Espre Solutions Inc.
Table of Contents

 
 
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 December 31, 2007
     
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
(State or other jurisdiction of
incorporation or organization)
  68-0576847
(I.R.S. Employer
Identification No.)
     
5700 W. Plano Parkway, Suite 2600, Plano, Texas
(Address of principal executive offices)
  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):
Large accelerated filer o   Accelerated filer o   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.
 
 

 


 

FORM 10-Q
CONTENTS
                     
                PAGE
PART I — FINANCIAL INFORMATION (Unaudited)        
 
                   
 
  Item 1     Financial Statements        
 
                   
 
          Consolidated Balance Sheets at December 31, 2007 and September 30, 2007     3  
 
                   
 
          Consolidated Statements of Operations for the Three Months Ended December 31, 2007 and 2006     4  
 
                   
 
          Consolidated Statements of Cash Flows for the Three Months ended December 31, 2007 and 2006     5  
 
                   
 
          Consolidated Statement of Shareholders’ Equity for the Three Months ended December 31, 2007     6  
 
                   
 
          Selected Notes to Condensed Consolidated Financial Statements     7  
 
                   
 
  Item 2     Management’s Discussion and Analysis of Financial Condition and Results of Operations     11  
 
                   
 
  Item 3     Quantitative and Qualitative Disclosures about Market Risk     13  
 
                   
 
  Item 4     Controls and Procedures     13  
 
                   
PART II — OTHER INFORMATION        
 
                   
 
  Item 1     Legal Proceedings     14  
 
                   
 
  Item 1A     Risk Factors     14  
 
                   
 
  Item 2     Unregistered Sales of Equity Securities and Use of Proceeds     14  
 
                   
 
  Item 3     Defaults upon Senior Securities     14  
 
                   
 
  Item 4     Submission of Matters to a Vote of Security Holders     14  
 
                   
 
  Item 5     Other Information     14  
 
                   
 
  Item 6     Exhibits     14  
 
                   
Signature     15  
 EX-31.1 Section 302 Certification
 EX-31.2 Section 302 Certification
 EX-32.1 Section 906 Certification
 EX-32.2 Section 906 Certification

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PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Balance Sheets
                 
    December 31,
2007
    September 30,
2007
 
    (Unaudited)          
ASSETS
               
Current assets:
               
Cash
  $ 3,297,089     $ 3,850,666  
Accounts receivable, net
    1,808       251,050  
Prepaid expenses and advances
    113,418       34,564  
 
           
Total current assets
    3,412,315       4,136,280  
 
               
Equipment, net
    329,154       296,758  
Intangible assets, net
    72,526       73,191  
Loans to related parties
    69,432       69,432  
Other assets
    114,847       97,292  
 
           
Total assets
  $ 3,998,273     $ 4,672,953  
 
           
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Notes payable to related parties
  $ 25,000     $ 395,000  
Accounts payable and accrued expenses
    1,082,451       1,449,397  
 
           
Total current liabilities
    1,107,451       1,844,397  
 
           
 
               
Deferred revenue — related party
          1,000,000  
Minority interest
    1,413,741       348,093  
 
               
Stockholders’ equity
               
 
               
Common shares — $0.001 par value; authorized 500,000,000 shares; and 329,217,550 and 318,522,499 shares issued and outstanding , respectively
    329,217       318,523  
 
               
Additional paid-in capital
    75,458,285       72,383,030  
 
               
Stock subscription receivable
    (10,000 )     (190,000 )
 
               
Retained equity (deficit)
    (74,300,421 )     (71,031,090 )
 
           
Total stockholders’ equity
    1,477,081       1,480,463  
 
           
Total liabilities and stockholders’ equity (deficit)
  $ 3,998,273     $ 4,672,953  
 
           
The accompanying notes are an integral part of these consolidated financial statements

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ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Ended December 31
(Unaudited)
                 
    2007     2006  
Revenue:
               
Software licensing fees
  $ 1,000,000     $ 2,240,000  
Custom engineering fees
    44,842       233,250  
Other
    41,116       7,626  
 
           
Total revenue
    1,085,958       2,480,876  
 
               
Expenses:
               
