
profitability and the ability to generate cash flows from operations is
dependent upon, amongst other things, the acceptance of the Company’s products
and services, competition from other products and the deployment of video
applications by our customers. There is no assurance that management’s plan will
be successful. Accordingly, substantial doubts exist about the Company’s ability
to continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
4.
CASH
At March
31, 2008 the Company had $247,340 in cash (excluding Blideo’s cash of
$1,127,388, over which we exercise no control) compared with $3,352,414
(excluding Blideo’s cash of $498,251) at September 30, 2007.
5.
INVESTMENT IN AND LOANS TO RELATED PARTIES
Blideo
Inc.
On April
24, 2007, prior to joining the Company, Leighton founded Blideo Inc. (“Blideo”)
and invested $200,000 in May 2007 and $300,000 in July 2007. The Company
invested the same amounts in the same time periods. In May of 2007, Blideo
acquired an exclusive license from Media Distribution Solutions. LLC (“MDS”), a
customer of the Company since April 2006, for the distribution and use of MDS’s
software in any social networking application for $175,000 plus
certain ongoing royalties. In September 2007, Espre’s Vice President — Sales
invested $125,000 in Blideo. Certain former officers and employees of the
Company are now officers and employees of Blideo. Subsequent to year end, on
October 31, 2007, the Company licensed ESPRE Live on a non-exclusive basis to
Blideo for five (5) years for a one time license fee of $1,000,000 plus 1% of
gross revenues.
As an
integral part of this agreement, Blideo agreed to pay the Company $700,000 for
engineering and design services to build the Blideo Application Release 1.0 from
September 1, 2007 to March 31, 2008. The $700,000 contract engineering fees paid
for core technology development will decrease the license fee. As part of this
license the Company has agreed not to contract with any application service
provider that plans to launch a service competitive to Blideo’s for one year
following the acceptance by Blideo of the application the Company is designing
and building. In addition, Blideo is obligated to pay the Company a product
maintenance fee for the application the Company is building for Blideo of
$70,000 for the first year commencing September 2007 and thereafter at a rate to
be negotiated. In addition, until April 1, 2008 the Company provided office
accommodation to Blideo for $2,000 per month. On April 1, 2008,
Blideo sublet offices from an independent third party and moved its entire staff
to them. The Company also provides accounting services to Blideo for
$500 per month on a month to month basis. The Company believes all related party
transactions have been consummated on terms equivalent to those that prevail in
arms’ length transactions.
The
assets of Blideo are not available to the Company other than through the
contractual agreements more fully described above.
6.
NOTES PAYABLE TO RELATED PARTIES
Notes
payable —consisted of the following:
|
|
March
31,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Contingent
repurchase agreement to Video Software Partners, secured by certain
software products, payable on February 1, 2008, interest imputed at
10%
|
|
$ |
- |
|
|
$ |
1,642,944 |
|
|
|
|
|
|
|
|
|
|
Note
payable to a related individual, at 10%, due November 25, 2004, extended
year to year, unsecured
|
|
|
25,000 |
|
|
|
25,000 |
|
|
|
$ |
25,000 |
|
|
$ |
1,667,944 |
|
7. ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consisted of the following at:
|
|
March 31,
2008
|
|
|
September 30,
2007
|
|
Accounts
payable - trade
|
|
$ |
847,475 |
|
|
$ |
543,485 |
|
Accrued
expenses
|
|
|
38,845 |
|
|
|
242,151 |
|
Due
to investment banker
|
|
|
- |
|
|
|
139,825 |
|
Accrued
vacation pay
|
|
|
76,640 |
|
|
|
76,640 |
|
Accrued
payroll and payroll taxes
|
|
|
266,852 |
|
|
|
297,296 |
|
Customer
advances
|
|
|
- |
|
|
|
150,000 |
|
|
|
$ |
1,229,812 |
|
|
$ |
1,449,397 |
|
8. OTHER
RELATED PARTY TRANSACTIONS
The
Company regularly engages the services of a related vendor. The
vendor became related when its principals purchased restricted common stock from
the Company. In the three and six month periods ending March 31, 2008
the Company incurred $213,615 and $411,980, respectively, in Product Development
and Consulting expenses and $1,200 in General, Sales and Administrative expenses
from this vendor.
