Espre Solutions Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2007
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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)
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NEVADA
(State or other jurisdiction of
incorporation or organization)
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68-0576847
(I.R.S. Employer
Identification No.) |
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5700 W. Plano Parkway, Suite 2600, Plano, Texas
(Address of principal executive offices)
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75093
(Zip Code) |
(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):
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer x |
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. 332,717,549 shares of Common Stock as of January 31, 2008.
PART I
— FINANCIAL INFORMATION
Item 1
— Financial Statements
ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Balance Sheets
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December 31,
2007 |
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September 30,
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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$ |
3,297,089 |
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$ |
3,850,666 |
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Accounts receivable, net |
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1,808 |
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251,050 |
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Prepaid expenses and advances |
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113,418 |
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34,564 |
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Total current assets |
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3,412,315 |
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4,136,280 |
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Equipment, net |
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329,154 |
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296,758 |
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Intangible assets, net |
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72,526 |
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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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114,847 |
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97,292 |
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Total assets |
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$ |
3,998,273 |
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$ |
4,672,953 |
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LIABILITIES AND STOCKHOLDERS’ 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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$ |
395,000 |
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Accounts payable and accrued expenses |
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1,082,451 |
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1,449,397 |
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Total current liabilities |
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1,107,451 |
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1,844,397 |
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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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1,413,741 |
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348,093 |
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Stockholders’ equity |
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Common shares — $0.001 par value; authorized
500,000,000 shares; and 329,217,550 and
318,522,499 shares issued
and outstanding , respectively |
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329,217 |
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318,523 |
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Additional paid-in capital |
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75,458,285 |
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72,383,030 |
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Stock subscription receivable |
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(10,000 |
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(190,000 |
) |
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Retained equity (deficit) |
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(74,300,421 |
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(71,031,090 |
) |
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Total stockholders’ equity |
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1,477,081 |
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1,480,463 |
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Total liabilities and stockholders’ equity (deficit) |
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$ |
3,998,273 |
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$ |
4,672,953 |
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The accompanying notes are an integral part of these consolidated financial statements
3
ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Ended December 31
(Unaudited)
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2007 |
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2006 |
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Revenue: |
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Software licensing fees |
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$ |
1,000,000 |
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$ |
2,240,000 |
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Custom engineering fees |
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44,842 |
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233,250 |
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Other |
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41,116 |
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7,626 |
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Total revenue |
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1,085,958 |
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2,480,876 |
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Expenses: |
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General, administrative and selling expenses |
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2,037,184 |
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1,093,428 |
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Research and development |
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565,754 |
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84,600 |
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Stock based compensation |
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1,996,741 |
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1,084,074 |
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Stock and options for services |
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105,209 |
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Amortization and depreciation |
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31,762 |
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23,347 |
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Total operating expenses |
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4,736,650 |
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2,285,449 |
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Loss from operations |
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(3,650,690 |
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195,427 |
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Interest expense |
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— |
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(7,848 |
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Net loss before minority interest |
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(3,650,665 |
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187,579 |
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Minority interest |
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381,359 |
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— |
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Net income (loss) |
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$ |
(3,269,331 |
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$ |
187,579 |
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Basic and diluted net loss per share |
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$ |
(0.01 |
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$ |
(0.00 |
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Weighted average shares outstanding, basic and
diluted |
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324,093,718 |
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205,085,889 |
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The accompanying notes are an integral part of these consolidated financial statements
4
ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months Ended December 31
(Unaudited)
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2007 |
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2006 |
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Cash flows from operating activities: |
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Net income (loss) for period |
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$ |
(3,269,331 |
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$ |
187,579 |
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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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105,209 |
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— |
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Stock based compensation |
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1,996,741 |
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1,084,074 |
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Amortization and depreciation |
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31,762 |
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23,347 |
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Minority interest |
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(381,359 |
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— |
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Changes in assets and liabilities: |
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Deferred revenue |
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(1,000,000 |
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150,000 |
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Accounts receivable |
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249,242 |
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(2,048,220 |
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Prepaid expenses |
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(78,854 |
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928 |
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Other assets |
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(17,555 |
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4,400 |
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Accounts payable and accrued expenses |
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(366,947 |
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443,962 |
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Total cash used in operating activities |