General, administrative and selling expenses
    2,037,184       1,093,428  
Research and development
    565,754       84,600  
Stock based compensation
    1,996,741       1,084,074  
Stock and options for services
    105,209        
Amortization and depreciation
    31,762       23,347  
 
           
Total operating expenses
    4,736,650       2,285,449  
 
           
Loss from operations
    (3,650,690     195,427  
Interest expense
          (7,848 )
 
           
Net loss before minority interest
    (3,650,665 )     187,579  
 
               
Minority interest
    381,359        
 
           
Net income (loss)
  $ (3,269,331 )   $ 187,579  
 
           
 
               
Basic and diluted net loss per share
  $ (0.01 )   $ (0.00 )
 
           
 
               
Weighted average shares outstanding, basic and diluted
    324,093,718       205,085,889  
 
           
The accompanying notes are an integral part of these consolidated financial statements

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ESPRE SOLUTIONS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Three Months Ended December 31
(Unaudited)
                 
    2007     2006  
Cash flows from operating activities:
               
Net income (loss) for period
  $ (3,269,331 )   $ 187,579  
 
               
Adjustments to reconcile net loss to cash used in operating activities:
               
Stock and options issued for services
    105,209        
Stock based compensation
    1,996,741       1,084,074  
Amortization and depreciation
    31,762       23,347  
Minority interest
    (381,359 )      
Changes in assets and liabilities:
               
Deferred revenue
    (1,000,000 )     150,000  
Accounts receivable
    249,242       (2,048,220 )
Prepaid expenses
    (78,854 )     928  
Other assets
    (17,555 )     4,400  
Accounts payable and accrued expenses
    (366,947 )     443,962  
 
           
Total cash used in operating activities
    (2,731,092 )     (153,930 )
 
           
 
               
Net cash used in investing activities:
               
Purchase of equipment
    (51,922 )     1,411  
Purchase of intangible assets
    (11,571 )     (35,991 )
 
           
Net cash used in investing activities
    (63,493 )     (34,580 )
 
           
 
               
Cash flows provided by financing activities:
               
Payments on notes payable to related parties
    (100,000 )     (97,985 )
Proceeds from sale of stock
    714,000        
Minority capital raised
    1,447,008        
Receipts of stock subscriptions receivable
    180,000        
 
           
Net cash provided (used in) by financing activities
    2,241,008       (97,985 )
 
           
 
               
Net increase in cash
    (553,577 )     (286,495 )
 
               
Cash, beginning of period
    3,850,666       291,426  
 
           
 
               
Cash, end of period
  $ 3,297,089     $ 4,931  
 
           
 
               
Supplemental disclosures of cash flow information:
               
 
               
Cash paid for interest
  $     $ 7,848  
 
           
 
               
Non-cash transactions:
               
 
               
Issuance of common stock to retire debt
  $ 270,000     $  
 
           
The accompanying notes are an integral part of these consolidated financial statements

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ESPRE SOLUTIONS INC. AND SUBSIDARY
Consolidated Statement of Stockholders’ Equity
(Unaudited)
                                                 
    Common Stock              
                    Additional                    
    Number of             Paid-In     Subscriptions              
    Shares     Par Value     Capital     Receivable     Retained Deficit     Total  
Balance, October 1, 2007
    318,522,499     $ 318,522     $ 72,383,030     $ (190,000 )   $ (71,031,090 )   $ 1,480,462  
Private Placements
    8,608,334       8,608       705,392       180,000             894,000  
Stock Based Compensation
                1,996,741                   1,996,741  
Issuance of common stock to guarantee note payable
    1,500,000       1,500       268,500                   270,000  
Stock for services
    586,717       587       104,622                   105,209  
Net Loss
                            (3,269,331 )     (3,269,331 )
 
                                   
Balance, December 31, 2007
    329,217,550     $ 329,217     $ 75,458,285     $ (10,000 )   $ (74,300,421 )   $ 1,477,081  
 
                                   
The accompanying notes are an integral part of these condensed 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 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.

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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
 
    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.
 
    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.

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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.

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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%

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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.

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    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

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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.

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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

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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

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