9.
STOCKHOLDERS’ EQUITY
Common
stock
Payments
for Services
In the
six months ended March 31, 2008 the Company issued a total of 3,198,002 shares
of common stock for consulting, advisory and other services recorded at market
values ranging between of $0.16 and $0.26 per share or $732,477. For
the same period in the previous fiscal year the Company issued 1,538,462 shares
at a market price of $0.13 per share or $200,000 for consulting and advisory
services
Capital
Raises
In the
six months ended March 31, 2008 the Company issued 17,469,989 shares of
restricted common stock with no demand or piggy-back registration rights to
accredited investors for $1,620,432. The company paid fees of $38,263 in
connection with the sale of these common shares.
10.
STOCK OPTIONS
The
Company's 2004 Equity Incentive Plan, the "Stock Option Plan," provides
employees consultants and directors to be granted options to purchase shares of
the Company's common stock, incentive stock options ("ISOs"). The maximum
aggregate number of shares of common stock available for award under the Stock
Option Plan is 100,000,000, and is subject to adjustment as set forth
therein. Under the plan, ISOs may not be vested until a date, or dates,
subsequent to their date of grant, or until the occurrence of on or more
specified events annually. At March 31, 2008 the company had granted
74,014,634 ISOs. Of the granted ISOs, 61,600,000 vest on the anniversary
of the date of grant equally over three years; 9,039,634 vested immediately; and
3,375,000 vest completely eighteen months after the date of grant. All
ISOs expire no later than ten years from the date of grant for participants that
own no more than ten percent of all classes of voting stock of the Company
and its subsidiaries. The expiration for participants that own more
than ten percent of all voting classes of stock of the Company and its
subsidiaries is five years from the date of grant.
The
exercise price for the ISOs is not to be less than the fair market value of the
common stock of the Company at the date of grant for participants owning less
than ten percent of all voting classes of stock in the Company and its
subsidiaries and not less than 110% of the fair market value of the common stock
of the Company at the date of grant for pariticpants owning more than ten
percent of all classes of voiting stock in the Company and its
subsidiaries.
|
|
Outstanding Stock Options
|
|
|
Exercisable Stock Options
|
|
|
|
Shares
|
|
|
Weighted
Average exercise Price
|
|
|
Shares
|
|
|
Weighted
Average exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
66,814,634 |
|
|
$ |
0.10 |
|
|
|
18,986,301 |
|
|
$ |
0.12 |
|
Granted
during period
|
|
|
7,200,000 |
|
|
$ |
0.09 |
|
|
|
10,053,975 |
|
|
$ |
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
74,014,634 |
|
|
$ |
0.10 |
|
|
|
29,040,275 |
|
|
$ |
0.11 |
|
At March
31, 2008, summarized stock options outstanding and exercisable
were:
|
|
|
Outstanding
Stock Options
|
|
|
Exercisable
Stock Options
|
|
Exercise
Price Range
|
|
|
Shares
|
|
|
Life
|
|
|
Weighted
Average exercise Price
|
|
|
Shares
|
|
|
Life
|
|
|
Weighted
Average exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.010
- $0.085 |
|
|
|
48,239,634 |
|
|
|
8.23 |
|
|
$ |
0.08 |
|
|
|
12,156,942 |
|
|
|
8.25 |
|
|
$ |
0.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.100
- $0.200 |
|
|
|
23,855,000 |
|
|
|
7.74 |
|
|
$ |
0.10 |
|
|
|
15,123,333 |
|
|
|
6.60 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.210
- $1.333 |
|
|
|
1,920,000 |
|
|
|
6.94 |
|
|
$ |
0.48 |
|
|
|
1,760,000 |
|
|
|
6.94 |
|
|
$ |
0.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74,014,634 |
|
|
|
|
|
|
|
|
|
|
|
29,040,275 |
|
|
|
|
|
|
|
|
|
The
weighed average fair value of each option has been approximated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants; no dividend yield, volatility of 200%, risk
free interest rate of 3.47%, and an expected term of five years.