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(2,731,092 |
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(153,930 |
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Net cash used in investing activities: |
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Purchase of equipment |
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(51,922 |
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1,411 |
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Purchase of intangible assets |
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(11,571 |
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(35,991 |
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Net cash used in investing activities |
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(63,493 |
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(34,580 |
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Cash flows provided by financing activities: |
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Payments on notes payable to related parties |
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(100,000 |
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(97,985 |
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Proceeds from sale of stock |
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714,000 |
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— |
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Minority capital raised |
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1,447,008 |
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— |
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Receipts of stock subscriptions receivable |
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180,000 |
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— |
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Net cash provided (used in) by financing activities |
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2,241,008 |
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(97,985 |
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Net increase in cash |
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(553,577 |
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(286,495 |
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Cash, beginning of period |
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3,850,666 |
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291,426 |
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Cash, end of period |
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$ |
3,297,089 |
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$ |
4,931 |
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Supplemental
disclosures of cash flow information: |
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Cash paid for interest |
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$ |
— |
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$ |
7,848 |
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Non-cash
transactions: |
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Issuance of common stock to retire debt |
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$ |
270,000 |
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$ |
— |
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The accompanying notes are an integral part of these consolidated financial statements
5
ESPRE SOLUTIONS INC. AND SUBSIDARY
Consolidated Statement of Stockholders’ Equity
(Unaudited)
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Common Stock |
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Additional |
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Number of |
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Paid-In |
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Subscriptions |
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Shares |
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Par Value |
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Capital |
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Receivable |
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Retained Deficit |
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Total |
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Balance, October 1, 2007 |
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318,522,499 |
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$ |
318,522 |
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$ |
72,383,030 |
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$ |
(190,000 |
) |
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$ |
(71,031,090 |
) |
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$ |
1,480,462 |
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Private
Placements |
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8,608,334 |
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8,608 |
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705,392 |
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180,000 |
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— |
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|
894,000 |
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Stock
Based Compensation |
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— |
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— |
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1,996,741 |
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— |
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— |
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1,996,741 |
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Issuance of
common stock to guarantee note payable |
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1,500,000 |
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1,500 |
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268,500 |
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— |
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— |
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270,000 |
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Stock for
services |
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586,717 |
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587 |
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104,622 |
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— |
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— |
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105,209 |
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Net Loss |
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— |
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— |
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— |
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— |
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(3,269,331 |
) |
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(3,269,331 |
) |
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Balance, December 31, 2007 |
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329,217,550 |
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$ |
329,217 |
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$ |
75,458,285 |
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$ |
(10,000 |
) |
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$ |
(74,300,421 |
) |
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$ |
1,477,081 |
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The accompanying notes are an integral part of these condensed financial statements
6
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 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.
Recent pronouncements
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” which
provides guidance on the accounting for and reporting of accounting changes and correction of
errors. This statement changes the requirements for the accounting for and reporting of a change in
accounting principle and applies to all voluntary changes in accounting principle. It also applies
to changes required by an accounting pronouncement in the unusual instance that the pronouncement
does not include specific transition provisions. This statement is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of
this standard is not expected to have a material effect on the Company’s results of operations or
financial position.
In July 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes- an interpretation of FASB Statement No. 109” (“FIN 48”), which is a change in
accounting for income taxes. FIN 48 specifies how tax benefits for uncertain tax positions are to
be recognized, measured, and derecognized in financial statements; requires certain disclosures of
uncertain tax matters; specifies how reserves for uncertain tax positions should be classified on
the balance sheet; and provides transition and interim-period guidance, among other provisions. FIN
48 was effective for fiscal years beginning after December 15, 2006 and as a result, is effective
for the Company in the first quarter of fiscal 2008. The Company is in the process of evaluating
the impact of adoption of FIN 48 will have on the consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”) which
defines fair value, establishes a framework for measuring fair value and expands disclosure about
fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15,
2007. The Company will adopt SFAS No. 157 on October 1, 2009, and is currently evaluating the
impact of such adoption on its financial statements.
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.
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America 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 revenues and
expenses during the reporting period. Actual results could differ from those estimates.
7
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:
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• |
|
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. |
| |
| |
• |
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Launch Blideo as an application service provider |
| |
| |
• |
|
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. |
| |
| |
• |
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Obtain additional debt and equity financing. |
In the period from inception to December 31, 2007 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. 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, the Company provides office accommodation and accounting
services to Blideo for $2,000 and $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.
8
5. NOTES PAYABLE TO RELATED PARTIES
Notes payable —consisted of the following:
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
September 30, |
|
| |
|
2007 |
|
|
2007 |
|
Contingent
repurchase agreement to Video Software Partners,
secured by certain software
products, payable on February 1,
2008, interest imputed at 10% |
|
$ |
— |
|
|
$ |
370,000 |
|
Note payable
to a related individual, at 10%, due November
25, 2004, extended year to year,
unsecured |
|
|
25,000 |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
$ |
25,000 |
|
|
$ |
395,000 |
|
|
|
|
|
|
|
|
6. STOCKHOLDERS’ EQUITY
Common stock
Payments for Services
In the three months ended December 31, 2007 the Company issued a total of 586,717 shares of
common stock for consulting, advisory and other services recorded at market value of $0.18 per
share or $105,209.
Capital Raises
In the
three months ended December 31, 2007 the Company issued 8,608,334 restricted common stock to
accredited investors for cash with no demand or piggy-back
registration rights. The company paid fees of $7,100 in connection
with the sale of these common shares.