As of
March 31, 2008, there was approximately $6.8 million of unrecognized
compensation cost related to unvested share-based compensation arrangements
granted under the Stock Option Plan. This expense will be recognized
on a straight-line basis over the remaining requisite service period, currently
through December 2010.
11.
WARRANTS
Transactions
and other information relating to warrants are summarized as
follows:
Outstanding
Warrants
|
|
|
Exercisable
Warrants
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding
at October 1, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
during the period |
|
|
(892,858
|
) |
|
|
0.10
|
|
|
|
(892,858
|
) |
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
CONCENTRATION OF CREDIT RISK AND DEPENDENCY
For the
six months ended March 31, 2008 the Company had one sale to one customer who
individually accounted for more 66% of the total gross sales for that period.
For the six months ended March 31, 2007, the Company had sales to one customer
who accounted for more than ten percent of the Company’s total gross sales for
that period.
For the
six months ended March 31, 2008 the Company purchased services from one supplier
who individually accounted for 23% percent of the Company’s total product and
development and consulting fees for the period.
The
Company maintains deposits in a financial institution that at times exceed
amounts covered by the insurance provided by the U.S. Federal Deposit Insurance
Corporation. The Company believes that there is no significant risk with respect
to these deposits.
13.
DEFERRED INCOME TAXES
The
Company reduced the deferred tax asset resulting from its tax loss carry
forwards by a valuation allowance of an equal amount to the deferred asset as
the realization of the deferred tax asset is uncertain. Deferred tax assets are
as follows:
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
In-
process research and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The
consolidated financial statements of Espre Solutions, Inc. (the “Company”)
contained in this Report on Form 10-Q have not been reviewed by the Company’s
independent public accountant in accordance with Securities and Exchange
Commission Rules 10-01(d) and 8-03. The Company will file an amended
Report when the review by its independent public accountant using professional
standards and procedures for conducting such review has been
completed.
Results
of Operations for the six months ended March 31, 2008
During
the six months ended March 31, 2008, we generated revenues of $1,538,756
(compared with $2,591,910 in the same period last year, or a decrease of 41%).
The major components of revenue were:
●
|
|
Revenues
were $431,664 for the three months ended March 31, 2008 (compared with
$361,034 for the same period last year, or an increase of
20%). |
|
|
|
●
|
|
In
April 2007 we entered into a license agreement an exclusive right to use
our technology license for the entertainment market for an initial amount
of $1,000,000 and a further $450,000 contingent on our delivering certain
design proofs of concept. The license agreement granted the license holder
a put option which could have required us to repurchase the license for
$2,000,000 at any time after January 31, 2008, and before April 31, 2010.
The revenue from this license was deferred and is included on our balance
sheet as deferred revenue at September 30, 2007. In December 2007, we
concluded an agreement with the licensee to waive the put option in return
for a waiver of the balance due under the license of $450,000, and
accordingly we recorded the full license fee of $1,000,000 in the quarter
ended December 31, 2007.
|
|
|
|
●
|
|
$453,000
for the design of our customers’ applications, including a major US
telecommunications carrier. We expect continued engineering revenues if
and when these customers successfully deploy their product and/or service
offerings.
|
For the
six months ended March 31, 2008, our total operating expenses were
$10,658,578(compared to $5,692,454in the same period last year). Product
development and consulting expenses amounted to $1,590,697(compared to $451,500
in last year, or an increase of 252%).This substantial increase is primarily
attributable to an increase in outsource engineering costs incurred in the
development of ESPRE Live, the design of Blideo’s application and the provision
of engineering services to third parties. For the six months ended March 31,
2008, our general, administrative and selling expenses were $5,211,890(compared
to $2,383,800in the comparable period last year). Of the general, administrative
and selling expenses incurred for the six months ended March 31, 2008, 35% is
attributable to the non-cash expenses from Company’s incentive stock option plan
(compared to 49% in the previous year). In August 2007 we increased
our sales and marketing staff by eight (8) persons in response to sales efforts
and the planned launch of our ESPRE Live version 3.0 in January
2008. We anticipate this higher expense level to continue through the
third quarter of fiscal 2008 when the expenses associated with the initial
development and launch of ESPRE Live are expected to be reduced. We also
incurred increased salary expenses related to our sales and marketing program
and legal and accounting expenses relating to our becoming a fully reporting
company.