7. STOCK OPTIONS
Transactions and other information relating to options are summarized as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding Stock Options |
|
|
Exercisable Stock Options |
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
| |
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
| |
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
| |
|
Shares |
|
|
Price |
|
|
Shares |
|
|
Price |
|
Outstanding at October 1, 2007 |
|
|
66,814,634 |
|
|
$ |
0.10 |
|
|
|
18,986,301 |
|
|
$ |
0.12 |
|
Granted during period |
|
|
7,200,000 |
|
|
$ |
0.09 |
|
|
|
3,014,423 |
|
|
$ |
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
74,014,634 |
|
|
$ |
0.10 |
|
|
|
22,000,724 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. 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 |
|
|
44,019,716 |
|
|
$ |
0.10 |
|
|
|
44,019,716 |
|
|
$ |
0.10 |
|
Granted during period |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
44,019,716 |
|
|
$ |
0.10 |
|
|
|
44,019,716 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All warrants have a term of five years.
9
9. CONCENTRATION OF CREDIT RISK AND DEPENDENCY
For the
three months ended December 31, 2007 the Company had one sale to one customer who individually
accounted for more 96% of the total gross sales for that period. For the three months ended
December 31, 2006, 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 three months ended December 31, 2007 the Company purchased services one supplier who
individually accounted for 82% 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.
10. 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 |
|
Net operating losses |
|
$ |
19,624,000 |
|
|
$ |
19,239,000 |
|
In- process research and development |
|
|
1,329,000 |
|
|
|
1,528,000 |
|
Stock based compensation |
|
|
587,000 |
|
|
|
1,386,000 |
|
Transition adjustment |
|
|
217,000 |
|
|
|
217,000 |
|
|
|
|
|
|
|
|
|
|
|
21,757,000 |
|
|
|
22,370,000 |
|
Less valuation |
|
|
(21,757,000 |
) |
|
|
(22,370,000 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
11. SUBSEQUENT EVENTS
In the period from January 1, 2008 to January 31, 2008 Blideo raised $250,000. As of December 31,
2008 the Company’s interest in Blideo was 30.44%, Leighton’s is 23.42% and Ianace’s is 3.09%
10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Results of Operations for the Three Months Ended December 31, 2007
During the three months ended December 31, 2007, we generated revenues of $1,085,959
(compared with $2,480,876 in the same period last year or a decrease of 56%). The major components
of revenue were:
| |
• |
|
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. |
| |
| |
• |
|
$44,000 for the design of our customers’ applications, including a major US carrier. We
expect continued engineering revenues if and when these customers successfully deploy their
product and/or service offerings. |
For the
three months ended December 31, 2007 our total operating
expenses were $4,736,623 (compared
to $2,285,449 in the same period last year). Product development and consulting expenses amounted
to $595,754 (compared to $84,600 in last year or an increase of 250%).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 three months ended December 31, 2007 our general, administrative and selling
expenses were $2,037,159 (compared to $2,093,428 last 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 and we anticipate this higher expense level to continue into
through 2008. 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 $1,996,741
(compared to $1,084,074 last year).
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) to December 31, 2007. As at December 31, 2007, we had $1,758,364 in cash
(excluding Blideo’s cash of $1,538,725, over which we exercise no control) compared with $3,352,414
at September 30, 2007. Working capital at December 31, 2007, was $2,304,864 (compared with
$2,291,883 at September 30, 2007) and we are not in default of any debt. 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. |
11
| |
• |
|
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 three months ended December 31, 2007 we used net cash of $2,731,068 ($153,930 in the same
period last year) for operations and realized net cash of $2,241,008 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 $850,000 per month, principally for salaries,
professional services and office expenses. Included in these expenditures is approximately $450,000
of development expense for the design and deployment of Blideo and other customers. 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. However, we were cash flow negative for
the balance of calendar 2007, expect to remain cash flow negative for calendar year 2008, and will
therefore be dependent on the proceeds of the private 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 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 are discussed 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, business
and economic conditions, including, but not limited to, the housing market, results of integrating
acquired businesses into existing operations, competitive factors and pricing pressures for resin
and steel, and capacity and supply constraints. Such statements reflect the views of the company
with respect to future events and
12
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 February 4, 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.
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
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
ITEM 4. Controls and Procedures
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.
13
PART II — OTHER INFORMATION
| Item 1 |
|
Legal Proceedings |
| |
| |
|
None |
| Item 1A |
|
Risk Factors |
| |
| |
|
None |
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 February 4, 2008 for the year ended September 30, 2007
| Item 2 |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
In the
three months ended December 31, 2007, the Company issued
8,605,334 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 |
14
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 |
| /s/ Peter Leighton
Peter Leighton |
|
President
|
|
February 19, 2008 |
| |
|
|
|
|
| /s/ Forres McGraw
Forres McGraw |
|
Chief Financial Officer
|
|
February 19, 2008 |
15