Stock
based compensation amounted to $3,798,318 (compared to $2,810,408 in the six
months ended March 31, 2007).
Liquidity
and Capital Resources
The
accompanying consolidated financial statements have been prepared assuming we
will continue as a going concern. We sustained substantial and recurring losses
for the period December 22, 2003 (inception) through March 31, 2008. At March
31, 2008, we had $247,340 in cash (excluding Blideo’s cash of $1,127,388, over
which we exercise no control) compared with $3,352,414 (excluding Blideo’s cash
of $498,251) at September 30, 2007. Working capital at March 31, 2008, was
$460,329 (compared with $1,093,428 at September 30, 2007). However, our
continued existence is dependent upon our ability to achieve profitability and
to generate cash either from operations or financing.
Management’s
financial plan is as follows:
●
|
|
Market
our principal product, ESPRE Live, to customers wishing to build
applications using video and provide custom engineering services to those
customers as requested. In August 2007 we expanded our sales and marketing
staff to achieve this objective.
|
|
|
|
●
|
|
Engage
in partnerships with firms in key vertical markets. These partners will be
market experts and have well-defined application strategies that require
ESPRE Live to build them. Potential customers have been identified and we
are in active negotiations with them. No assurance can be given however
that we will be successful in entering into satisfactory commercial
arrangements with these or other customers.
|
|
|
|
●
|
|
Establish
independent sales agreements with representatives to sell our products and
services. We will actively pursue the engagement of additional independent
sales representatives that can distribute the Company’s existing video
products and services both domestically and internationally. Potential
partners have been identified and we are in active negotiations with them.
No assurance can be given however that we will be successful in entering
into satisfactory commercial arrangements with these or other
partners.
|
|
|
|
●
|
|
Obtain
additional debt and equity
financing.
|
For the
six months ended March 31, 2008 and March 31, 2007, we used net cash of
$5,798,117 and $823,540, respectively, for operations and realized net cash of
$3,430,932 and $1,242,957, respectively from financing activities, primarily
from the sale of our common stock and receipts of stock subscription
receivables. The achievement of profitability and the ability to generate cash
flows from operations will depend on, among other things, the acceptance of our
products and services, competition, and the deployment of video applications by
our customers. These matters by their nature contain uncertainties and our
financial statements do not include any adjustments that might occur from future
efforts. There is therefore substantial doubt about our ability to continue as a
going concern.
Our
current cash requirements are approximately $725,000 per month, principally for
salaries, professional services and office expenses. Included in these
expenditures is approximately $400,000 of development expense for the design and
deployment of Blideo’s application, ESPRE Live and other customers. As Blideo’s
application and ESPRE Live design and development near completion we project our
cash requirements per month to decrease and approach $500,000. Our
capital expenditures (depending on our hiring program), which principally
consist of computer equipment, test equipment and office requirements, are
approximately $15,000 per month. Based on our cash flow projections, we expect
that while our cash requirements will continue at their current rate for the
foreseeable future, we will be able to meet a portion of our cash requirements
from the proceeds of agreements for our services and the sale of our products.
We have been and expect to remain cash flow negative for calendar year 2008, and
will therefore be dependent on the proceeds of the sale of our equity
securities.
As with
any company engaged in the development of new technology, we have constantly
been challenged by the need to find continuing and new sources of capital to
meet our operating expenses. There can be no assurance that we will continue to
be successful in obtaining financing, or that we will, as we now anticipate, be
able to generate significant revenues from operations in calendar 2008, in which
event we may be unable to proceed with our business operations. Substantial
doubt exists about our ability to continue as a going concern if we do not
generate significant revenues from operations.
Critical
Accounting Policies and Recent Accounting Pronouncements
The
Company’s significant accounting policies are set forth in Note 1 of Notes to
Consolidated Financial Statements in the company’s report on Form 10/A dated
February 4, 2008. A discussion of those policies that require management
judgment and estimates and are most important in determining the Company’s
operating results and financial condition appears in Management’s Discussion and
Analysis of Financial Condition and Results of Operations contained in the
company’s report on Form 10/A dated February 4, 2008. The Financial Accounting
Standards Board issues, from time to time, new financial accounting standards,
staff positions and emerging issues task force consensus. See Note 2 of Notes to
Condensed Consolidated Financial Statements for a discussion of these
matters.
Forward-Looking
Statements
All
statements other than statements of historical fact included in this report,
including without limitation statements regarding the Company’s financial
position, business strategy, and the plans and objectives of the Company’s
management for future operations, are forward-looking statements. When used in
this report, words such as “anticipate,” “believe,” “estimate,” “expect,”
“intend” and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs of the Company’s management, as well as assumptions
made by and information currently available to the Company’s management. Actual
results could differ materially from those contemplated by the forward-looking
statements as a result of certain factors, including, but not limited to,
general business and economic conditions, including, results of integrating
acquired businesses into existing operations, competitive factors and pricing
pressures in the technology and development of video delivery over internet
protocol. Such statements reflect the views of the Company with
respect to future events and are subject to these and other risks, uncertainties
and assumptions relating to the operations, results of operations, growth
strategy and liquidity of the Company as previously disclosed in the Company’s
report on Form 10/A dated March 31, 2008. Readers are cautioned not to place
undue reliance on these forward-looking statements. The Company does not
undertake any obligation to release publicly any revisions to these
forward-looking statements to reflect future events or circumstances or to
reflect the occurrence of unanticipated events.
Management
does not believe that there is any material market risk exposure with respect to
derivative or other financial instruments that is required to be
disclosed
Under the
supervision and with the participation of our President and Chief Financial
Officer (“CFO”), the Company’s disclosure controls and procedures were evaluated
as of the end of the period covered by this report. Based on that evaluation,
the Company’s President and CFO concluded that the company’s disclosure controls
and procedures were effective.
During
the period covered by this report, there were no changes in the company’s
internal control over financial reporting which materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Limitations on the
Effectiveness of Controls
The
Company believes that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance
that all controls issues and instances of fraud, if any, within a company have
been detected. The Company’s disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives and the company’s
President and CFO have concluded that such controls and procedures are effective
at the “reasonable assurance” level.
PART
II — OTHER INFORMATION
None
Item
1A. Risk
Factors
There
have been no material changes from the risk factors disclosed in Item 1A to Part
I in the Company’s Report on Form 10/A dated March 31, 2008, for the year ended
September 30, 2007.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
In the
six months ended March 31, 2008, the Company issued 17,469,989 shares of
restricted common stock to accredited investors for cash with no demand or
piggy-back registration rights. These securities were sold pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 and Regulation D, Rule 506, promulgated thereunder.
\
Item
3. Defaults upon
Senior Securities
None
Item
4. Submission of
Matters to a Vote of Security Holders
None
Item
5. Other
Information
None
Item
6. Exhibits
Exhibit
31.1 — Section 302 Certificate of Chief Executive Officer
Exhibit
31.2 — Section 302 Certificate of Chief Financial Officer
Exhibit
32.1 — Section 906 Certificate of Chief Executive Officer
Exhibit
32.2 — Section 906 Certificate of Chief Financial Officer
SIGNATURE
Pursuant
to the requirements of the securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereto
duly authorized.
ESPRE SOLUTIONS,
INC.
Registrant
|
Date |
|
|
Date |
/s/ Peter
Leighton
|
May
14, 2008 |
|
/s/
Forres McGraw
|
May
14, 2008 |
Peter
Leighton
|
|
|
Forres
McGraw
|
|
President
|
|
|
Chief
Financial Officer
|
|